Dividing Partnership Net Income Lia Chen and Martin Monroe f

Dividing Partnership Net Income

Lia Chen and Martin Monroe formed a partnership, dividing income as follows:

Annual salary allowance to Chen of $35,000.

Interest of 4% on each partner’s capital balance on January 1.

Any remaining net income divided to Chen and Monroe, 2:1.

Chen and Monroe had $90,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $70,000.

Required:

How much net income should be distributed to Chen and Monroe?
Chen: $
Monroe: $

Solution

Chen: $55800

Monroe: $14200

Note: Income remaining after salary allowance and interest i.e. $70000 - $35000 - $9200 = $25800 is distributed to Chen and Monroes in the ratio of 2:1.