Question

The partnership agreement of K. Mitch and A. Alam reflects differences in service and capital contributions as follows: (1) annual salary allowances of $20,000 to Mitch and $40,000 to Alam (2) annual interest allowances of 10% of a partner's beginning-year capital balance, and (3) equal share of any remaining balance of income or loss. Both partner's beginning-year capital balance was $70,000. Net income was $100,000. Income allocated to Alam is $

Answer 1

The answer is: $60,000

Step-by-step explanation:

Since we are given the total revenue and total expenses for this partnership, we can elaborate the following income statement:

Total revenue $100,000

Total expenses

Mitch's salary $20,000

Alam's salary $40,000

($60,000)

Net income $40,000

Their partnership agreement stated that all net income should be divided equally between both partners, so Mitch will receive $20,000 and Alam $20,000.

Alam's total income = $40,000 + $20,000 = $60,000