Fred and Barney started a partnership.During Year 1,Fred invested $20,000 in the business and Barney invested $32,000.The partnership agreement called for each partner to receive an annual distribution equal to 15% of his capital contribution.Any further earnings were to be retained in the business and divided equally between the partners.The partnership reported net income of $38,000 during Year 1.How will the $38,000 of net income be split between Fred and Barney respectively? (Hint: Consider both the cash withdrawals and allocation of remaining income. )
Fred Barney

Question

Quizplus · Accepted Answer

Cash withdrawals (that is,annual distributions):
Fred: $20,000 × 15% = $3,000
Barney: $32,000 × 15% = $4,800
Allocation of remaining income of $30,200 (or $38,000 -$3,000 - $4,800):
Fred: $30,200 × 50% = $15,100
Barney: $30,200 × 50% = $15,100
Split of net income of $38,000:
Fred: $3,000 + $15,100 = $18,100
Barney: $4,800 + $15,100 = $19,900

Fred and Barney Started a Partnership