Question

Luke and John share income and losses in a 2:1 ratio after allowing for salaries to Luke of $48,000 and $60,000 to John. Net income for the partnership is $93,000. Income should be divided as:________
A. Luke, $46,500; John, $46,500
B. Luke, $65,000; John, $28,000
C. Luke, $38,000; John, $55,000
D. Luke, $55,000; John, $38,000

Answer 1

Answer:

The correct answer is C. Luke, $38,000; John, $55,000

Explanation:

Net Loss after Salary Allowance = Net Income of Partnership-Total Salary Paid to Luke and John   =$93,000- ($48,000 + $60,000)   = $15,000

Luke's Share of Loss = $15,000 × (2/3) = $10,000

Luke's Net Income = Luke's Salary - Luke's Share of Loss = $48,000 - $10,000 = $38,000

John's Share of Loss = $15,000 × (1/3) = $5,000

John's Net Income = John's Salary - John's Share of Loss = $60,000 - $5,000 = $55,000