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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Dividing partnership net income

Lia Chen and Marlin Monroe formed a partnership, dividing income as follows:

  1. 1. Annual salary allowance to Chen of $35,000.
  2. 2. Interest of 4% on each partner's capital balance on January 1.
  3. 3. Any remaining net income divided to Chen and Monroe, 2:1.

Chen and Monroe had $90,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $70,000.

How much net income should be distributed to Chen and Monroe?

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

To determine:  The division of the net income between C and M.

Explanation

Working note for the calculation of Interest allowance of C & M

Interest Allowance is at 4%:

InterestAllowanceofC}=(Capitalatbeginningofthefiscalyear)×4100=$90,000×4100=$3,600

(1)

InterestAllowanceofM}=(Capitalatbeginningofthefiscalyear)×4100=$140,000

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