Question

Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership, investing $192,000 and $96,000, respectively. Determine their participation in the year's net income of $324,000 under each of the following independent assumptions: No agreement concerning division of net income. Divided in the ratio of original capital investment. Interest at the rate of 12% allowed on original investments and the remainder divided in the ratio of 2:3. Salary allowances of $45,000 and $63,000, respectively, and the balance divided equally. Allowance of interest at the rate of 12% on original investments, salary allowances of $45,000 and $63,000, respectively, and the remainder divided equally

details please

Answer 1

(i)

No agreement concerning division of net income.

In this case, net income is divided between partners equally.

	Tyler Hawes	Piper Albright
Share of profit	162,000	162,000

(ii)

Divided in the ratio of original capital investment

Ratio of capital investment = 192,000 : 96,000

= 2:1

Tyler Hawes share of profit = 324,000 x 2/3

= $216,000

Piper Albright share of profit = 324,000 x 1/3

= $108,000

	Tyler Hawes	Piper Albright
Share of profit	216,000	108,000

(iii)

Interest at the rate of 12% allowed on original investments and the remainder divided in the ratio of 2:3.

	Tyler Hawes	Piper Albright
Interest on capital	23,040	11,520
Share of profit	115,776	173,664

Interest on Tyler Hawes capital = 192,000 x 12%

= $23,040

Interest on Piper Albright capital = 96,000 x 12%

= $11,520

Remaining profit = Net income - Interest on capital

= 324,000 - 23,040 - 11,520

= $289,440

Tyler Hawes share of profit = 289,440 x 2/5

= $115,776

Piper Albright share of profit = 289,440 x 3/5

= $173,664

(iv)

Salary allowances of $45,000 and $63,000, respectively, and the balance divided equally.

	Tyler Hawes	Piper Albright
Salary allowance	45,000	63,000
Share of profit	108,000	108,000

Remaining profit = Net income - Interest on capital

= 324,000 - 45,000 - 63,000

= $216,000

Tyler Hawes share of profit = 216,000 x 1/2

= $108,000

Piper Albright share of profit = 216,000 x 1/2

= $108,000

(v)

Allowance of interest at the rate of 12% on original investments, salary allowances of $45,000 and $63,000, respectively, and the remainder divided equally

	Tyler Hawes	Piper Albright
Interest on capital	23,040	11,520
Salary allowance	45,000	63,000
Share of profit	90,720	90,720

Remaining profit = Net income - Interest on capital - Salary allowance

= 324,000 - 45,000 - 63,000 - 23,040 - 11,520

= $181,440

Tyler Hawes share of profit = 181,440 x 1/2

= $90,720

Piper Albright share of profit = 181,440 x 1/2

= $90,720

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubts. Thanks.