Question

Lia Chen and Martin Monroe formed a partnership, dividing income as follows:Annual salary allowance to Chen of $35,000.Interest of 4% on each partner’s capital balance on January 1.Any remaining net income divided to Chen and Monroe, 2:1.Chen and Monroe had $90,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $70,000.Required:How much net income should be distributed to Chen and Monroe?

Answer 1

$55,800 and $14,200

Step-by-step explanation:

The computation of the distribution of the net income is presented below:

Particulars Chen Martin Total

Opening capital balance $90,000 $140,000 $230,000

Annual salary allowance (A) $35,000 $35,000

Interest @4% on

opening capital (B) $3,600 $5,600 $9,200

Remaining income (C) $17,200 $8,600 $25,800

Net income (A + B + C) $55,800 $14,200 $70,000

The remaining income would be

= $70,000 - $35,000 - $9,200

= $25,800

And, the remaining income is divided between the partners in 2:1 ratio