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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

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

Dividing partnership income

Using 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 income

Tyler 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:

HATotal
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
dSalary 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
eInterest allow...

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