Guenther Firmin, both of whom are CPA\'s, form a partnership, with Guenther inve
ID: 2348617 • Letter: G
Question
Guenther Firmin, both of whom are CPA's, form a partnership, with Guenther investing $100,000 and Firmin, $80,000. They agree to share net income as follows:1. Salary allowances of $80,000 to Guentheer and $50,000 to Firmin.
2. Interest allowances at 15 percent of beginning capital account balances.
3. Any partnership earnings in excess of the amount required to cover the interest and salary allowances to be divided 60 percent to Guenther and 40 percent to Firmin.
The partnership net income for the first year of operations amounted to $247,000 before interest and salary allowances. Show how this $247,000 should be divided between the two partners. Use a three-column schedule of the type illustrated in Exhibit C-9. List on separate lines the amounts of interests, salaries, and the residual amount divided.
Explanation / Answer
Guenther
Firmin
Net Income
Net income to be divided
$247,000
Interest allowances on beginning capital
$ 15,000
$12,000
Guenther (100,000 x 15%), Firmin (80,000 x 15%)
Total allocated as interest allowances
$27,000
Remaining income after interest allowances
$220,00
Allocated in a fixed ratio:
Guenther(50%)
$110,000
Firmin (50%)
$110,000
Total share to each partner
125,000
122,000
0.00
Guenther
Firmin
Net Income
Net income to be divided
$247,000
Interest allowances on beginning capital
$ 15,000
$12,000
Guenther (100,000 x 15%), Firmin (80,000 x 15%)
Total allocated as interest allowances
$27,000
Remaining income after interest allowances
$220,00
Allocated in a fixed ratio:
Guenther(50%)
$110,000
Firmin (50%)
$110,000
Total share to each partner
125,000
122,000
0.00
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