The partnership agreement of Jones, King, and Lane provides for the annual alloc

Question

The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business's profit or loss in the following sequence: Jones, the managing partner, receives a bonus equal to 25 percent of the business’s profit. Each partner receives 20 percent interest on average capital investment. Any residual profit or loss is divided equally. The average capital investments for 2018 were as follows:

Jones $ 185,000

King 370,000

Lane 555,000

How much of the $82,000 partnership profit for 2018 should be assigned to each partner?

Explanation / Answer

Income Assignment Statement

* Bonus : Jones will receive a bonus 25% of business profit

= $82000 * 25%

= $20,500

**Each partner will receive an interest of 20% on Average capital investment.

Jones's interest= 20% of $185,000 = $37,000

King's interest = 20% of $370,000= $74,000

Lane's Interest = 20% of $555,000= $111,000

Jones King Lane Total Bonus* $20500 - - $20,500 Interest on capital** $37000 $74000 $111,000 $222,000 Remaining Loss ($53,500) ($53,500) ($53,500) ($160,500) Income Assignment $4000 $20,500 $57,500 $82,000

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