Answer:
Sharing Of Income and Losses
MO Lu Barb
(a) Equally $150,000 $150,000 $150,000
(b) On Capital Investment Ratio $40,500 $157,500 $252,000
(c)
Salary $80,000 $60,000 $90,000
Interest $6,750 $26,250 $42,000
Income $29,000 $58,000 $58,000
Total $115,750 $144,250 $190,000
Explanation:
Working
(a)
Equally
$450,000 / 3 = $90,000 each
(b)
Based on the ratio of their initial capital investments
Total Investment = $67,500 + $262,500 + $420,000 = $750,000
Mo = $450,000 x $67,500 / $750,000 = $40,500
Lu = $450,000 x $262,500 / $750,000 = $157,500
Barb = $450,000 x $420,000 / $750,000 = $252,000
(c)
Salary allowances of $80,000 to Mo, $60,000 to Lu, and $90,000 to Barb; interest allowances of 10% on their initial capital investments; and the remaining balance shared as follows: 20% to Mo, 40% to Lu, and 40% to Barb
Total salary = $80,000 + $60,000 + $90,000 = $230,000
Interest on initial Capital
Mo = 10% x $67,500 = $6,750
Lu = 10% x $262,500 = $26,250
Barb = 10% x $420,000 = $42,000
Total Interest Payment = $6,750 + $26,250 + $42,000 = $75,000
Residual Income Tot be distributed = $450,000 - $230,000 - $75,000 = $145,000
Mo = 20% x $145,000 = $29,000
Lu = 40% x $145,000 = $58,000
Barb = 40% x $145,000 = $58,000
