Answer: Option (C) is correct.
Explanation:
Given that,
Partner S:
Salary allowance = $20,000
Interest on average capital balance = 10% of 60,000
= $6,000
Average capital balances for the current year = $60,000
Remainder = 30% of 50,000
= $15,000
Amount should be allocated = Salary allowance + Interest on average capital balance + Remainder
= $20,000 + $6,000 + $15,000
= $41,000
Partner R:
Salary allowance = $25,000
Interest on average capital balance = 10% of 50,000
= $5,000
Average capital balances for the current year = $50,000
Remainder = 30% of 50,000
= $15,000
Amount should be allocated = Salary allowance + Interest on average capital balance + Remainder
= $25,000 + $5,000 + $15,000
= $45,000
Partner T:
Salary allowance = $15,000
Interest on average capital balance = 10% of 40,000
= $4,000
Average capital balances for the current year = $40,000
Current year net income = $125,000
Remainder = 40% of 50,000
= $20,000
Amount should be allocated = Salary allowance + Interest on average capital balance + Remainder
= $15,000 + $4,000 + $20,000
= $39,000
Workings:
Salary allowed = $20,000 + $25,000 + $15,000
= $60,000
Interest on average capital balance = $6,000 + $5,000 + $4,000
= $15,000
Total = Salary allowed + Interest on average capital balance
= $60,000 + $15,000
= $75,000
Remainder = Current year net income - Total
= $125,000 - $75,000
= $50,000
