Question

Applying the interest allowance method, compute Taylor's and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000 at a 6% interest rate, with the remainder to be divided equally. Net income was $75,000.

Answer 1

Taylor Timmy

Interest @6% 12000 48000

Remainder Profit Divided Equally 7500 7500

Total 19500 55500

Answer 2

Taylor: $19,500

Timmy: $55,500