Zheng invested $100,000 and Murray invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year salary allowance to Murray, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally.
- Under this agreement, the shares of the partners when the partnership earns $105,000 in income are:

Question

Quizplus · Accepted Answer

First, we need to calculate the interest allowance on partners' capital investments:
- Zheng's investment: $100,000 x 10% = $10,000
- Murray's investment: $200,000 x 10% = $20,000
The total interest allowance is $30,000.

Next, we subtract the salary allowances and interest allowance from the partnership's income to find the balance to be shared equally:
$105,000 - $60,000 - $40,000 - $30,000 = $35,000

Now we can calculate each partner's share:
- Zheng's share: $60,000 (salary allowance) + $10,000 (interest allowance) + $17,500 (half of the balance) = $87,500
- Murray's share: $40,000 (salary allowance) + $20,000 (interest allowance) + $17,500 (half of the balance) = $77,500

Therefore, the shares of the partners when the partnership earns $105,000 in income are $57,500 to Zheng and $47,500 to Murray. The answer is D.

Zheng Invested $100,000 and Murray Invested $200,000 in a Partnership