Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership,
ID: 2519695 • Letter: D
Question
Dividing Partnership Income
Tyler Hawes and Piper Albright formed a partnership, investing $200,000 and $100,000, respectively.
Determine their participation in the year's net income of $348,000 under each of the following independent assumptions:
No agreement concerning division of net income.
Divided in the ratio of original capital investment.
Interest at the rate of 12% allowed on original investments and the remainder divided in the ratio of 2:3.
Salary allowances of $48,000 and $66,000, respectively, and the balance divided equally.
Allowance of interest at the rate of 12% on original investments, salary allowances of $48,000 and $66,000, respectively, and the remainder divided equally.
Hawes Albright (a) $ $ (b) $ $ (c) $ $ (d) $ $ (e) $ $Explanation / Answer
SOLUTION
(A) No agreement concerning division of net income.
Net Income = $348,000
Hawes - $348,000 / 2 = $174,000
Albright - $348,000 / 2 = $174,000
(B) Divided in the ratio of original capital investment.
Net Income = $348,000
Ratio = 2:1
Hawes - $348,000 * 2/3 = $232,000
Albright - $348,000 * 1/3 = $116,000
(C) Interest at the rate of 12% allowed on original investments and the remainder divided in the ratio of 2:3.
Total interest = 24,000 + 12,000 = 36,000
Remainder = 348,000 - 36,000 = 312,000
(D) Salary allowances of $48,000 and $66,000, respectively, and the balance divided equally
Salary= 48,000 + 66,000 = 114,000
Remainder = 348,000 - 114,000 = 234,000
(E) Allowance of interest at the rate of 12% on original investments, salary allowances of $48,000 and $66,000, respectively, and the remainder divided equally.
Total interest = 24,000 + 12,000 = 36,000
Salary = 48,000 + 66,000 = 114,000
Remainder = 348,000 - 36,000 - 114,000 = 198,000
Hawes ($) Albright ($) Interest (12%*200,000), (12%*100,000) 24,000 12,000 Remainder in ratio 2:3 (312,000*2/5) (312,000*3/5) 124,800 187,200 Total 148,800 199,200