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Example Exercise 2

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Example 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 ... – PowerPoint PPT presentation

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Title: Example Exercise 2


1
Example 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

2
Example 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.
3
Example 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
4
Example Exercise 2
J. Stone C. Mills Total
Net income 150,000
Annual salary allowance 60,000 48,000 108,000



5
Example 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


6
Example 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

7
Example 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

8
Example 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
9
Example Exercise 2
2
Steve Prince Chelsy Bernard Total
Net income 240,000
Annual salary allowance 42,000 0 42,000



10
Example 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


11
Example 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

12
Example 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
13
Example Exercise 2
2
2
2A, 2B
? For Practice PE 2A, PE 2B
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