Response to the following:
Assume that the partners of Exercise agreed to share net income and loss by granting annual salary allowances of $55,000 to Cosmo and $45,000 to Ellis, 10% interest allowances on their investments, and any remaining balance shared equally.
1. Determine the partners' shares of Cosmo and Ellis given a first-year net income of $94,400.
2. Determine the partners' shares of Cosmo and Ellis given a first-year net loss of $15,700.
Exercise :
Cosmo and Ellis began a partnership by investing $50,000 and $75,000, respectively. During its first year, the partnership earned $165,000.
Prepare calculations showing how the $165,000 income should be allocated to the partners under each of the following three separate plans for sharing income and loss:
(1) the partners failed to agree on a method to share income;
(2) the partners agreed to share income and loss in proportion to their initial investments (round amounts to the nearest dollar); and
(3) the partners agreed to share income by granting a $55,000 per year salary allowance to Cosmo, a $45,000 per year salary allowance to Ellis, 10% interest on their initial capital investments, and the remaining balance shared equally.