Question

Emmett and Sierra formed a partnership dividing income as follows: 1. Annual salary allowance to Emmett of $48,000. 2. Interest of 8% on each partner's capital balance on January 1. 3. Any remaining net income divided equally. Emmett and Sierra had $25,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $200,000. How much of the $200,000 net income should be distributed to Emmett?

Answer 1

Answer:

$119,400

Explanation:

The computation of the net income that should be distributed to Emmett is as follows:

Particulars               Emmett           Sierra          Total

Net income                                                          $200,000

Salary                      $48,000                              ($48,000)

Balance left                                                         $152,000

Interest at 8%          $2,000        $11,200         ($13,200)

                    ($25,000 × 8%)      ($140,000 × 8%)

Balance left                                                          $138,800

Balance allocation   $69,400       $69,400

Share of profit         $119,400       $80,600