Question

Emmett and Sierra formed a partnership dividing income as follows: 1. Annual salary allowance to Emmett of $96,000 2. Interest of 8% on each partner’s capital balance on January 1 3. Any remaining net income divided equally Emmett and Sierra had $50,000 and $280,000, respectively, in their January 1 capital balances. Net income for the year was $400,000. Required: How much net income should be distributed to Emmett and Sierra?

Answer 1

	Emmett	Sierra	Total
Annual salary	96000	0	96000
Interest	4000	22400	26400
Total before remaining income	100000	22400	122400
Remaining income	138800	138800	277600
Total distributed to partners	238800	161200	400000
Distributed to Emmett	238800
Distributed to Sierra	161200

Workings:
	Emmett	Sierra
Interest	=50000*8%	=280000*8%
Remaining income	=(400000-122400)*50%	=(400000-122400)*50%