Question

Fred and Barney started a partnership. During Year 1, Fred invested $13,500 in the business and Barney invested $22,000. The partnership agreement called for each partner to receive an annual distribution equal to $12% of his capital contribution. Any further earnings were to be retained in the business and divided equally between the partners. The partnership reported net income of $31,000 during Year 1. How will the $31,000 of net income be split between Fred and Barney respectively

Answer 1

Answer: Fred; $14,990

Barney; $16,010

Explanation:

Each partner will receive 12% of their investment.

Fred will therefore receive,

= 12% * 13,500

= $1,620

Barney will receive,

= 12% * 22,000

= $2,640

Adding both these figures gives,

= 1,620 + 2,640

= $4,260

This figure needs to be subtracted from the income and then the rest will be split equally.

=31,000 - 4,260

= $26,740

= 26,740/ 2

= $13,370

Each partner is to get $13,370 extra.

Fred gets,

= 1,620 + 13,370

= $14,990

Barney gets,

= 2,640 + 13,370

= $16,010