Question

Dividing Partnership Net Income

Required:

Steve Jack and Chelsy Poodle formed a partnership, dividing income as follows:

Annual salary allowance to Jack of $176,400.

Interest of 5% on each partner's capital balance on January 1.

Any remaining net income divided to Jack and Poodle, 1:2.

Jack and Poodle had $77,600 and $82,520, respectively, in their January 1 capital balances. Net income for the year was $315,000. How much is distributed to Jack and Poodle?

Note: Compute partnership share to two decimal places. Round final answers to the nearest whole dollar.

Jack: $______

Poodle: $______

Answer 1

Solution:

Given data

Annual salary allowance to jack = $176,400

Interest on each partner's capital balance on january 1 = 5%

Partnership ratio for jack and poodle = 1:2  

Jack capital balance on january 1 = $77,600

Poodle capital bal;ance on january 1 = $82,520

Net income for the year = $315,000 .

Now, we calculate

  Balance in net income after salary allowance and interest =  

= $315,000 - $176,400 - (5% * ($77,600 + $82520))

= $315,000 - $176,400 - (5% * $160,120)

= $315,000 - $176,400 - $8,006

= $130,594  

Now, now we need to find the partnership share

Jack's share: = 1/3 * $130,594

= $ 43,531.33

(+) salary allowance = $176,400

(+) 5% interest ($77,600 * 5%) = $ 3,880

  

= ($223,811.33)

Poodle's share: = 2/3 * $130,594

= $87,062.66

(+) 5% interest ($82,520 * 5%) = $4,126

= ($91,188.66)

Jack's  share = $223,811.33 Poodle  share = $ 91,188.66