Partners Bob and Don have agreed to share profits and losses in an 80:20 ratio respectively, after Bob is allowed a salary allowance of $140,000 and Don is allowed a salary allowance of $70,000. If the partnership had net income of $140,000 for 2010, Don's share of the income would be

Question

Quizplus · Accepted Answer

Bob's salary allowance is subtracted from the net income first: 
$140,000 (Bob's salary allowance) subtracted from $140,000 (net income) leaves $0 for Bob's profit share.

Don's salary allowance is also subtracted from the net income, leaving $70,000 of profit to share between Bob and Don.

The profit split is in an 80:20 ratio, so Don's share is 80% of $70,000:

$70,000 x 0.8 = $56,000.

Therefore, Don's share of the net income would be $56,000.

Partners Bob and Don Have Agreed to Share Profits and Losses