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 $125,000,then Shelby and Mortonson's respective shares are:
A)$62,500; $62,500
B)$90,000; $35,000
C)$87,500; $37,500
D)$85,000; $40,000
E)$92,000; $33,000

Question

Quizplus · Accepted Answer

First, we need to calculate the interest allowance for each partner: 
- Shelby's interest allowance = 10% of $300,000 = $30,000 
- Mortonson's interest allowance = 10% of $400,000 = $40,000

Now we can calculate the partnership's total expenses: 
- Shelby's salary ($60,000) + interest allowance ($30,000) = $90,000 
- Mortonson's interest allowance ($40,000)

The remaining income is $125,000 - $90,000 - $40,000 = $35,000, which is divided equally between the partners: $17,500 each.

Adding up the individual shares: 
- Shelby's share = $60,000 + $30,000 + $17,500 = $87,500 
- Mortonson's share = $400,000 + $40,000 + $17,500 = $397,500 
Therefore, the answer is C: $87,500 for Shelby and $37,500 for Mortonson.

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