Part 1 (10 points): You and your best friend, Walters, operate an ice cream shop
ID: 2343808 • Letter: P
Question
Part 1 (10 points):You and your best friend, Walters, operate an ice cream shop at a local mall. You agree to divide the profit and losses based on the capital investments made by each of you. Calculate the share of profit and loss to each partner.
Your investment = $25,000
Walter s investment = $50,000
Net income = $62,000
Answer the following questions.
What is the percentage of investment by each partner?
What is your share of the profit?
If there is a loss, which partner will bear the larger share of the loss?
Instructions:
Highlight the percentage of each partner s investment to total investment.
Highlight the division of net income.
Highlight the partner who will lose more.
Part 2 (15 points):
Listed below are net incomes and the methods of dividing net income or net loss for several partnerships. Calculate the share of net income for each partner by using the method of distribution.
Net income Method of dividing partnership earnings
$40,000 Equally, 2 partners
$84,000 Fractional share 2/3 and 1/3
$24,000 Fractional share 3:1
$60,000 Fractional share 2/5, 2/5, and 1/5
$93,000 Equally, 3 partners
Instructions:
Highlight the working notes for distribution of net income.
Apply the correct ratio and given amount.
Part 3 (7 points):
Mary and Nancy started a partnership, Fine Fit Inc., and share losses based on capital basis. Mary contributed a capital balance of $35,000 whereas Nancy s capital contribution was $45,000. Their partnership agreement states that both partners have to share the net profit or losses based on their capital. The first year loss of Fine Fit Inc. is $28,500.
Instructions:
Prepare a journal entry and distribute the net losses between partners.
Part 4 (5 points):
The following ratios are used by several partnerships to divide the net income or net loss.
3:1
5:3:1
3:2:2:1
2:1:1
2:1
Instruction:
Determine the fractions to calculate each partner s share of net income or net loss.
Explanation / Answer
PART 1 My share- 33.33%, Walter's share- 66.67% Division of net income: My share 33.33% (20666.67, Walter's share 66.67 % 41333.33) If there is a loss, Walter bears the bigger share. PART 2 $40,000 Equally, 2 partners: Partner 1's share is 50% or $20000. Partner 2's share is 50% or $20000 $84,000 Fractional share 2/3 and 1/3: Partner 1's share is 1/3 or 33.33% or $28000. Partner 2's share is 2/3 or 66.67% or $56000 $24,000 Fractional share 3:1 :Partner 1's share is 3/4 or 75% or $18000. Partner 2's share is 1/4 or 25% or $6000 $60,000 Fractional share 2/5, 2/5, and 1/5: Partner 1's share is 2/5 or 40% or $24000,Partner 2's share is 2/5 or 40% or $24000, Partner 3's share is 1/5 or 20% or $12000 $93,000 Equally, 3 partners: Partner 1's share is 1/3 or 33.33% or $31000,Partner 2's share is 1/3 or 33.33% or $31000, Partner 3's share is1/3 or 33.33% or $31000 PART 3 Mary's share of loss is $12468.75 Nancy's share of loss is $ 15531.25 PART 4 3:1 Partner 1's share 3/4, Partner 2's share 1/4 5:3:1 Partner 1's share 5/9, Partner 2's share 1/3, Partner 3's 1/9 3:2:2:1 Partner 1's share 3/8, Partner 2's share 1/4, Partner 3's 1/4, Partner 4's 1/9 2:1:1Partner 1's share 1/2, Partner 2's share 1/4, Partner 3's 1/4 2:1 Partner 1's share 2/3, Partner 2's share 1/3