EX 12-3 Dividing partnership income Obj. 2 Tyler Hawes and Piper Albright formed
ID: 2396959 • Letter: E
Question
EX 12-3 Dividing partnership income Obj. 2 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 Show $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. How Answer i Check Figure: Hawes, $217,500 EX 12-4 Dividing partnership income Obj.2 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. ow How Answer Check Figure: Hawes, $46,500Explanation / Answer
Answer:-
EX- 12 - 3
A) Each Partners share of Profit under following independent assumptions
a) If they do not agree, Net income or loss is allocated to the partners in accordance with the partnership agreement.
In the absence of any agreement between partners, profits and losses must be shared equally regardless of the ratio of the partners' investments.
so For Tyler = $290,000*1/2 = $145,000 Profit
so For Piper = $290,000*1/2 = $145,000 Profit
b) If Agree to Share net Income In accordance with Investement ratio:-
so Tyler share of Investement = $210,000
Piper share of Investement = $70,000
Total Investement in Business = $280,000
ratio of investement:-
Tyler = 210,000/280,000 = 0.75
Piper = 70,000/280,000 = 0.25
Distribution of Net Income :-
Tyler share of Net income = $290,000*0.75 = $217,500
Piper Share of Net Income = $ 290,000*0.25 = $72,500
c) If Agree to share by granting followings:-
1. 10% Interest on Investements
and reminder to be dividen in 2:3 ratio
so 10 % on investement value =
Tyler = 210,000 * 10 % = 21000
Piper = 70000 * 10 % = 7000
Total Interest = +21000+7000 = 28,000
Reminder profit = 290000 - 28000 = 262,000
Tyler profit share = 262,000 * 2 / 5 = $104,800
Piper profit Share = 262,000 * 3/ 5 = $ 157,200
D salary and balance Equally :-
1. Salary of $36,000 and 45,000 Respectively
2. reminder Equally
Net Income Available = $290,000
Net income available after salary = 290000 - 36000- 45000 = $ 209,000
therefore net income available for distribution = $209,000
Share of Adjusted Net income to each partner :-
Tyler = 209,000*1/2 = $104,500
Piper = 209,000*1/2 = $104,500
As decided to share equally.
E) If Agree to share by granting followings:-
1. 5 % Interest on Investements
2. Salary of $36,000 and 45,000 respectively
3. reminder Equally
Net Income Available = $209,000
Adjustement 1
Tyler Investement Interest
= $210,000* 5% = $10,500
Piper Investement Interest
= $70,000* 5% = $3,500
Total Interest Expense = 10500+3500 = ($ 14,000) to be deducted from net income
Adjustement no 2.
Tyler 's Salary = $36,000
Piper 's salary = $ 45,000
Total Salary = $36,000+45,000 = 81,000 ( to be deducted from Net Income )
therefore net income available for distribution =
= $209,000 -$81,000 - $14,000 = $114,000
Share of Adjusted Net income to each partner :-
Tyler = 114,000*1/2 = $57,000
Piper = 114,000*1/2 = $57,000
As decided to share equally.
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