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McGill and Smyth have capital balances on January 1 of $60,000 and $48,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $16,000 for McGill and $20,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth.

Required:
a. Prepare a schedule showing the distribution Of net income, assuming net income is $67,000.
b. Prepare a schedule showing the distribution of net income, assuming net income is $24,000.

Answer :

Answer and Explanation:

The preparation of the schedule for the following cases are

a.

Particulars            McGill            Smyth           Total

Salary allowance  $16,000       $20,000       $36,000

Interest allowance   $6,000      $4,800         $10,800

Total salaries &

interest                  $22,000      $24,800       $46,800

Left income or

deficiency            $12,120             $8,080       $20,200

Total division of

Net income            $34,120          $32,880     $67,000

b.

Particulars            McGill            Smyth           Total

Salary allowance  $16,000       $20,000       $36,000

Interest allowance   $6,000      $4,800         $10,800

Total salaries &

interest                  $22,000      $24,800       $46,800

Left income or

deficiency            -$13,680        -$9,120       -$22,800

Total division of

Net income            $8,320         $15,680    $24,000

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