E-12-4)Dariah and Farrah began a partnership by investing $64,000 and $58,000 re
ID: 2442568 • Letter: E
Question
E-12-4)Dariah and Farrah began a partnership by investing $64,000 and $58,000 respectively. During its first year, the partnership earned $175,000 income should be allocated to the partners under each of the following three separate plans for sharing income and loss: (1) the partners failed to agree on a method to share income; (2) the partners agreed to share income and loss in proportion to their initial investments ( round amounts to the nearest dollar); and (3) the partners agreed to share income by granting a $52,000 per yer salary allowance to Daria , a $42,000 per year salary allowance to Farrah , 8% interest on their initial capital investments, and the remaining balance shared equally.E-12-5
Assume that the partners of exercise 12-4 agreed to share net income and loss by granting annual salary allowances of $52,000 to Daria and $42,000 to Farrah, 8% interest allowances on their investments, and any remaining balance shared equally.
1- Determine the partners' shares of Daria and Farrah given a first year net income of $98,800.
2- Determine the partners' share of Daria and Farrah given a first year net loss of $16,800.
Explanation / Answer
(1) the partners failed to agree on a method to share income;
Dariah 1/2 of $175,000 = $87,500
Farah 1/2 of $175,000 = $87,500
In absence of method to share income should be distributed equally.
(2) the partners agreed to share income and loss in proportion to their initial investments ( round amounts to the nearest dollar);
Initial Investment proportion = $64,000 : $58,000
= 64 : 58
Dariah share 64/(64+58) = 64 / 122 $175,000 x 64/122 = $91,803
Farah share 58/(64+58) = 58 / 122 $175,000 x 58/122 = $83,197
(3) the partners agreed to share income by granting a $52,000 per yer salary allowance to Daria , a $42,000 per year salary allowance to Farrah , 8% interest on their initial capital investments, and the remaining balance shared equally.
Income before salary & interest $175,000
Less : Salary to Dariah $52,000
Salary to Farah $42,000 $94,000
$81,000
Less : Interest on capital
Dariah $64,000 x 8% $5,120
Farah 58,000 x 8% $4,640 $9,760
Balance to be shared equally $71,240
Dariah 1/2 of $71,240 $35,620
Farah 1/2 of $71,240 $35,620
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