Question

Crane Co. reports net income of $64,000. Partner salary allowances are Pitts $13,000, Filbert $4,000, and Witten $8,000. Indicate the division of net income to each partner, assuming the income ratio is 51 : 26 : 23, respectively.

Answer 1

Pitts = $19,890

Filbert = $10,140

Witten = $8,970

Step-by-step explanation:

First, calculate the distributable income

Distributable Income = Net income - Total salary allowances = $64,000 - ( $13,000 + $4,000 + $8,000 ) = $64,000 - $25,000 = $39,000

Now calculate the net income share of each partner using following formula

Share = Distributable profit x Income ratio

Pitts = $39,000 x 51% = $19,890

Filbert = $39,000 x 26% = $10,140

Witten = $39,000 x 23% = $8,970