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Dividing partnership net income Lia Chen and Marlin Monroe formed a partnership, dividing income as follows: 1. Annual salary allowance to Chen of $35,000. 2. Interest of 4% on each partner's capital balance on January 1. 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?

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 12, Problem 12.2APE
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?

Expert Solution
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 of Solution

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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Chapter 12 Solutions

Accounting
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