Question

Kyle and Andy formed a partnership dividing income as follows: 1. Annual salary allowance to Kyle, $50,000 and Andy, $45,000. 2. Interest of 8% of each partner’s capital balance on January 1. 3. Any remaining net income divided equally. Kyle and Andy had $175,000 and $148,000, respectively, in their January 1 capital balances. Net income for the year was $110,000. How much income should be distributed to Andy?

a. $55,000 b. $51,420 c. $56,840 d. $58,580

Answer 1

	Kyle	Andy	Total
Salary allowance	50000	45000	95000
Interest allowance	14000	11840	25840
Total before remaining income(loss)	64000	56840	120840
Remaining income(loss)	(5420)	(5420)	(10840)
Total income distributed	58580	51420	110000
Option B $51,420 is correct

Workings:
Interest allowance:
Kyle	14000	=175000*8%
Andy	11840	=148000*8%
Remaining income(loss)	5420	=(110000-120840)*50%