Question

Laverne and Shirley started a partnership. Laverne invested $4,000 in the business and Shirley invested $6,000. The partnership agreement stipulated that profits would be divided as follows. Each partner would receive a 10% return on their invested capital with the remaining income being distributed equally between the two partners. Assuming that the partnership earned $4,500 during an accounting period, the amount of income assigned to the two partners would be:

Answer 1

Answer: Amount of income assigned to Laverne = $2,150

Amount of income assigned to Shirley = $2,350

Explanation:

Given that,

Laverne invested = $4,000

Shirley invested = $6,000

Each partner receive = 10% return on their invested capital

and remaining income being distributed equally between the two partners.

Partnership earned = $4,500

Remaining income = Partnership earned - 10% on Laverne's capital - 10% on Laverne's capital

                               = $4,500 - $400 - $600

                               = $3,500

Amount of income assigned to Laverne:

= 10% of $4,000 + $\frac{3500}{2}$

= $400 + $1,750

= $2,150

Amount of income assigned to Shirley:

= 10% of $6,000 + $\frac{3500}{2}$

= $600 + $1,750

= $2,350