Accounting and Financial Reporting II A partnership comprised of two partners ha
ID: 2558979 • Letter: A
Question
Accounting and Financial Reporting II
A partnership comprised of two partners has the following information regarding income and loss allocation:
Partner #1 Partner #2
Initial investment 30,000 40,000
Salary allowance 25,000 20,000
Interest allowance in initial investment 10% 10%
Remainder 50% 50%
In its first year of business, the partnership generates an income of 80,000. Prepare a schedule showing how much income should be allocated to each partner.
Explanation / Answer
Prepare a schedule showing how much income should be allocated to each partner.
Partner #1 Partner #2 Total Salary allowance 25000 20000 45000 interest Partner 1 (30000*10%) 3000 Partner 2 (40000*10%) 4000 Total interest 7000 Total salary and interest 28000 24000 52000 Remaining income (80000-52000) = 28000 Partner #1 (28000*50%) 14000 Partner #2 (28000*50%) 14000 Total remainder 28000 Total division 42000 38000 80000