Question

seth and rachel have original investments of $50,000 and $100,000, respectively, in a partnership. the articles of partnership include the following provisions regarding the division of net income: interest on original investments at 15%; salary allowances of $24,000 and $20,000, respectively; and the remainder to be divided equally. how much of the net income of $90,000 is allocated to seth? a.$45,000 b.$43,250 c.$47,750 d.$42,750

Answer 1

The amount of the net income of $90,000 to be shared to Seth is $43,250 that is option B is correct.

Interest may be defined as the extra amount that is earned by any firm on the lending of a certain amount of money to the borrower. Capital may be defined as the investment made by any firm in setting up of the firm. The formula for calculating the net income shared will be expressed as

Net income shared to Seth = net income - interest on capital at 15% - salary allowance - balance to be equally shared

According to the question, Net income = $90000, Interest on capital at 15% = 0.15×$90000 = $13500, salary allowances = $20000 and balance to be equally shared = $13500/2 = $11750

Using these value in the expression we get,

Net income to be shared = $90,000 - $13500 - $20000 -  $11750

Net income to be shared = $43250

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