Title: Example Exercise 2
1Example Exercise 2
Dividing Partnership Income
- Income or losses of the partnership are divided
equally if no partnership agreement exists or it
does not specify how the division is to occur.
Common methods of dividing partnership income are
based on - Services of the partners
- Services and investments of the partners
2Example Exercise 2
Services of Partners
One method of dividing partnership income is
based on the services, called salary allowances,
by each partner to the partnership. Since
partners are not employees, these allowances are
recorded as divisions of net income and are
credited to the partners capital accounts.
3Example Exercise 2
Services of Partners
Assume that the partnership agreement of Jennifer
Stone and Crystal Mills provides for the
following division of net income
Net income for the current period is 150,000
4Example Exercise 2
J. Stone C. Mills Total
Net income 150,000
Annual salary allowance 60,000 48,000 108,000
5Example Exercise 2
J. Stone C. Mills Total
Net income 150,000
Annual salary allowance 60,000 48,000 108,000
Interest Allowance 19,200 14,400 33,600
6Example Exercise 2
J. Stone C. Mills Total
Net income 150,000
Annual salary allowance 60,000 48,000 108,000
Interest Allowance 19,200 14,400 33,600
Remaining income 8,400
7Example Exercise 2
J. Stone C. Mills Total
Net income 150,000
Annual salary allowance 60,000 48,000 108,000
Interest Allowance 19,200 14,400 33,600
Remaining income 4,200 4,200 8,400
8Example Exercise 2
J. Stone C. Mills Total
Net income 150,000
Annual salary allowance 60,000 48,000 108,000
Interest Allowance 19,200 14,400 33,600
Remaining income 4,200 4,200 8,400
83,400 66,600 150,000
9Example Exercise 2
2
Steve Prince Chelsy Bernard Total
Net income 240,000
Annual salary allowance 42,000 0 42,000
10Example Exercise 2
2
Steve Prince Chelsy Bernard Total
Net income 240,000
Annual salary allowance 42,000 0 42,000
Interest 1,800 13,500 15,300
11Example Exercise 2
2
Steve Prince Chelsy Bernard Total
Net income 240,000
Annual salary allowance 42,000 0 42,000
Interest 1,800 13,500 15,300
Remaining income 91,350 91,350 182,700
12Example Exercise 2
2
Steve Prince Chelsy Bernard Total
Net income 240,000
Annual salary allowance 42,000 0 42,000
Interest 1,800 13,500 15,300
Remaining income 91,350 91,350 182,700
Net income 135,150 104,850 240,000
13Example Exercise 2
2
2
2A, 2B
? For Practice PE 2A, PE 2B