Question

The DEF partnership reported net income of $130,000 for the year ended December 31, 20X8. According to the partnership agreement, partnership profits and losses are to be distributed as follows in the following order:

D                         E                    F
Salaries                             $25,000              $20,000          $15,000
Bonus on net income         10%                        -----                  -----
Remainder                       60%                       30%                10%

Required:
How should partnership net income for 2008 be allocated to D, E, and F?

Answer 1

The DEF Partnership

Allocation of Partnership Net Income for 2008:

D E F Total

Net income $130,000

Salaries $25,000 $20,000 $15,000 (60,000)

Bonus on net income 13,000 ----- ----- (13,000)

Remainder 34,200 17,100 5,700 (57,000)

Total allocation $72,200 $37,100 $20,700 $130,000

Step-by-step explanation:

a) Data and Calculations:

Net income for the year ended December 31, 2008 = $130,000

Order of distribution of partnership profits and losses:

D E F

Salaries $25,000 $20,000 $15,000

Bonus on net income 10% ----- -----

Remainder 60% 30% 10%

Bonus on net income = $13,000 ($130,000 * 10%)

Remainder after salaries and bonus = $57,000 ($130,000 - $73,000)

D = $34,200 ($57,000 * 60%)

E = $17,100 ($57,000 * 30%)

F = $5,700 ($57,000 * 10%)