Question

Partners Gary and Elaine have agreed to share profits and 1osses in an 80:20 ratio respectively, after Gary is allowed a salary allowance of $30,000 and Elaine is allowed a salary allowance of $15,000. If the partnership had net income of $30,000 for 2017 Elaine's share of the income would be A) 15,000 B) 12,000 C)18, 000 D) 3,000 E) None of the above

Answer 1

To find Elaine's share of the income, we subtract the total salary allowances from the net income, then calculate Elaine's share in a 20:80 ratio. The correct answer is $3,000.

Step-by-step explanation:

To find Elaine's share of the income, we first need to calculate the total salary allowances for both partners. Gary's salary allowance is $30,000 and Elaine's salary allowance is $15,000. Therefore, the total salary allowances for both partners is $30,000 + $15,000 = $45,000.

To determine the partnership's net income after the salary allowances, we subtract the total salary allowances from the total net income. In this case, the net income is $30,000 and the total salary allowances are $45,000. Therefore, the partnership's net income after the salary allowances is $30,000 - $45,000 = -$15,000.

Since Elaine's share of the income is calculated in a 20:80 ratio with Gary, her share would be 20% of the net income after the salary allowances. Therefore, Elaine's share of the income would be 20% of -$15,000, which is -$15,000 * 0.20 = -$3,000.

Since the question asks for Elaine's share of the income, and the options provided are all positive numbers, the correct answer is D) $3,000.