Question
Asked Dec 19, 2019
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John Prado and Ayana Nicks formed a partnership, dividing income as follows:
1. Annual salary allowance to Prado, $10,000 and Nicks, $28,000.
2. Interest of 5% on each partner’s capital balance on January 1.
3. Any remaining net income divided equally.
Prado and Nicks had $20,000 and $50,000, respectively, in their January 1 capital balances. Net income for the year was $30,000.
How much net income should be distributed to Prado and Nicks?

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Step 1
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The following table shows the division of net income between the partners. Total Annual salary allowance $10,000 $28,000 $38,000 $1,000 $2,500 Interest allowance $3,500 (1) (2) $11,000 $30,500 $41,500 Total $5,750 $5,750 Deduct: Remaining loss $11,500 (3) (4) Net income $5,250 $24,750 $30,000 Net Income received by member: $5,250 $24,750 $30,000 [Salary + Interest - share in loss]

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Working note for the calculation of Interest allowance of P & N Interest Allowance is at 5%: Allowance ofP =( Capital at beginning of the fiscal year Interest 100 = $20,000 x 100 =$1,000 (1) Capital at beginning of the fiscal year = $50,000 x Interest 100 Allowance of N 100 =$2,500 (2)

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