The partnership agreement of Jones, King, and Lane provides for the annual alloc

Question

The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business's profit or loss in the following sequence:

• Jones, the managing partner, receives a bonus equal to 15 percent of the business’s profit.

• Each partner receives 18 percent interest on average capital investment.

• Any residual profit or loss is divided equally.

The average capital investments for 2015 were as follows:

Jones $ 250,000

King 350,000

Lane 525,000

How much of the $78,000 partnership profit for 2015 should be assigned to each partner?

Explanation / Answer

Above amounts are in $.

the $78,000 partnership profit for 2015 should be assigned to each partner as follows: Partners Jones King Lane Total Profit 78000 Bunus paid to Jones -11700 11700 Balance 66300 Interest on average capital ionvestment -202500 45000 63000 94500 Since residual profit after bonus to Jones is not sufficeient to pay 18% interest to all partners, balance amount $66300 should be distributed in the ratio 45000:63000:94500 So the final assinment table would be as follows: Partners Jones King Lane Total Profit 78000 Bunus paid to Jones -11700 11700 Balance 66300 Interest on average capital ionvestment -66300 14733 20627 30940 Total 0 26433 20627 30940

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