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2 October, 21:50

Fred and Barney started a partnership. During Year 1, Fred invested $13,500 in the business and Barney invested $22,000. The partnership agreement called for each partner to receive an annual distribution equal to $12% of his capital contribution. Any further earnings were to be retained in the business and divided equally between the partners. The partnership reported net income of $31,000 during Year 1. How will the $31,000 of net income be split between Fred and Barney respectively

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  1. 3 October, 00:49
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    Answer: Fred; $14,990

    Barney; $16,010

    Explanation:

    Each partner will receive 12% of their investment.

    Fred will therefore receive,

    = 12% * 13,500

    = $1,620

    Barney will receive,

    = 12% * 22,000

    = $2,640

    Adding both these figures gives,

    = 1,620 + 2,640

    = $4,260

    This figure needs to be subtracted from the income and then the rest will be split equally.

    =31,000 - 4,260

    = $26,740

    = 26,740 / 2

    = $13,370

    Each partner is to get $13,370 extra.

    Fred gets,

    = 1,620 + 13,370

    = $14,990

    Barney gets,

    = 2,640 + 13,370

    = $16,010
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