Question

1. Dividing Partnership Income

   Tyler Hawes and Piper Albright formed a partnership, investing $60,000 and $180,000, respectively.

   Determine their participation in the year's net income of $280,000 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 2:3.
   4. Salary allowances of $40,000 and $46,000, respectively, and the balance divided equally.
   5. Allowance of interest at the rate of 6% on original investments, salary allowances of $40,000 and $46,000, respectively, and the remainder divided equally.

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

Answer 1

Solution:

Division of Income		$280,000
S. No	Particulars	Hawes	Albright
a	No agreement concerning division of net income (1:1)	$140,000.00	$140,000.00
b	Divided in the ratio of original capital investment (1:3)	$70,000.00	$210,000.00
c	Interest of 6% on original investment and remainder in ratio 2:3
	Interest Amount (Opening Capital * 6%) Hawes (60000*6%) Albright (180000*6%)	$3,600.00	$10,800.00
	Distribution of remaining income (2:3) Remainder income= ($280,000 - $3,600 - $10,800) = 265,600	$106,240.00	$159,360.00
	Total Share of Income (Interest + Remaining Distribution)	$109,840	$170,160
d	Salary allowance and balance divided equally
	Salary allowances to partner	$40,000.00	$46,000.00
	Distribution of remaining income (1:1) Remainder income= ($280,000 - $40,000 - $46,000) = 194,000	$97,000.00	$97,000.00
	Total Share of Income	$137,000	$143,000
e	Interest of 6% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 6%) Hawes (60000*6%) Albright (180000*6%)	$3,600.00	$10,800.00
	Salary Allowance	$40,000.00	$46,000.00
	Distribution of remaining income (1:1)	$89,800.00	$89,800.00
	Total Share of Income (Interest + Salary + Remaining Distribution)	$133,400.00	$146,600.00