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How the income should be allocated to the partners

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Reference no: EM132495642

Kantor and Freeman began a partnership by investing $104,000 and $156,000 respectively. During the first year of operation, the partnership earned $90,000.

Required:

Question 1: Prepare calculations showing how the income should be allocated to the partners under each of the following plans for sharing net incomes and losses:

(a) The partners failed to agree on a method of sharing income.

(b) The partners agreed to share income by allowing Kantor a $40,000 salary and Freeman a $30,000 salary, and by allocating the balance in the ratio 2:3.

(c) Repeat the calculations for (b) under the assumption that instead of the $90,000 income, the partnership experienced a $20,000 loss.

(d) Assume that instead of a partnership, Kantor and Freeman incorporated, with Kantor receiving 104 shares and Freeman 156 shares. Would a division of earnings between Kantor and Freeman be necessary at year end? Explain.

Reference no: EM132495642

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