Accounting and Financial Reporting II A partnership comprised of two partners ha

Question

Accounting and Financial Reporting II

A partnership comprised of two partners has the following information regarding income and loss allocation:

Partner #1                             Partner #2

Initial investment                                        30,000                                   40,000

Salary allowance                                         25,000                                   20,000

Interest allowance in initial investment   10%                                        10%

Remainder                                                    50%                                        50%

In its first year of business, the partnership generates an income of 80,000. Prepare a schedule showing how much income should be allocated to each partner.

Explanation / Answer

Prepare a schedule showing how much income should be allocated to each partner.

Partner #1 Partner #2 Total Salary allowance 25000 20000 45000 interest Partner 1 (30000*10%) 3000 Partner 2 (40000*10%) 4000 Total interest 7000 Total salary and interest 28000 24000 52000 Remaining income (80000-52000) = 28000 Partner #1 (28000*50%) 14000 Partner #2 (28000*50%) 14000 Total remainder 28000 Total division 42000 38000 80000

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