Cosmo and Ellis began a partnership by investing $40,000 and $51,000, respective
ID: 2379339 • Letter: C
Question
Cosmo and Ellis began a partnership by investing $40,000 and $51,000, respectively. During its first year, the partnership earned $185,000. Prepare calculations showing how the $185,000 income should be allocated to the partners under each of the following three separate plans for sharing income and loss:(1) The partners failed to agree on a method to share income.
(2) The partners agreed to share income and loss in proportion to their initial investments
(3) The partners agreed to share income by granting a $52,500 per year salary allowance to Cosmo, a $42,500 per year salary allowance to Ellis, 10% interest on their initial capital investments, and the remaining balance shared equally.
Explanation / Answer
(1) The partners failed to agree on a method to share income.
IF they have no agreement, they will share it equally. They will each get 185,000/2 = $92,500.
(2) The partners agreed to share income and loss in proportion to their initial investments
Total investment =40,000 + 51,000 = $91,000
Cosmo gets: (40,000/91,000)*185,000 = $81,318.68
Ellis gets: (51,000/91,000)*185,000 = $103,681.32
(3) The partners agreed to share income by granting a $52,500 per year salary allowance to Cosmo, a $42,500 per year salary allowance to Ellis, 10% interest on their initial capital investments, and the remaining balance shared equally.
Salary
10% interest
Remainder
Total
Cosmo
52,500
4,000
40,450
96,950
Ellis
42,500
5,100
40,450
88,050
Total
95,000
9,100
80,900
185,000
Salary
10% interest
Remainder
Total
Cosmo
52,500
4,000
40,450
96,950
Ellis
42,500
5,100
40,450
88,050
Total
95,000
9,100
80,900
185,000