Nicole Murphy and Ashley Drake formed a partnership, investing $270,000 and $90,000, respectively.

Nicole Murphy and Ashley Drake formed a partnership, investing $270,000 and $90,000, respectively. Determine their participation in the year’s net income of $350,000 under each of the following independent assumptions: (a) no agreement concerning division of net income; (b) divided in the ratio of original capital investment; (c) interest at the rate of 5% allowed on original investments and the remainder divided in the ratio of 2:3;

(d) salary allowances of $40,000 and $50,000, respectively, and the balance divided equally;
(e) allowance of interest at the rate of 5% on original investments, salary allowances of $40,000 and $50,000, respectively, and the remainder divided equally.


Answer:































Murphy Drake
a. …………………………………………………… $175,000 $175,000
b. …………………………………………………… 262,500 87,500
c. …………………………………………………… 146,300 203,700
d. …………………………………………………… 170,000 180,000
e. …………………………………………………… 174,500 175,500
Details: Murphy Drake Total
a. Net income (1:1)…………………$175,000 $175,000 $350,000
b. Net income (3:1)…………………$262,500 $ 87,500 $350,000
c. Interest allowance……………… $ 13,5001 $ 4,500 2 $ 18,000
Remaining income (2:3)……… 132,800 199,200 332,000
Net income……………………… $146,300 $203,700 $350,000
d. Salary allowance……………… $ 40,000 $ 50,000 $ 90,000
Remaining income (1:1)……… 130,000 130,000 260,000
Net income……………………… $170,000 $180,000 $350,000
e. Interest allowance……………… $ 13,5001 $ 4,500 2 $ 18,000
Salary allowance………………… 40,000 50,000 90,000
Remaining income (1:1)……… 121,000 121,000 242,000
Net income……………………… $174,500 $175,500 $350,000
1
$270,000 × 5%
2
$90,000 × 5%



Megan West and Jon Sokolov formed a partnership in which the partnership agreement provided for salary allowances of $45,000 and $35,000, respectively. Determine the division of a $40,000 net loss for the current year, assuming remaining income or losses are shared equally by the two partners.


Answer:









Megan Jon
West Sokolov Total
Salary allowances ...................................... $ 45,000 $ 35,000 $ 80,000
Remainder (net loss, $40,000 plus $80,000
salary allowances) divided equally....... (60,000) (60,000) (120,000)
Net loss....................................................... $ (15,000) $(25,000) $ (40,000)