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E 16-4 Partnership income allocation—Salary allowance and interest

E 16-4 Partnership income allocation—Salary allowance and interest

The partnership agreement of Dan, Hen, and Bai provides that profits are to be divided as follows:

  • Bai receives a salary of $24,000, and Hen receives a salary of $18,000 for time spent in the business.

  • All partners receive 10 percent interest on average capital balances.

  • Remaining profits and losses are divided equally among the three partners.

On January 1, 2016, the capital balances were Dan, $300,000; Hen, $240,000; and Bai, $250,000. Dan invested an additional $40,000 on July 1 and withdrew $40,000 on October 1. Hen and Bai had drawings of $18,000 each during the year, which are allowed in the partnership agreement.

Required

Prepare a schedule to allocate partnership net income of $56,000 for 2016.

 

Sep 17 2020 View more View Less

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