Question

Hope & Faith Company reports net income of $40,000.

The partnership agreement provides for annual salaries of $24,000 for Hope and $15,000 for Faith.

Interest allowances of $4,000 and $6,000, respectively.

Any remaining is to be shared 70% and 30%, respectively.

Instructions: Prepare in proper format the amount of net income distributed to each partner.

Answer 1

Explanation:

The computation of net income distributed to each partner is given below:-

                                                  Hope         Faith         Total

Annual Salary                             $24,000 $15,000    $39,000

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

Total salary and interest            $28,000 $21,000           $49,000

Remaining deficiency ($9,000)

($49,000 - $40,000)    

Hope ($9,000 × 70%)                   ($6,300)  

Faith ($9,000 × 30%)                                    ($2,700) ($9,000)

Total division net income                 $21,700    $18,300    $40,000