   Chapter 12, Problem 12.3EX

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Dividing partnership incomeTyler Hawes and Piper Albright formed a partnership, investing $210,000 and$70,000, respectively. Determine their participation in the year’s net income of $290,000 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 5% allowed on original investments and the remainder divided in the ratio of 2:3; (d) salary allowances of$36,000 and $45,000, respectively, and the balance divided equally; (e) allowance of interest at the rate of 5% on original investments, salary allowances of$36,000 and $45,000, respectively, and the remainder divided equally. 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 participation of partners in the net income of the year under various independent assumptions. Explanation Working Notes: Calculations of division of net income under various assumptions are as follows:  H A Total a Net income (1:1)$145,000 $145,000$290,000 b Net income (3:1)(1) $217,500$72,500 $290,000 c Interest allowance (A)$10,500 (2) $3,500 (2)$14,000 Remaining income (2:3)               (B) $110,400$165,600 $276,000 Net income (A)+(B)$120,900 $169,100$290,000 d Salary allowance                          (C) $36,000$45,000 $81,000 Remaining income (1:1) (D)$104,500 $104,500$209,000 Net income                           (C)+(D) $140,500$149,500

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