   Chapter 12, Problem 4E

Chapter
Section
Textbook Problem

Dividing partnership incomeUsing each of the five assumptions as to income division listed in Exercise 12-3, determine the income participation of Hawes and Albright if the year’s net income is $104,000.EX 12-3 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

Working Notes:

Calculations of division of net income under various assumptions are as follows:

 H A Total a Net income (1:1) $52,000$52,000 $104,000 b Net income (3:1) (1)$78,000 $26,000$104,000 c Interest allowance                       (A) $10,500 (2)$3,500 (2) $14,000 Remaining income (2:3) (B)$36,000 $54,000$90,000 Net income                           (A)+(B) $46,500$57,500 $104,000 d Salary allowance (C)$36,000 $45,000$81,000 Remaining income (1:1)              (D) $11,500$11,500 $23,000 Net income (C)+(D)$47,500 $56,500$104,000 e Interest allow...

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