Daria and Farrah began a partnership by investing $41,000 and $60,000, respectiv
ID: 2442811 • Letter: D
Question
Daria and Farrah began a partnership by investing $41,000 and $60,000, respectively. During its first year, the partnership earned $185,000. Prepare calculations showing how the $185,000 income should be allocated to the partners under each of the following three separate plans for sharing income and loss.b) The partners agreed to share income and loss in proportion to their initial investments
(c) The partners agreed to share income by granting a $50,000 per year salary allowance to Daria, a $40,000 per year salary allowance to Farrah, 11% interest on their initial capital investments, and the remaining balance shared equally.
Explanation / Answer
b) The partners agreed to share income and loss in proportion to their initial investments :
Initial Investment proportion = $41,000 : $60,000
= 41 : 60
Dariah share 41/(41+60) = 41 / 101 $185,000 x 41/101 = $75,100
Farah share 58/(41+60) = 60 / 101 $185,000 x 60/101 = $109,900
(c) The partners agreed to share income by granting a $50,000 per year salary allowance to Daria, a $40,000 per year salary allowance to Farrah, 11% interest on their initial capital investments, and the remaining balance shared equally.
Income before salary & interest $185,000
Less : Salary to Dariah $50,000
Salary to Farah $40,000 ($90,000)
$95,000
Less : Interest on capital
Dariah $41,000 x 11% $4,510
Farah $60,000 x 11% $6,600 ($11,110)
Balance to be shared equally $83,890
Dariah 1/2 of $83,890 $41,945
Farah 1/2 of $83,890 $41,945
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