Question

Leigh Meadows and Byron Leef formed a partnership in which the partnership agreement provided for salary allowances of $35,000 and $25,000, respectively. Determine the division of a $20,000 net loss for the current year, assuming remaining income or losses are shared equally by the two partners. Use the minus sign to indicate any deductions or deficiencies.

Answer 1

Answer:

Leigh is responsible for $5,000 in losses, and Byron for $15,000 in losses.

Explanation:

Since both income and losses are shared equally, we must first determine the partnership's total income:

                         Leigh                Byron                 Total

salaries             $35,000           $25,000            $60,000

net loss = income - total costs

-$20,000 = $60,000 - total costs

total costs = $60,000 + $20,000 = $80,000

divided by the 2 partners:

                          Leigh                Byron                 Total

salaries             $35,000           $25,000            $60,000

costs                -$40,000          -$40,000           -$80,000

net loss              -$5,000           -$15,000           -$20,000