Question

Leigh Meadows and Byron Leef formed a partnership in which the partnership agreement provided for salary allowances of $35,000 and $25,000, respectively. Determine the division of a $20,000 net loss for the current year, assuming remaining income or losses are shared equally by the two partners. Use the minus sign to indicate any deductions or deficiencies.

Answer 1

Leigh is responsible for $5,000 in losses, and Byron for $15,000 in losses.

Step-by-step explanation:

Since both income and losses are shared equally, we must first determine the partnership's total income:

Leigh Byron Total

salaries $35,000 $25,000 $60,000

net loss = income - total costs

-$20,000 = $60,000 - total costs

total costs = $60,000 + $20,000 = $80,000

divided by the 2 partners:

Leigh Byron Total

salaries $35,000 $25,000 $60,000

costs -$40,000 -$40,000 -$80,000

net loss -$5,000 -$15,000 -$20,000