Chapter 12, Problem 3E

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem

# 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 Determine the participation of partners in the net income of the year under various independent assumptions. Explanation 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. Working Notes: Calculations of division of net income under various assumptions are as follows:  H A Total a Â Net income (1:1)$145,000 $145,000$290,000 b Â Net income (3:1)(1) $217,500$72,500 $290,000 c Â Interest allowanceÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (A)$10,500 (2) $3,500 (2)$14,000 Â Remaining income (2:3)Â Â Â Â Â Â Â Â Â Â Â Â Â Â  (B) $110,400$165,600 $276,000 Â Net incomeÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (A)+(B)$120,900 $169,100$290,000 d Salary allowanceÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  (C) $36,000$45,000 $81,000 Â Remaining income (1:1)Â Â Â Â Â Â Â Â Â Â Â Â Â (D)$104,500 $104,500$209,000 Â Net incomeÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â (C)+(D) \$140,500

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