Rodgers and Winter had capital balances of $60,000 and $90,000, respectively, at
ID: 2570402 • Letter: R
Question
Rodgers and Winter had capital balances of $60,000 and $90,000, respectively, at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000, respectively; an allowance of interest at 12% on the capital balances at the beginning of the year; and the remaining net income divided equally. Net income for the current year was $110,000.
a. Present the Division of net income section of the income statement for the current year.
b. Assuming that the net income had been $65,000 instead of $110,000, present the Division of net income section of the income statement for the current year.
Net income $110,000 Rodgers Winter Total Division of net income: Salary allowance $ $ $ Interest allowance Total Net income $ $ $Explanation / Answer
Ans. A Net income 110000 Rodgers Winter Total Division of net income Salary allowance 25000 30000 55000 Interest allowance 7200 10800 18000 Remaining income 18500 18500 37000 Net income 50700 59300 110000 Ans. B Net income 65000 Rodgers Winter Total Division of net income Salary allowance 25000 30000 55000 Interest allowance 7200 10800 18000 Total 32200 40800 73000 Excess of allowance over net income -4000 -4000 -8000 Net income 28200 36800 65000 CALCULATION FOR A: *Interest allowance = 12% of capital balance Rodgers 60000 * 12% 7200 Winter 90000 * 12% 10800 *Remaining income = Net income - (salary allowance + interest allowance) Total = 110000 - (55000 + 18000) 110000 - 73000 37000 37000 is divided equally in both divisions. Rodgers 37000/2 18500 Winter 37000/2 18500 *Net income: (salary allowance + interest allowance + remaining income) Rodgers (25000 + 7200 + 18500) 50700 Winter (30000 + 10800 + 18500) 59300 CALCULAITON FOR B: Excess of allowance over net income = Net income - Total allowances Total = 65000 - 73000 -8000 Rodgers (8000) * 50% -4000 Winter (8000) * 50% -4000
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