Chapter 5
Partnerships
249
Case Study
CS-1 (
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For the year ended December 31, 2016, a partnership had sales of $500,000 and expenses of
$400,000 before allocation of partners’ salaries, interest on capital and charges for equipment.
There are two partners who own the business. Each partner will receive earnings based on
four factors. Each partner will receive a salary of $40,000. Each partner will receive interest on
capital contributions which amounts to $2,000 for Partner A, and $1,000 for Partner B. Partner
B brought equipment into the business and receives $2,000 “rent” on the equipment each
year. Remaining profits are divided equally. The opening balances of capital were $200,000 for
Partner A and $100,000 for Partner B.
During the year, the partners withdrew $30,000 as advances on their yearly salary.
Required
a) Calculate the net income of the partnership.
b) Show the calculation of the share of income to be distributed to each partner.
