Question

Fred and Barney started a partnership. Fred invested $20,000 in the business and Barney invested $32,000. The partnership agreement stipulated that profits would be divided as follows: Each partner would receive a 15% return on invested capital with the remaining income being distributed equally between the two partners. Assuming that the partnership earned $38,000 during an accounting period, the amount of income assigned to the two partners would be:

Answer 1

The amount of income assigned to the two partners would be $18,100 and $19,900 respectively.

Step-by-step explanation:

For computing the amount of income assigned to the two partners, we have to do the following calculations which are shown below:

1. Dividend amount for each partner:

For Fred = Invested amount × rate of return

= $20,000 × 15%

=$3,000

For Barney = Invested amount × rate of return

= $32,000 × 15%

= $4,800

The total dividend amount equals to

= Fred dividend + barney dividend

= $3,000 + $4,800

= $7,800

2. Now compute the remaining amount, and divide it in the sharing ratio

So, the remaining amount would be

= Partnership income - total dividend amount

= $38,000 - $7,800

= $30,200

So the Fred income would be = $30,200 × 50% = $15,100

And, the barney income would be = $30,200 × 50% = $15,100

So, the amount of income:

For Fred = Dividend income + remaining income

= $3,000 + $15,100

= $18,100

For Barney = Dividend income + remaining income

=$4,800 + $15,100

= $19,900

Hence, the amount of income assigned to the two partners would be $18,100 and $19,900 respectively.