Tanner and Teresa share income and losses in a 2:1 ratio (2/3 to Tanner and 1/3 to Teresa) after allowing for salaries of $39,900 to Tanner and $58,800 to Teresa. Net income of the partnership is $130,500. How should income be divided for Tanner and Teresa? a. Tanner, $74,400; Teresa, $56,100 b. Tanner, $61,100; Teresa, $69,400 c. Tanner, $57,100; Teresa, $73,400 d. Tanner, $56,100; Teresa, $74,400
In the realm of business partnerships, the distribution of income and losses plays a crucial role in determining the financial equilibrium among partners. This essay delves into a scenario where Tanner and Teresa share income and losses in a 2:1 ratio, dissecting their respective salaries and the net income of the partnership. The goal is to ascertain the correct distribution of income for Tanner and Teresa from the given options.
Tanner and Teresa’s partnership operates with an income and loss sharing ratio of 2:1. This means that for every $2 of income, Tanner is entitled to $1, and Teresa’s share amounts to 1/3 of the total, while Tanner’s is 2/3. The foundation of this arrangement, however, must be adjusted for their individual salaries – $39,900 for Tanner and $58,800 for Teresa. These salaries are deducted from the overall partnership income to ascertain the net income available for distribution.
The net income of the partnership is stated as $130,500. To determine the amount available for distribution, the salaries of both partners are subtracted from the net income:
Net Income – (Tanner’s Salary + Teresa’s Salary) $130,500 – ($39,900 + $58,800) $130,500 – $98,700 $31,800
This leaves $31,800 as the amount that will be distributed between Tanner and Teresa.
Now that we know the available income for distribution is $31,800, we can calculate the actual amounts that Tanner and Teresa will receive based on their sharing ratio.
Tanner’s Share: (2/3) * $31,800 = $21,200 Teresa’s Share: (1/3) * $31,800 = $10,600
However, this calculation doesn’t include their individual salaries. These salaries must be added to the calculated shares to get their final incomes.
Final Income Distribution: Tanner: $21,200 + $39,900 = $61,100 Teresa: $10,600 + $58,800 = $69,400
After meticulous calculation and analysis, it is evident that the correct distribution of income for Tanner and Teresa is option b: Tanner should receive $61,100, and Teresa should receive $69,400. This distribution maintains the 2:1 income sharing ratio while accounting for their respective salaries and the net income of the partnership. It exemplifies the importance of a fair and systematic distribution strategy that considers all financial components of the partnership.
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