E 16-4 Partnership income allocation—Salary allowance and interestThe partnership agreement of Dan, Hen, and Bai provides that profits are to be divided as follows:Bai receives a salary of $24,000, and Hen receives a salary of $18,000 for time spent in the business.All partners receive 10 percent interest on average capital balances.Remaining profits and losses are divided equally among the three partners.On January 1, 2016, the capital balances were Dan, $300,000; Hen, $240,000; and Bai, $250,000. Dan invested an additional $40,000 on July 1 and withdrew $40,000 on October 1. Hen and Bai had drawings of $18,000 each during the year, which are allowed in the partnership agreement.RequiredPrepare a schedule to allocate partnership net income of $56,000 for 2016.

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Asked Sep 2, 2019
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E 16-4 Partnership income allocation—Salary allowance and interest

The partnership agreement of Dan, Hen, and Bai provides that profits are to be divided as follows:

  • Bai receives a salary of $24,000, and Hen receives a salary of $18,000 for time spent in the business.

  • All partners receive 10 percent interest on average capital balances.

  • Remaining profits and losses are divided equally among the three partners.

On January 1, 2016, the capital balances were Dan, $300,000; Hen, $240,000; and Bai, $250,000. Dan invested an additional $40,000 on July 1 and withdrew $40,000 on October 1. Hen and Bai had drawings of $18,000 each during the year, which are allowed in the partnership agreement.

Required

Prepare a schedule to allocate partnership net income of $56,000 for 2016.

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Expert Answer

Step 1

The partnershipp profits are distributed between partners on the basis of the partnership agreement. 

Step 2

...

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