Candace Hassell and Abby Lawson formed a partnership, investing $261,000 and $87

Question

Candace Hassell and Abby Lawson formed a partnership, investing $261,000 and $87,000, respectively. Determine their participation in the year's net income of $336,000, under each of the following independent assumptions. No agreement concerning division of net income. Divided in the ratio of original capital investment. Interest at the rate of 10% allowed on original investments and the remainder divided in the ratio of 2:3. Salary allowances of $55,000 and $77,000, respectively, and the balance divided equally. Allowance of interest at the rate of 10% on original investments, salary allowances of $55,000 and $77,000, respectively, and the remainder divided equally.

Explanation / Answer

Net Income Hassell Lawson Total Profit a) No Agreement - Equal profits will be shared 168000 168000 336000 b) In the ratio of original capital investment i.e. 3:1 252000 84000 336000 c) Interest @ 10% allowed on original investment Hassell = 10% * 261000 = 26100 Lawson = 10% * 87000 = 8700 Net Profit post interest on capital = 336000 - 26100 - 8700 = $313200 This net profit will now be distributed in the ratio 2:3 as follows: Hassell = 2/3*301200 = 226900 Lawson = 1/3*301200 = 109100 226900 109100 336000 d) Salary allowance 157000 179000 336000 e) Salary, interest and balance equally 165700 170300 336000

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