Breeden, Myers, and Kowski are partners operating a business under the name of Professional Business Services. They are considering several ways to share the $24,000 net income earned from the first year's operations. Interest allowances on capital balances, if allowed, would be at the rate of 5%. Salaries would be $6,000 each for Breeden and Myers and $8,000 for Kowski. The partners agree that if ratios are to be used as a basis for allocating all or a part of the net income, the ratio should be 3:3:4 for Breeden, Myers, and Kowski respectively. The weighted average capital balances of the partners for the year are respectively $12,000, $13,000, and $5,000.
1. If the net income allocation is to be based on interest, salaries, and ratios, Myers will be allocated A. $7,200. B. $7,400. c. $7,650. D. $7,800.
2. If the net income is to be allocated solely on basis of salaries and ratios, Kowski will be allocated A. $8,000. B. $9,600. c. $10,000. D. $10,250.
3. Assuming a net income of $14,000 instead of$24,000, what· portion of the net income will be allocated to Breeden if the allocation is based on salaries and ratios and the salary allowances are changed to $6,000, $7,000, and $8,000 for Breeden, Myers, and Kowski respectively? A. $7,200 c. $3,900 B. $6,000 D. $2,100 deficit