Question

Dividing Partnership Net Income

Required:

Steve King and Chelsy Stevens formed a partnership, dividing income as follows:

1. Annual salary allowance to Stevens of $100,650.
2. Interest of 6% on each partner's capital balance on January 1.
3. Any remaining net income divided to King and Stevens, 1:2.

King and Stevens had $45,000 and $99,000, respectively, in their January 1 capital balances. Net income for the year was $183,000. How much is distributed to King and Stevens?

Note: Compute partnership share.
King: $
Stevens: $

Answer 1

	King	Stevens	Total
Salary allowance	0	100,650	100,650
Interest allowance	2,700	5,940	8,640
Remaining income	24,570	49,140	73,710
Total	$27,270	$155,730	$183,000

Interest allowance to king = 45,000 x 6%

= $2,700

Interest allowance to stevens = 99,000 x 6%

= $5,940

Income remaining after salary allowance and interest allowance = 183,000 - 100,650

= $73,710

Share of remaining income to king = 73,710 x 1/3

= $24,570

Share of remaining income to stevens = 73,710 x 2/3

= $49,140

King share	$27,270
Stevens share	$155,730

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