Tyler hawes and piper albright formed a partnership, investing $210,000 and $70,000, respectively. determine their participation in the year's net income of $290,000 under each of the following independent assumptions: (a) no agreement concerning division of net income; (b) divided in the ratio of original capital investment; (c) interest at the rate of 5% allowed on original investments and the remainder divided in the ratio of 2: 3; (d) salary allowances of $36,000 and $45,000, respectively, and the balance divided equally; (e) allowance of interest at the rate of 5% on original investments, salary allowances of $36,000 and $45,000, respectively, and the remainder divided equally.

Please see the solution for Tyler Hawes and Piper Albright Partnership below:

Explanation:

(a) Compute the Division of Net Income:

Division of Net Income = Net Income x 1/2

Tyler = $290,000 x 1/2 = $145,000

Piper = $290,000 x 1/2 = $145,000

(b) Compute the ratio of Capital Investment for Tyler and Piper :

Ratio of Capital Investment = $210,000 : $70,000 = 21 : 7

Tyler = Net Income x Share Ratio

Tyler = $290,000 x 21 / 28

Tyler = $290,000 x 0.75

Tyler = $217,500

Piper = $290,000 x 7 / 28

Piper = $290,000 x 0.25

Piper = $72,500

(c) Calculate the Interest Calculation in the original contribution and remaining to be in a ratio 2:3

Interest Calculation = Original Capital x Interest Rate

Tyler = $210,000 x 5% = $10,500

Piper = $70,000 x 5% = $3,500

Remaining Balance = $290,000 - $10,500 - $3,500 = $276,000

Remaining Balance divided in the ratio 2:3

Tyler = $276,000 x 2 / 5 = $110,400

Piper = $276,000 x 3 / 5 = $165,600

Total Interest Tyler = $10,500 + 110,400 = $120,900

Total Interest Piper = $3,500 + $165,600 = $169,100

(d) Salary Allowances and the remainder to be distributed equally calculation:

Remaining Balance = $290,000 - $36,000 - $45,000 = $209,000

Remaining Balance divided equally

Tyler = $209,000 x 1 / 2 = $104,500

Piper = $209,000 x 1 / 2 = $104,500

(e) Calculation of Interest Allowance and Salary Allowance and distribute remainder equally:

Interest Calculation = Original Capital x Interest Rate

Tyler = $210,000 x 5% = $10,500

Piper = $70,000 x 5% = $3,500

Balance after Interest Calculation = $290,000 - $10,500 - $3,500

Balance after Interest Calculation = $276,000

Balance after Salary Allowance

Remaining Balance = $276,000 - $36,000 - $45,000 = $195,000

Remaining Balance divided equally

Tyler = $195,000 x 1 / 2 = $97,500

Piper = $195,000 x 1 / 2 = $97,500

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