Mickey Mouse and Reck-It-Ralph formed a partnership investing $250,000 and $80,0
ID: 2447068 • Letter: M
Question
Mickey Mouse and Reck-It-Ralph formed a partnership investing $250,000 and $80,000, respectively. During the year, net income was $375,000 under each of the following assumptions: (a) no agreement concerning division of net income; (b) salary allowances of $50,000 and $40,000, respectively, and the balance divided equally; (c) allowance of interest at the rate of 5% on original investments, salary allowances of $50,000 and $40,000, respectively, and the remainder divided equally. When dividing the partnership income, the amount of net income for Mickey Mouse according to assumption (c) would be:
Explanation / Answer
Under Assumption C $ $ Net Income (Total) 375000 Interest on Original Investments Mickey Mouse -12500 Reck-It-Ralph -4000 -16500 358500 Salary Allowances Mickey Mouse -50000 Reck-It-Ralph -40000 -90000 Profits available for distribution 268500 Profit share of Mickey Mouse 134250 Reck-It-Ralph 134250 Net Income of Mickey Mouse = Profit Share + Interest + Salary Allowance = 196750 $