Ivanhoe Co. reports net income of $78,000. Partner salary allowances are Pitts $10,000, Filbert $3,000, and Witten $5,000. Indicate the division of net income to each partner, assuming the income ratio is 52 : 22 : 26, respectively. quiz

52 : 22 : 26 getting $31,200, $13,200, and $15,600

Explanation:

In a partnership, the salaries earned by the partners are treated like salaries paid to third parties. As such, these salaries are deducted from the net income of the partnership before the sharing formula is applied to determine what each partner gets.

Total salaries paid = $10,000 + $3,000 + $5,000

= $18,000

Net profit to be shared = $78,000 - $18,000 = $60,000

Total of all ratios = 52 + 22 + 26 = 100

Division of net income to each partner is as follows;

Partner 1 = (52/100) * $60,000 = $31,200

Partner 2 = (22/100) * $60,000 = $13,200

Partner 3 = (26/100) * $60,000 = $15,600

Hence the partners share at the ratio 52 : 22 : 26 getting $31,200, $13,200, and $15,600