Dividing Partnership Income
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:
No agreement concerning division of net income.
Divided in the ratio of original capital investment.
Interest at the rate of 5% allowed on original investments and the remainder divided in the ratio of 2:3.
Salary allowances of $40,000 and $50,000, respectively, and the balance divided equally.
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.
Set up a column for each partner and a total column.
a. Determine the distribution of income and losses in the absence of a partnership agreement.
b. Use the ratio of the partner’s original capital investment to distribute the net income.
c. Use the stated percentage to determine the interest allowance. Distribute the remaining income based on the stated ratio.
d. Assign each partner's stated salary allowance. Distribute the remaining income based on the stated ratio.
e. Use the stated percentage to determine the interest allowance. Assign each partner's salary allowance. Distribute the remaining income based on the stated ratio.