Question

Steve Prince and Chelsy Stevens formed a partnership, dividing income as follows: Annual salary allowance to Prince of $139,200. Interest of 7% on each partner's capital balance on January 1. Any remaining net income divided to Prince and Stevens, 1:2. Prince and Stevens had $55,520 and $97,560, respectively, in their January 1 capital balances. Net income for the year was $240,000. How much is distributed to Prince and Stevens

Answer 1

Amount distributed to Prince = $33,914.53

Amount distributed to Steven = $66,885.47

Step-by-step explanation:

Prince’s interest on capital = Prince’s January 1 capital balances * 7% = $55,520 * 7% = $3,886.40

Stevens’ interest on capital = Stevens’ January 1 capital balances * 7% = $97,560 * 7% = $6,829.20

Net income balance = Net income - Annual salary allowance to Prince - Prince’s interest on capital - Stevens’ interest on capital = $240,000 - $139,200 - $3,886.40 - $6,829.20 = $90,084.40

Prince’s share of net income balance = Net income balance * (1 / 3) = $90,084.40 * (1 / 3) = $30,028.13

Stevens’ share of net income balance = Net income balance * (2 / 3) = $90,084.40 * (2 / 3) = $60,056.27

Therefore, the amount distributed to Prince and Stevens can now be calculated as follows:

Amount distributed to Prince = Prince’s interest on capital + Prince’s share of net income balance = $3,886.40 + $30,028.13 = $33,914.53

Amount distributed to Steven = Stevens' interest on capital + Prince’s share of net income balance = $6,829.20 + $60,056.27 = $66,885.47