Question

12-3

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $315,000 and $105,000, respectively.

Determine their participation in the year's net income of $378,000 under each of the following independent assumptions:

(A) No agreement concerning division of net income.

(B) Divided in the ratio of original capital investment.

(C) Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3.

(D) Salary allowances of $66,000 and $90,000, respectively, and the balance divided equally.

(E) Allowance of interest at the rate of 15% on original investments, salary allowances of $66,000 and $90,000, respectively, and the remainder divided equally.

Hawes Albright

a _____ ______

b _____ ______

c _____ ______

d ______ _______

e ______ _______

Answer 1

A) No agreement concerning division of net income.

Then Will Share Equally

Total	Tyler Hawes	Piper Albright
	50%	50%
378,000	189,000	189,000

B)Divided in the ratio of original capital investment.

Find out the ratio then divide their share of net income

Total	Tyler Hawes	Piper Albright
Ratio (Total=(315+105)=420,000)	(315,000/420,000)=75%	(105,000/420,000) =25%
378,000	378,000*75% =283,500	378,000*25% =94,500

C) Interest at 15% allowed on original investments and the remainder divided in the ratio of 2:3.

	Total	Tyler Hawes	Piper Albright
Investment		315,000	105,000
INTEREST @15%		(315,000*0.15)=47,250	(105,000*0.15)=15,750
Remaining (378,000-47,250-15,750) =315,000
Ratio (2:3) (2+3)=5		315,000*(2/5) =126,000	315,000*(3/5) =189,000
Total Share of Income		(47250+126,000) =173,250	(15,750+189,000)=204,750

D) Salary allowances of $66,000 and $90,000, respectively, and the balance divided equally.

Total	Tyler Hawes	Piper Albright
Salary	66,000	90,000
Remaining(378,000-66,000-90,000) =222,000
Share 50:50	111,000	111,000
Total share of Income (inc salary)	177,000	201,000

E)Allowance of interest at 15% on original investments, salary allowances of $66,000 and $90,000, respectively, and the remainder divided equally.

	Total	Tyler Hawes	Piper Albright
Interest (TableC)		47,250	15,750
Salary		66,000	90,000
	Sum of Int+Salary	113,250	105,750
Remaining(378,000-113,250-105,750)=159,000
Ratio 50:50 (159,000/2)		79,500	79,500
Total Share of Income		(113,250+79,500)=192,750	(105,750+79,500)=185,250