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Dividing Partnership Income
Beau Dawson and Willow McDonald formed a partnership, investing $65,000 and $195,000, respectively.
Determine their participation in the year's net income of $275,000 under each of the following independent assumptions:
a. No agreement concerning division of net income.
b. Divided in the ratio of original capital investment.
c. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:3.
d. Salary allowances of $34,000 and $49,000, respectively, and the balance divided equally.
e. Allowance of interest at the rate of 6% on original investments, salary allowances of $34,000 and $49,000, respectively, and the remainder divided equally.
Dawson
McDonald
137,500
137,500
$ 68,750 ✓
a.
b.
C.
d.
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e.
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$206,250
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Set up a column for each partner and a total column.
a. Determine the distribution of income and losses in the absence of a partnership agreement.
h Lise the ratio of the partner's original capital investment to distribute the net income.

Sagot :

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The distribution of income and losses to the partners is as follows:

                                              Beau Dawson       Willow McDonald    Total

a) No agreement (income or loss

is shared equally)                     $137,500               $137,500       $275,000

b) Ratio of original capital         $68,750              $206,250       $275,000

c) Interest at 6% and the remainder shared equally:

Total income shared                $107,660              $167,340       $275,000

d) Salary Allowances and the remainder shared equally:          

Total income shared              $130,000              $145,000       $275,000

e) Interest at 6%, salary allowances of $34,000 and $49,000, and the remainder shared equally:

Total income shared               $126,100            $148,900        $275,000

How do partners share profits?

Partners share profits and losses according to their partnership agreements.

In the absence of a partnership agreement, profits and losses are distributed equally.

                                   Beau Dawson       Willow McDonald    Total

Capital investment         $65,000               $195,000            $260,000

Profit-sharing ratio (capital) 1              :              3

Sum of ratios = 4

Net income for the year = $275,000

Profit-sharing under these scenarios:

                                              Beau Dawson       Willow McDonald    Total

a) No agreement (income or loss

is shared equally)                     $137,500               $137,500       $275,000

b) Ratio of original capital         $68,750              $206,250       $275,000

c) Interest at 6% and the remainder

in the ratio of 2:3

Interest on capital                     $3,900                  $11,700          $15,600

Income-sharing                     $103,760               $155,640       $259,400

Total income shared            $107,660                $167,340       $275,000

d) Salary Allowances           $34,000                 $49,000          $83,000

Income-sharing (equally)       96,000                   96,000        $192,000

Total income shared          $130,000                $145,000       $275,000

e) Interest at 6%, salary allowances of $34,000 and $49,000, and the remainder shared equally:

Interest on capital                     $3,900                  $11,700          $15,600

Salary Allowances                  $34,000                $49,000         $83,000

Income-sharing (equally)       $88,200                $88,200        $176,400

Total income shared             $126,100              $148,900        $275,000

Learn more about profit distribution among partners at https://brainly.com/question/22693552

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