Question

Singer and McMann are partners in a business. Singer's original capital was $40,000 and McMann's was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann, respectively, and 10% interest on original capital. If they agree to share the remaining profits and losses on a 3:2 ratio, what will McMann's share of the income be if the income for the year is $30,000?

Answer 1

Answer:  $20,000

Explanation:

Given that,

Singer's original capital = $40,000

McMann's original capital = $60,000

Singer's salary = $12,000

McMann's salary = $18,000

Interest on original capital = 10%

Profit sharing ratio = 3:2

Income of the year = $30,000

McMann's share of the income:

Salary = $18,000

Interest = $6,000

Singer's share of the income:

Salary = $12,000

Interest = $4,000

Therefore,

Remainder = $30,000 - $40,000

                  = -$10,000

Hence, remainder will be divided among these two partners in 3:2 ratio.

So,

McMann's share of remainder = $\frac{2}{5}\times10,000$

                                                  = -$4,000

Therefore, McMann's share of the income:

=  Salary + Interest + remainder

= $18,000 + $6,000 + (-$4,000)

= $20,000