Question

Tyler Hawes and Piper Albright formed a partnership, investing $187,500 and $62,500, respectively.

Determine their participation in the year's net income of $270,000 under each of the following independent assumptions:

1. No agreement concerning division of net income.
2. Divided in the ratio of original capital investment.
3. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:3.
4. Salary allowances of $40,000 and $47,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 6% on original investments, salary allowances of $40,000 and $47,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

Answer 1

Solution:

Division of Income		$270,000
S. No	Particulars	Hawes	Albright
a	No agreement concerning division of net income (1:1)	$135,000.00	$135,000.00
b	Divided in the ratio of original capital investment (3:1)	$202,500.00	$67,500.00
c	Interest of 6% on original investment and remainder in ratio 2:3
	Interest Amount (Opening Capital * 6%) Hawes (187500*6%) Albright (62500*6%)	$11,250.00	$3,750.00
	Distribution of remaining income (2:3) Remainder income= ($270,000 - $11,250 - $3,750) = 255,000	$102,000.00	$153,000.00
	Total Share of Income (Interest + Remaining Distribution)	$113,250	$156,750
d	Salary allowance and balance divided equally
	Salary allowances to partner	$40,000.00	$47,000.00
	Distribution of remaining income (1:1) Remainder income= ($270,000 - $40,000 - $47,000) = 183,000	$91,500.00	$91,500.00
	Total Share of Income	$131,500	$138,500
e	Interest of 6% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 6%) Hawes (187500*6%) Albright (62500*6%)	$11,250.00	$3,750.00
	Salary Allowance	$40,000.00	$47,000.00
	Distribution of remaining income (1:1)	$84,000.00	$84,000.00
	Total Share of Income (Interest + Salary + Remaining Distribution)	$135,250.00	$134,750.00