Question

Problem Alex Hutchins and Catlin Jenkins formed a partnership,dividing income as follow:
1. annual salary allowance of hutchins of 24,000
2 Interest of 12% on each partners capital balance of january 1
3. any remaining net income divided to hutchins and jenkins, 2:1

hutchins and jenkins had 60,000 and 80,000 respectively in their jan 1 capital balances. net income for the year was 36,000.

How much net income should be distributed to Hutchins?

Answer 1

Because you're looking for the net income for only Hutchins:

I'll answer respectively:

1. Annual salary is 24,000 for Hutchins, so that is automatically taken out of Net Income.
2. An interest of 12% on Hutchins' capital balance is (.12) x 60,000 = 7,200 [current amount of net income distributed to Hutchins 24,000 + 7,200 = 31,200]
3. Remaining net income is 4,800 (36,000 total net income - 31,200 amount already distributed to Hutchins), so now you need a 2:1 ratio between the two partners. Take a fraction that is also a 2:1 ratio, such as 2/3 to 1/3 for Hutchins and Jenkins respectively. Thus 2/3 x 4,800 is 3,200.

This 3,200 is added to what is already distributed to Hutchins (31,200) for the answer of 34,400.

Hope this helps!