1- Xavier and Yolanda have original investments of $50,000 and $100,000, respect

Question

1- Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%; salary allowances of $38,000 and $28,000, respectively; and the remainder to be divided equally. How much of the net income of $77,000 is allocated to Xavier?

a. $66,000

b. $36,000

c. $43,000

d. $41,000

2- Jackson and Campbell have capital balances of $100,000 and $300,000, respectively. Jackson devotes full time and Campbell devotes one-half time to the business. Determine the division of $150,000 of net income when there is no reference to division in the partnership agreement.

a. $112,500 and $37,500

b. $37,500 and $112,500

c. $75,000 and $75,000

d. $100,000 and $50,000

Explanation / Answer

1) Distribution of income :

Interest on capital = 150000*10% = 15000

Salary = 38000+28000 = 66000

Net income = 77000-15000-66000 = -4000

Net income allocated to Xavier = 50000*10%+38000-(4000/2) = 41000

so answer is d) 41000

2) If there is no reference to division of income in the partnership agreement then partnership income will distribute equally

so distribution = 150000/2 = 75000

so answer is c) 75000 and 75000

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