Question

McGill and Smyth have capital balances on January 1 of $60,000 and $48,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $16,000 for McGill and $20,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth.

Required:
a. Prepare a schedule showing the distribution Of net income, assuming net income is $67,000.
b. Prepare a schedule showing the distribution of net income, assuming net income is $24,000.

Answer 1

Answer and Explanation:

The preparation of the schedule for the following cases are

a.

Particulars McGill Smyth Total

Salary allowance $16,000 $20,000 $36,000

Interest allowance $6,000 $4,800 $10,800

Total salaries &

interest $22,000 $24,800 $46,800

Left income or

deficiency $12,120 $8,080 $20,200

Total division of

Net income $34,120 $32,880 $67,000

b.

Particulars McGill Smyth Total

Salary allowance $16,000 $20,000 $36,000

Interest allowance $6,000 $4,800 $10,800

Total salaries &

interest $22,000 $24,800 $46,800

Left income or

deficiency -$13,680 -$9,120 -$22,800

Total division of

Net income $8,320 $15,680 $24,000