Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Shelby and Mortonson's respective shares are:
A) $67,500; $67,500.
B) $92,500; $42,500.
C) $57,857; $77,143.
D) $90,000; $40,000.
E) $35,000; $100,000.

Question

Quizplus · Accepted Answer

Shelby's interest allowance: 10% x $300,000 = $30,000
Mortonson's interest allowance: 10% x $400,000 = $40,000

Remaining income: $135,000 - ($60,000 + $30,000 + $40,000) = $5,000

Shelby and Mortonson's equal shares of the remaining income: $2,500 each

Total for Shelby: $60,000 + $30,000 + $2,500 = $92,500
Total for Mortonson: $400,000 + $40,000 + $2,500 = $42,500

Therefore, the answer is B.

Shelby and Mortonson Formed a Partnership with Capital Contributions of $300,000