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How to calculate the allocation of profit

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Craig and Smith formed a partnership on December 31, 2020. Craig contributed $60,000 cash. Justin's investment consisted of cash, $8,000; inventory, $24,000; and supplies, $8,000-all at fair market values. Profit for 2020 and 2021 was $75,000 and $85,000, respectively.

Question 1: Calculate the allocation of profit for 2020 and 2021, assuming profits are divided as follows:

(A) The partners have no agreement.

(B) Based on a 1:3 ratio.

(C) Based on the ratio of the partners' original investments.

(D) Interest allowances of 10% on their original investments, salary allowances to Craig of $14,000 and Simpson of $11,000, and the remainder to be divided equally.

Reference no: EM132588174

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