Shelby and Mortonson formed a partnership with capital contributions of $300,000

Question

Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner iss to receive an interest allowance equal to 10% of partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Shelby and Mortonson's respective shares are:

A. $67,500; $67,500

B. $92,500; 42,500

C. $57,857; $77,143

D. $90,000; $40,000

E. $35,000; $100,000

Thank you in advance for your help.

Explanation / Answer

Hi,

Please find the answer as follows:

Option B ($92,500; 42,500) is the correct answer.

Thanks.

Shelby Mortonson Total Net Income 0 0 135000 Salary 60000
-60000 Interest 30000 40000 -70000 Income (Bal.) 0 0 5000 Balance Income Divided Equally 2500 2500 -5000 Total 92500 42500 0

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