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Solution Tyler Hawes's capital investment = Piper Albright's capital investment = Net Income of the Partnership for the year = $75,000 $225,000 $295,000 Part (a) : No agreement concerning division of net Income In case of no agreement regarding Profit sharing ratio (PSR), net income shall be distributed equally amongst the Partners. Since there are two partners, the net income shall be divided 50%-50% amongst the partners. Tyler Hawes's share = $295,000 x 50% = $147,500 Piper Albright's share = $295,000 x 50% = $147,500 Part (b) : Divided in the ratio of original capital investment Tyler Hawes Piper Albright Original capital investment Ratio = $75,000 $225,000 = 1 Tyler Hawes's share = $295,000 x 1/(1+3) = $73,750 Piper Albright's share = $295,000 x 3/(1+3) = $221,250 Part (c) : Interest at the rate of 5% allowed on original investments and the remainder divided in the ratio of 2:3 Interest on Tyler Hawes's investment = $75,000 x 5% = $3,750 Interest on Piper Albright's investment = $225,000 x 5% = $11,250 Net Income of the Partnership for the year = Less: Total interest allowed to Partners = ($38,880 + $ 25,920) $295,000 ($15,000) Remaining income = $280,000

Tyler Hawes's share in remaining income = $280,000 x 2/(2+3) = $112,000 Piper Albright's share in remaining income = $280,000 x 3/(2+3) = $168,000 Income distribution Tyler Hawes Piper Albright Total (i) Interest on investment (ii) Remaining income Total share $3,750 $112,000 $115,750 $11,250 $168,000 $179,250 $15,000 $280,000 $295,000 Part (d) : Salary allowances of $38,000 and $46,000, respectively, and the balance divided equally $295,000 ($84,000) Net Income of the Partnership for the year = Less: Total Salary allowed to Partners = ($38,000+ $46,000) Remaining income = $211,000 Remaining income is to be divided equally amongst the Partners. Income distribution Tyler Hawes Piper Albright Total (i) Salary allowance (ii) Remaining income (50:50) Total share $38,000 $105,500 $143,500 $46,000 $105,500 $151,500 $84,000 $211,000 $295,000

Part (e) : Allowance of interest at the rate of 5% on original investments, salary allowances of $38,000 and $46,000, respectively, and the remainder divided equally Net Income of the Partnership for the year = $295,000 Less: Total interest allowed to Partners = ($3,750 + $11,250) ($15,000) ($ 84,000) Less: Total Salary allowed to Partners = ($38,000+ $46,000) Remaining income = $196,000 Remaining income is to be divided equally amongst the Partners. Income distribution Tyler Hawes Piper Albright Total (i) Interest on investment (ii) Salary allowance (iii) Remaining income (50:50) Total share $3,750 $38,000 $98,000 $139,750 $11,250 $46,000 $98,000 $155,250 $15,000 $84,000 $196,000 $295,000 Final Solution Tyler Hawes (a) $147,500 (b) $ 73,750 (c) $115,750 (d) $143,500 (e) $139,750 Piper Albright $147,500 $221.250 $179,250 $151,500 $155,250