Answer:
The answer is:
Sheldon: $39, 500; Morton: $50, 500
Explanation:
A partnership is a binding agreement between two or more parties to carry on a business. The sole purpose of this agreement is to share skills and expertise so as to generate a profit. In a partnership, the partners have unlimited liability meaning that if the business established by the partners in unable to repay creditors, the creditors are legally allowed to seize the personal assets of the partners to cover the debts owing. However, in accounting for financial performance, the business is considered to be a separate entity (exists independent of the partners). Sheldon and Morton have established a profit-sharing arrangement that compensates Sheldon for the capital contribution (larger interest share) and Morton for his contributions to the business operations (larger salary share). The profit after these deductions is shared equally between the 2 partners. Assuming the given net income is after operations but before partner deductions, the share of the partners is calculated as follows:
Sheldon Morton
Interest $8,000 $4,000
Salaries $10,000 $25,000
Profit share <u>$21, 500 </u> <u>$21, 500</u>
Total share <u>$39, 500</u> <u>$50, 500</u>
Interest (10% * $80, 000) (10% * $40, 000)
Profit share (50% * $43,000) (50% * $43,000)
Net Profit Share: $90, 000 - $(8,000 + 10,000 + 4,000 + 25,000)= $43,000
