Applying the interest allowance method,compute Taylor and Timmy's share of net income if Taylor invested $300,000 and Timmy invested $700,000 at a 6% interest rate,with the remainder to be divided equally.Net income was $80,000.
A)Taylor,$24,000;Timmy,$56,000
B)Taylor,$40,000 Timmy,$40,000
C)Taylor,$28,000;Timmy,$52,000
D)None of these answers is correct.

Question

Quizplus · Accepted Answer

Using the interest allowance method, we first calculate the interest on the investments:

Taylor's interest = $300,000 x 6% = $18,000
Timmy's interest = $700,000 x 6% = $42,000

Next, we deduct the interest from the net income to get the remaining profit:

$80,000 - ($18,000 + $42,000) = $20,000

Finally, we divide the remaining profit equally between Taylor and Timmy:

Taylor's share = $20,000 / 2 = $10,000
Timmy's share = $20,000 / 2 = $10,000

Adding the interest to each person's share, we get:

Taylor's total share = $18,000 + $10,000 = $28,000
Timmy's total share = $42,000 + $10,000 = $52,000

Therefore, the answer is C) Taylor, $28,000; Timmy, $52,000.

Applying the Interest Allowance Method,compute Taylor and Timmy's Share of Net