Tyler Hawes and Piper Albright formed a partnership, investing $230,400 and $153
ID: 341926 • Letter: T
Question
Tyler Hawes and Piper Albright formed a partnership, investing $230,400 and $153,600, respectively.
Determine their participation in the year's net income of $384,000 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 15% allowed on original investments and the remainder divided in the ratio of 2:3.
Salary allowances of $60,000 and $84,000, respectively, and the balance divided equally.
Allowance of interest at the rate of 15% on original investments, salary allowances of $60,000 and $84,000, respectively, and the remainder divided equally.
Explanation / Answer
Calculation of participation in income in each case
a) If there is no agreement concerning division of net income, then income will be divided equally.
Tyler = Net Income*50% = $384,000*50% = $192,000
Piper = $384,000*50% = $192,000
b) Ratio of original capital investment = Tyler:Piper = $230,400 : $153,600
Total capital = $230,400+$153,600 = $384,000
Tyler = Net Income*Ratio of original capital investment
= $384,000*($230,400/$384,000) = $230,400
Piper = $384,000*($153,600/$384,000) = $153,600
c) Interest on Tyler's capital = $230,400*15% = $34,560
Interest on Piper's capital = $153,600*15% = $23,040
Remaining Income to be distibuted in 2:3 = $384,000 - $34,560 - $23,040 = $326,400
Tyler share = $326,400*2/5 = $130,560
Piper share = $326,400*3/5 = $195,840
Total participation in income by Tyler = Interest on capital +Share in remaining income
= $34,560+$130,560 = $165,120
Total participation in income by Piper = Interest on capital +Share in remaining income
= $23,040+$195,840 = $218,880
d) Salary allowance to Tyler = $60,000
Salary allowance to Piper = $84,000
Remaining Income = $384,000 - $60,000 - $84,000 = $240,000
Tyler share = $240,000*1/2 = $120,000
Piper share = $240,000*1/2 = $120,000
Total participation in income by Tyler = Salary allowance+Share in remaining income
= $60,000+$120,000 = $180,000
Total participation in income by Piper = Salary allowance +Share in remaining income
= $84,000+$120,000 = $204,000
e) Remaining Income = $384,000 - $60,000 - $84,000 - $34,560 - $23,040 = $182,400
Tyler share = $182,400*1/2 = $91,200
Piper share = $182,400*1/2 = $91,200
Total participation in income by Tyler = Salary allowance+Interest on capital+Share in remaining income
= $60,000+$34,560+$91,200 = $185,760
Total participation in income by Piper = Salary allowance +Interest on capital+Share in remaining income
= $84,000+$23,040+$91,200 = $198,240
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