Asked by Sarah-Cate Parker on May 13, 2024
Verified
Partners Eli and Alex have agreed to share profits and losses in an 80:20 ratio respectively after Eli is allowed a salary allowance of $70000 and Alex is allowed a salary allowance of $35000. If the partnership had net income of $70000 for 2017 Alex's share of the income would be
A) $35000.
B) $28000.
C) $42000.
D) $7000.
Salary Allowance
A predetermined amount of compensation allocated for salaries, possibly including additional benefits or allowances.
Profit Share
The portion of a company's profits allocated to employees or partners as a bonus or incentive.
- Acquire proficiency in the procedures for quantifying and allotting partnership financial results, with consideration for the effects of capital interest, fixed incomes, and specific ratios.
Verified Answer
JT
Joana TrinidadMay 19, 2024
Final Answer :
B
Explanation :
To calculate Alex's share of the income, we first need to determine the total salary allowances for both partners:
Eli's salary allowance = $70000
Alex's salary allowance = $35000
Total salary allowances = $70000 + $35000 = $105000
Next, we need to determine the total profit after the salary allowances have been deducted:
Net income = $70000
Total salary allowances = $105000
Total profit = Net income - Total salary allowances
Total profit = $70000 - $105000
Total profit = -$35000
Since the total profit is negative, there are losses to be shared. The losses will be shared in the 80:20 ratio, so we can calculate the amount of the losses that Alex will bear:
Alex's share of the losses = 20% × -$35000
Alex's share of the losses = -$7000
Since Alex's share of the losses is negative, we can subtract it from his salary allowance to get his share of the income:
Alex's share of the income = $35000 - $7000
Alex's share of the income = $28000
Therefore, Alex's share of the income would be $28000.
Eli's salary allowance = $70000
Alex's salary allowance = $35000
Total salary allowances = $70000 + $35000 = $105000
Next, we need to determine the total profit after the salary allowances have been deducted:
Net income = $70000
Total salary allowances = $105000
Total profit = Net income - Total salary allowances
Total profit = $70000 - $105000
Total profit = -$35000
Since the total profit is negative, there are losses to be shared. The losses will be shared in the 80:20 ratio, so we can calculate the amount of the losses that Alex will bear:
Alex's share of the losses = 20% × -$35000
Alex's share of the losses = -$7000
Since Alex's share of the losses is negative, we can subtract it from his salary allowance to get his share of the income:
Alex's share of the income = $35000 - $7000
Alex's share of the income = $28000
Therefore, Alex's share of the income would be $28000.
Learning Objectives
- Acquire proficiency in the procedures for quantifying and allotting partnership financial results, with consideration for the effects of capital interest, fixed incomes, and specific ratios.
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