Dividing Partnership Net Income
Steve Jack and Chelsy Poodle formed a partnership, dividing income as follows:
1. Annual salary allowance to Jack of $59,000.
2. Interest of 7% on each partner's capital balance on January 1.
3. Any remaining net income divided equally.
Poodle and Jack had $50,000 and $183,000, respectively, in their January 1 capital balances. Net income for the year was $310,000. How much net income should be distributed to Jack?
Liquidating Partnerships
Prior to liquidating their partnership, Perkins and Dunn had capital accounts of $42,000 and $66,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $94,000. The partnership had $3,000 of liabilities. Perkins and Dunn share income and losses equally.
Determine the amount received by Dunn as a final distribution from liquidation of the partnership.
Liquidating Partnerships-Deficiency
Prior to liquidating their partnership, Jolly and Morrison had capital accounts of $27,000 and $108,000, respectively. The partnership assets were sold for $49,000. The partnership had no liabilities. Jolly and Morrison share income and losses equally.
a. Determine the amount of Jolly's deficiency.
b. Determine the amount distributed to Morrison, assuming Jolly is unable to satisfy the deficiency.
Understanding the Business Transaction
A partnership agreement may divide income based upon (1) salary allowances, or (2) salary allowances and interest on capital balances of each partner. The amounts of the distributions reflect differences in partners' abilities and time devoted to the partnership.
The partnership of I.M. Withhim and H.E. Swithme earned $193,300 for its first full year. The partnership agreement provides for the following division of income:
1. Monthly Salary Allowance
I.M. Withhim $6,440
H.E. Swithme $5,330
2. Interest of 8% on each partners January 1 Capital balance.
Capital, I.M. Withhim, January 1 $235,000
Capital, H.E. Swithme, January 1 $134,500
3. Remaining Net Income Divided Equally
Based on this agreement, how would annual net income of $193,300 be distributed between the partners?