Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $40,000 is allocated to Xavier?

Question

Quizplus · Accepted Answer

First, let's calculate the total interest on the original investments:
- Interest on Xavier's $50,000 investment: $50,000 x 10% = $5,000
- Interest on Yolonda's $100,000 investment: $100,000 x 10% = $10,000

Next, we subtract these amounts from the net income:
$40,000 - $5,000 - $10,000 = $25,000

We also need to subtract the salary allowances from this amount:
$25,000 - $27,000 - $18,000 = -$20,000

Since the result is negative, it means that the partnership did not generate enough income to cover the salary allowances. Therefore, Xavier will not receive any allocation from the net income. The correct answer is D) $0.

Xavier and Yolonda Have Original Investments of $50,000 and $100,000