Kramer and Knox began a partnership by investing $58,000 and $65,000, respectively. During its first year, the partnership earned $160,000. Prepare calculations showing how the $160,000 income should be allocated to the partners under each of the following three separate plans for sharing income and loss:(1)The partners failed to agree on a method to share income.(2)The partners agreed to share income and loss in proportion to their initial investments. (Do not round intermediate calculations.(3)The partners agreed to share income by granting a $56,500 per year salary allowance to Kramer, a $46,500 per year salary allowance to Knox, 12% interest on their initial capital investments.

Answer and Explanation:

The computation is shown below:

1. At the time when the partner failed to share the incom and loss so it is assume that the net income i.e. $160,000 should be shared equally so for both it is $80,000 each

2. When the income is shared as per their initial investment  

Particulars              Kramer          Knox           Total

Investment             $58,000       $65,000     $123,000

Investment ratio     47.15%         52.85%

$160,000 income share $75,440 $84,560    $160,000

3. Sharing of the income as per the defined rule

Particulars              Kramer          Knox           Total

Salary allocated     $56,500       $46,500       $103,000

Interest at 12%        $6,960         $7,800         $14,760

Remaining balance  $21,120      $21,120        $42,240

Total                           $84,580    $75,420       $160,000