The partnership agreement of Nieto, Keller, and Pickert provides for the following income ratio: (a) Nieto, the managing partner, receives a salary allowance of $36,000, (b) each partner receives 15% interest on average capital investment, and (c) remaining net income or loss is divided equally. The average capital investments for the year were: Nieto $200,000, Keller $400,000, and Pickert $600,000. If partnership net income is $240,000, the amount distributed to Keller should be:

Question

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First, we need to calculate the total interest on average capital investment for all partners.

Nieto's interest: 15% x $200,000 = $30,000 
Keller's interest: 15% x $400,000 = $60,000 
Pickert's interest: 15% x $600,000 = $90,000

Total interest: $30,000 + $60,000 + $90,000 = $180,000

Next, we need to deduct Nieto's salary allowance from the partnership net income:

Net income - Nieto's salary allowance = $240,000 - $36,000 = $204,000

Then, we deduct the total interest on average capital investment:

$204,000 - $180,000 = $24,000

Finally, we divide the remaining net income equally among the partners:

$24,000 ÷ 3 = $8,000

Adding Keller's interest of $60,000, the total distribution to Keller should be:

$8,000 + $60,000 = $68,000

The Partnership Agreement of Nieto, Keller, and Pickert Provides for the Following