Kramer and Knox began a partnership by investing $62,000 and $66,000, respective

Question

Kramer and Knox began a partnership by investing $62,000 and $66,000, respectively. During its first year, the partnership earned $200,000. Prepare calculations showing how the $200,000 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. (Do not round intermediate calculations. Round your final answers to the nearest dollar.) (3) The partners agreed to share income by granting a $52,500 per year salary allowance to Kramer, a $42,500 per year salary allowance to Knox, 11% interest on their initial capital investments, and the remaining balance shared equally.

Explanation / Answer

1) Failed to agree on the method to share income

Income will be splitted equally

Kramer- $200,000*50% = $100,000

Knox- $200,000*50%= $100,000

2) In proportion of initial investment

Kramer- $200,000*($62,000/($62,000+$66,000)) = $96,875

Knox- $200,000*50%= $103,125

3)

Particulars                                                                                     Kramer            Knox

Salary                                                                                         $52,500        $42,500

Interest on capital (Capital * Interest%)                                        $6,820          $7,260

Income sharing ($200,000-($52,500+$42,500+$6,820+$7,260)) $45,460       $45,460

Total                                                                                            $104,780       $95,220                     

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.