Partners A and B have a profit and loss agreement with the following provisions: salaries of $41,600 and $38,400 for A and B, respectively; a bonus to A of 10% of net income after salaries and bonus; and interest of 10% on average capital balances of $20,000 and $35,000 for A and B, respectively. One-third of any remaining profits are allocated to A and the balance to B. If the partnership had a net income of $36,000, how much should be allocated to Partner A, assuming that the provisions of the profit and loss agreement are ranked by order of priority starting with salaries?

Question

Quizplus · Accepted Answer

The salaries total $80,000, but there is only $36,000 in income. Because the items are ranked by order of priority, the profits will be allocated based on the partner's portion of the salaries.
A's salary is $41,600, which is 52.0% of $80,000. A will receive $36,000 x 52.0% = $18,720.

Partners a and B Have a Profit and Loss Agreement