Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively. They predict annual partnership income of $230,000 and are considering the following alternative plans of sharing income and loss: (a) in the ratio of their initial capital investments; or (b) salary allowances of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial capital investments; and the balance shared equally. Assuming that both partners put about the same amount of time into the business, which method of allocating income would be best?

Question

Quizplus · Accepted Answer

The Answer of Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively. They predict annual partnership income of $230,000 and are considering the following alternative plans of sharing income and loss: (a) in the ratio of their initial capital investments; or (b) salary allowances of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial capital investments; and the balance shared equally. Assuming that both partners put about the same amount of time into the business, which method of allocating income would be best?

Sharon and Nancy Formed a Partnership by Making Capital Contributions