Question

Seth and Beth have original investments of $50,000 and $100,000, respectively, in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%; salary allowances of $27,000 and $18,000, respectively; and the remainder to be divided equally. How much of the net income of $42,000 is allocated to Seth

Answer 1

Answer:

$23,000

Explanation:

The computation of the amount of the net income allocated to Seth is shown below:

Remaining net income = Net income - (Interest amount given to Seth + Interest amount given to Beth) - (salary allowance of Seth + Salary allowance of Beth)

= $42,000 - ($50,000 × 10% + $100,000 × 10%) - ($27000 + $18,000)

= $42,000 - (5,000 + $10,000) - ($45,000)

= -$18,000

Since it is mentioned that the remaining amount is to be divided equally

that means Seth and Beth distributed the loss of $9,000 each

So, the amount i.e to be allocated to Seth is

= $5,000 + $27,000 - $9,000

= $23,000