Question

John Prado and Ayana Nicks formed a partnership, dividing income as follows: Annual salary allowance to Prado, $10,000 and Nicks, $28,000. Interest of 5% on each partner's capital balance on January 1. Any remaining net income divided equally. Prado and Nicks had $20,000 and $50,000, respectively, in their January 1 capital balances. Net income for the year was $30,000.How much net income should be distributed to Prado and Nicks?

Answer 1

The net income should be distributed to Prado and Nicks is $5,250 and $24,750 respectively.

Step-by-step explanation:

The computation of the net income distribution between two partners bet is shown below:

1. For John partner = Annual salary allowance + interest on capital - remaining loss

where,

Annual salary allowance = $10,000

Interest on capital = Capital × interest rate = $20,000 × 5% = $1,000

Remaining loss = $5,750

2. For Ayana nicks partner = Annual salary allowance + interest on capital - remaining loss

where,

Annual salary allowance = $28,000

Remaining loss = $5,750

Interest on capital = Capital × interest rate = $50,000 × 5% = $2,500

The remaining loss = Net income - both partners annual salary allowance - both partners interest on capital

= $30,000 - $10,000 - $28,000 - $1,000 - $2,500

= - $11,500 The remaining loss should be equally distribute between two partners

Now put these values to the above equation

So, the value would equal to

For John = $10,000 + $1,000 - $5,750 = $5,250

For Ayana = $28,000 + $2,500 - $5,750 = $24,750