Dividing Partnership Income Tyler Hawes and Pliper Albright formed a partnership
ID: 2564484 • Letter: D
Question
Dividing Partnership Income Tyler Hawes and Pliper Albright formed a partnership, investing $261 Determine their participation in the year's net income of $258,000 under each of the following independent assumptions: a. No agreement concerning division of net income. b. Divided in the ratio of original capital investment. interest at the rate of 18% allowed on original investments and the remainder divided in the ratio of 2:3. d. Salary allowances of $55,000 and $77,000, respectively, and the balance divided equally. e Allowance of interest at the rate of 18% on original investments, salary allowances of $55,000 and $77,000 respectively, and the remainder divided equally. Hawes Albright Previous Next 1240 PMExplanation / Answer
Answer a) if a firm is not having any written agreement or a partnership deed or if partnership deed is there but it is silent on Profit sharing Ratio, Profits and losses would be shared equally among partners. Accordingly in our case, net income of $258,000 would be divided equally amongst the two partners Tyler Hawes and Piper Albright in the follwing manner - $258,000 * 50% = $129,000 each
Answer b) Divided in the ratio of original capital investment -
Original capital investment - Tyler Hawes = $261,000 and Piper Albright = $87,000
Total Investment = $261,000 + $ 87,000 = $348,000
Profits in the ration of original capital investment for Tyler Hawes = $258,000 x $261,000/$348000 = $193,500
Profits in the ration of original capital investment for Piper Albright = $258,000 x $87,000/$348,000 = $64,500
Answer c) Calculation of interest @ 18% on original investment
for Tyler Hawes = $261,000 * 18% = $46,980
for Piper Albright = $87,000 = 18% = $15,660
total interest on capital = $62, 640
Balance profits remaining post payment of interest on capital = $258,000 - $62,640 = $195,360
this profit is now to be distribued in the ration of 2:3 amongst the partners
for Tyler Hawes = 2/5 * 195,360 = $78,144
for Piper Albright = 3/5 * 195,360 = $117,216
Participation in Net income of $258,000 = Tyler Hawes - $46,980 + $78,144 = $125,124
Piper Albright - $15,660 + $117,216 = $132,876
Answer d) Salary payment to Tyler Hawes = $55,00
Salary payment to Piper Albright = $77,000
Total Salary payment made = $ 132,000
Net income availble for distribution post salary payment = $258,000 - $132,000 = $126,000
Now balance ($126,000) is to be divided equally amongst partners :
for Tyler Hawes = $126,000 * 50% = $63,000
for Piper Albright = $126,000 * 50% = $63,000
Participation in Net income of $258,000 = Tyler Hawes - $55,000 + $63,000 = $118,000 Piper Albright - $77,000 + $63,000 = $140,000
Answer e) Calculation of interest @ 18% on original investment
for Tyler Hawes = $261,000 * 18% = $46,980
for Piper Albright = $87,000 = 18% = $15,660
total interest on capital = $62, 640
Salary payments
Salary payment to Tyler Hawes = $55,00
Salary payment to Piper Albright = $77,000
Total Salary payment made = $ 132,000
Profit available for distribution = $258,000 - $62,640 - $132,000 = $63,360
$63,360 amount of profit to be divided equallly = Tyler hawes = $63,360 * 50% = $31,680
Piper Albright = $63,360 * 50% = $31,680
Participation in Net income of $258,000 = Tyler Hawes - $55,000 + $46,980 + $31,680 = $133,660 Piper Albright - $77,000 + $15,660 + $31,680 = $124,340