Question

The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business's profit or loss in the following sequence: Jones, the managing partner, receives a bonus equal to 25 percent of the business’s profit. Each partner receives 20 percent interest on average capital investment. Any residual profit or loss is divided equally. The average capital investments for 2018 were as follows: Jones $ 185,000 King 370,000 Lane 555,000 How much of the $82,000 partnership profit for 2018 should be assigned to each partner?

Answer 1

Mr J = $4,000

Mr. K = $20,500

Mr L = $57,500

Step-by-step explanation:

The computation of partnership profit is shown below:-

Partnership profit for the year 2018 $82,000

Less: Bonus to Mr Jones $20,500

($82,000 × 25%)

Less: Interest on average capital investment

Mr J (20% × $185,000) $37,000

Mr K (20% × $370,000) $74,000

Mr L (20% × $555,000) $111,000

Profit/Loss to be distributed ($160,500)

Loss to be allocated to each partner ($53,500)

($160,500) ÷ 3

Mr J $4,000

$20,500 + $37,000 + ($53,500)

Mr. K $20,500

$74,000 + ($53,500)

Mr L $57,500

$111,000 + ($53,500)