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Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year's net income of $200,000 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 15% allowed on original investments and the remainder divided in the ratio of 2:3; Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

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Answer:

1) No agreement concerning division of net income;

  • if no agreement is made, then profits must be divided equally among partners = $200,000 / 2 = $100,000 for Holly and $100,000 for Luke.

2) Divided in the ratio of original capital investment;

  • Holly should receive $200,000 x ($240,000 / $320,000) = $150,000
  • Luke will get $200,000 - $150,000 = $50,000

3) Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3;

Holly will receive:

  • $240,000 x 15% = $36,000
  • ($200,000 - $48,000) x 2/5 = $60,800
  • total $96,800

Luke will receive:

  • $80,000 x 15% = $12,000
  • ($200,000 - $48,000) x 3/5 = $91,200
  • total $103,200

4) Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally;

Holly will receive:

  • $50,000 salary
  • ($200,000 - $120,000) /2 = $40,000
  • total $90,000

Luke will receive:

  • $70,000 salary
  • ($200,000 - $120,000) /2 = $40,000
  • total $110,000

5) Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

Holly will receive:

  • $240,000 x 15% = $36,000
  • $50,000 salary
  • ($200,000 - $168,000) /2 = $16,000
  • total $102,000

Luke will receive:

  • $80,000 x 15% = $12,000
  • $70,000 salary
  • ($200,000 - $168,000) /2 = $16,000
  • total $98,000

The Correct Answer is

1) when there is No agreement concerning the division of net income; then the profits must be divided equally among the partners = $200,000 / 2 = $100,000 for Holly and $100,000 for Luke.

2) when the Divided in the ratio of original capital investment;

  • Then the Holly should be received $200,000 x ($240,000 / $320,000) = $150,000
  • After that the Luke will be get the $200,000 - $150,000 = $50,000

3) Then the Interest at the rate of 15% allowed on original investments and also that the remainder divided in the ratio of 2:3;

  • So that the Holly will receive:
  • So that $240,000 x 15% = $36,000
  • when ($200,000 - $48,000) x 2/5 = $60,800
  • the total is $96,800
  • Therefore Luke will be receive:
  • $80,000 x 15% = $12,000
  • ($200,000 - $48,000) x 3/5 = $91,200
  • The total is $103,200

4) When the Salary allowances of $50,000 and $70,000, respectively, and also that the balance divided equally;

  • Then Holly will be received:
  • $50,000 salary
  • ($200,000 - $120,000) /2 = $40,000
  • The total is $90,000
  • So that Luke will receive:
  • $70,000 salary ($200,000 - $120,000) /2 = $40,000
  • The total answer is $110,000

5) When the Allowance of at the rate of interest 15% on the original that is an investment, salary allowances of $50,000 and also that $70,000, and after that the remainder divided equally.

  1. When the Holly will receive
  2. $240,000 x 15% = $36,000
  3. $50,000 salary
  4. ($200,000 - $168,000) /2 = $16,000
  5. The total is $102,000
  6. After that Luke will be receive:
  7. $80,000 x 15% = $12,000
  8. $70,000 salary
  9. ($200,000 - $168,000) /2 = $16,000
  10. The total is $98,000

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