Question

The SRT partnership agreement specifies that partnership net income be allocated as follows in the following order: Partner S Partner R Partner TSalary allowance $20,000 $25,000 $15,000Interest on avg. capital balance 10% 10% 10%Remainder 30% 30% 40%Average capital balances for the current year were $60,000 for S, $50,000 for R, and $40,000 for T.Refer to the information given. Assuming no restrictions and current year net income of $45,000, what amount should be allocated to each partner? Partner S Partner R Partner TA) $17,000 $21,000 $7,000B) ($9,000) ($9,000) ($12,000)C) $13,500 $13,500 $18,000D) $22,500 $22,500 $0

Answer 1

Note 1

calculation of remaining income after distribution of salary and interest on capital.

Total Net Income $ 45,000

Less : Salary allowance $ 60,000

($20,000 + $25,000 + $15,00)

Less : Interest on capital $ 15,000

($ 6,000 + $ 5,000 + $ 4,000)

Remaining income / (loss) to be allocated $ 30,000

Since the remaining income is negative, i.e. it loss to the SR partnership, so such Loss will also be allocated to the partners. Since in a partnership, Partners are required to share profits as well as losses. Hence, such loss will be deducted from the other shares.

Scheduled of amount allocated to each partner

Partners S Partner R Partner T

a). Salary allowance allocated $ 20,000 $ 25,000 $ 15,000

b). Interest on average capital $ 6000 $ 5000 $ 4000

balance allocated.

c). Remaining income allocated $ 9000 $ 9000 $ 12,000

Total allocation (a + b - c) : $ 17,000 $ 21,000 $ 7,000