Answer: To determine the allocation of net income between Partner A and Partner B, we need to follow the agreed-upon allocation percentages and calculate the amounts for each partner.
According to the agreement:
- Partner A has a remainder allocation of 30%
- Partner B has a remainder allocation of 70%
Step 1: Calculate the remainder amounts:
- Partner A's remainder amount = $70,000 * 30% = $21,000
- Partner B's remainder amount = $70,000 * 70% = $49,000
Step 2: Allocate the salary allowance:
- Partner A's total allocation = Partner A's average capital + Partner A's salary allowance = $60,000 + $30,000 = $90,000
- Partner B's total allocation = Partner B's average capital + Partner B's salary allowance = $40,000 + $20,000 = $60,000
Step 3: Calculate the remaining amount to be allocated:
- Remaining amount for Partner A = Partner A's total allocation - Partner A's remainder amount = $90,000 - $21,000 = $69,000
- Remaining amount for Partner B = Partner B's total allocation - Partner B's remainder amount = $60,000 - $49,000 = $11,000
Step 4: Allocate the remaining amount based on the interest on average capital:
- Partner A's interest on average capital = Partner A's average capital * 10% = $60,000 * 10% = $6,000
- Partner B's interest on average capital = Partner B's average capital * 10% = $40,000 * 10% = $4,000
Step 5: Calculate the final allocation:
- Partner A's final allocation = Partner A's remainder amount + Partner A's interest on average capital + Remaining amount for Partner A = $21,000 + $6,000 + $69,000 = $96,000
- Partner B's final allocation = Partner B's remainder amount + Partner B's interest on average capital + Remaining amount for Partner B = $49,000 + $4,000 + $11,000 = $64,000
Therefore, the correct answer is:
a) Partner A $33,000 and Partner B $37,000
Step-by-step explanation: