Question

1. Tyler Hawes and Piper Albright formed a partnership, investing $217,500 and $72,500, respectively.

   Determine their participation in the year's net income of $106,000 under each of the following independent assumptions:

   1. No agreement concerning division of net income.
   2. Divided in the ratio of original capital investment.
   3. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:2.
   4. Salary allowances of $38,000 and $49,000, respectively, and the balance divided equally.
   5. Allowance of interest at the rate of 6% on original investments, salary allowances of $38,000 and $49,000, respectively, and the remainder divided equally.

   	Hawes	Albright
   (a)	$	$
   (b)	$	$
   (c)	$	$
   (d)	$	$
   (e)	$	$

Answer 1

Solution:

Division of Income		$106,000
S. No	Particulars	Hawes	Albright
a	No agreement concerning division of net income (1:1)	$53,000.00	$53,000.00
b	Divided in the ratio of original capital investment (3:1)	$79,500.00	$26,500.00
c	Interest of 6% on original investment and remainder in ratio 2:3
	Interest Amount (Opening Capital * 6%) Hawes (217500*6%) Albright (72500*6%)	$13,050.00	$4,350.00
	Distribution of remaining income (2:3) Remainder income= ($106,000 - $13,050 - $4,350) = 88,600	$35,440.00	$53,160.00
	Total Share of Income (Interest + Remaining Distribution)	$48,490	$57,510
d	Salary allowance and balance divided equally
	Salary allowances to partner	$38,000.00	$49,000.00
	Distribution of remaining income (1:1) Remainder income= ($106,000 - $38,000 - $49,000) = 19,000	$9,500.00	$9,500.00
	Total Share of Income	$47,500	$58,500
e	Interest of 6% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 6%) Hawes (217500*6%) Albright (72500*6%)	$13,050.00	$4,350.00
	Salary Allowance	$38,000.00	$49,000.00
	Distribution of remaining income (1:1)	$800.00	$800.00
	Total Share of Income (Interest + Salary + Remaining Distribution)	$51,850.00	$54,150.00