Partners Eli and Alex have agreed to share profits and losses in an 80:20 ratio respectively after Eli is allowed a salary allowance of $70000 and Alex is allowed a salary allowance of $35000. If the partnership had net income of $70000 for 2017 Alex's share of the income would be

Question

Quizplus · Accepted Answer

To calculate Alex's share of the income, we first need to determine the total salary allowances for both partners:
Eli's salary allowance = $70000
Alex's salary allowance = $35000
Total salary allowances = $70000 + $35000 = $105000

Next, we need to determine the total profit after the salary allowances have been deducted:
Net income = $70000
Total salary allowances = $105000
Total profit = Net income - Total salary allowances
Total profit = $70000 - $105000
Total profit = -$35000

Since the total profit is negative, there are losses to be shared. The losses will be shared in the 80:20 ratio, so we can calculate the amount of the losses that Alex will bear:
Alex's share of the losses = 20% × -$35000
Alex's share of the losses = -$7000

Since Alex's share of the losses is negative, we can subtract it from his salary allowance to get his share of the income:
Alex's share of the income = $35000 - $7000
Alex's share of the income = $28000

Therefore, Alex's share of the income would be $28000.

Partners Eli and Alex Have Agreed to Share Profits and Losses