On January 1, 2020, True and Orange formed a partnership by controlling cash of 360,000 and 240,000, respectively. On February 1, 2020, partner True contributed an additional 120,000 cash to the partnership and on August 1, 2020, partner True has a permanent withdrawal of 60,000. On May 1, 2020, partner Orange contributed machinery with a fair value of 80,000 and a net book value of 60,000 when contributed. On November 1, 2020, partner Orange contributed an additional 40,000 cash to the partnership. Both partners withdrew half of their salary allowances in 2020.


The partnership agreement of True and Orange has the following terms for the division of net income (loss) to the partners:

a. Interest of 12% is allowed on the average capital balance

b. Salaries of 8,000 per month to each partner

c. Bonus of 10% of net income after bonus to True

d. Balance to be divided in the ratio of 6:4 to True and Orange, respectively

 
Required: Compute for income allocation for each partner under the following assumptions:

I. Net Income of 229,500

II. Net Loss of 300,000

Answer rating: 100% (QA)

To compute the income allocation for each partner well go through each transaction and calculate the relevant amounts Lets start with the first assumption of a net income of 229500 I Net Income of 229... View the full answer