Exercise 12-5 Income allocation in a partnership LO P2
Kramer and Knox began a partnership by investing $44,000 and $68,000, respectively. The partners agreed to share net income and loss by granting annual salary allowances of $60,000 to Kramer and $50,000 to Knox, 12% interest allowances on their investments, and any remaining balance shared equally.
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| 1. |
Determine the partners’ shares of Kramer and Knox given a first-year net income of $93,800. (Enter all allowances as positive values. Enter losses as negative values.)
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| 2. |
Determine the partners’ shares of Kramer and Knox given a first-year net loss of $16,800. (Enter all allowances as positive values. Enter losses as negative values.)
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1.
2.
Chapter 12 homework Question 6
Kramer: Interest allowances = ($44,000 × 12%) = $5,280
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Knox: Interest allowances = ($68,000 × 12%) = $8,160
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| Balance allocated equally = ($93,800 – $123,440) / 2 = $(14,820) |
2.
Kramer: Interest allowances = ($44,000 × 12%) = $5,280
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Knox: Interest allowances = ($68,000 × 12%) = $8,160
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Balance allocated equally = [$(16,800) – $123,440] / 2 = $(70,120) |