68 1042 PM E 192A LO3 4 Wilson 29375 SHOW ME HOW ENTRIES FOR

68% 10.42 PM E 19-2A (LO3) 4. Wilson: $29,375 SHOW ME HOW ENTRIES FOR ALLOCATION OF NET INCOME Danny Spurlock and Tracy Wilson decided to form a partnership on July 1, 20-1. Spurlock invested $100,000 and Wilson invested $25,000. For the fiscal year ended June 30, 20-2, a net income of $80,000 was earned. Determine the amount of net income that Spurlock and Wilson would receive under each of the following independent assumptions: 1. There is no agreement concerning the distribution of net income Each partner is to receive 10% interest on their original investment. The remaining net income is to be divided equally. Spurlock and Wilson are to receive a salary allowance of $35,000 and $25,000, respectively. The remaining net income is to be divided equally 2. 3. 4. Each partner is to receive 10% interest on their original investment. Spurlock and Wilson are to receive a salary allowance

Solution

Situation 1 when there is no agreement income is to be distributed equally

Spurlock

Wilsom

Total income distribution

40000 (80000*1/2)

40000 (80000*1/2)

Situation 2

Spurlock

Wilsom

Interest on investment

10000 (100000*10%)

2500 (25000*10%)

Remaining income (80000-10000-2500) is to be distributed equally

33750 (67500*1/2)

33750 (67500*1/2)

Total income distribution

43750

36250

Situation 3

Spurlock

Wilsom

Salary allowance

35000

25000

Remaining income (80000-35000-25000) is to be distributed equally

10000 (20000*1/2)

10000 (20000*1/2)

Total income distribution

45000

35000

Spurlock

Wilsom

Interest on investment

10000 (100000*10%)

2500 (25000*10%)

Salary allowance

35000

25000

Remaining income (80000-10000-2500-35000-25000) is to be distributed in the ratio of 75%:25%

5625 (7500*75%)

1875 (7500*25%)

Total income distribution

50625

29375

	Spurlock	Wilsom
Total income distribution	40000 (80000*1/2)	40000 (80000*1/2)