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. 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.

A. Incase of no agreement profits are shared Equally

for 2020 - Profit is $ 75,000

Carig (50%) = $37,500

Smith (50%) = $ 37,500

for 2021 - Profit is $ 85,000

Carig (50%) = $ 42,500

Smith (50%) = $ 42,500

B. Profit Sharing Ratio of 1 : 3

for 2020 - Profit is $ 75,000

Carig (25%) = $ 18,750

Smith (75%) = $ 56,250

for 2021 - Profit is $ 85,000

Carig (25%) = $ 21,250

Smith (75%) = $ 63,750

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

Partners Orginal investment = Cragis $ 60,000 and Smiths $ 40,000, So ratio is 3:2 (or 60% and 40%)

for 2020 - Profit is $ 75,000

Carig (60%) = $ 45,000

Smith (40%) = $ 30,000

for 2021 - Profit is $ 85,000

Carig (60%) = $ 51,000

Smith (40%) = $ 34,000

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

for 2020 = Profit less (Interest 10 % on Investment of $ 100,000) less Craig Salary less Smith Salary

= $ 75,000 - $ 10,000 - $ 14,000 - $ 11,000

= $ 40,00

Carig (50%) = $ 20,000

Smith (50%) = $ 20,000

for 2021 = Profit less (Interest 10 % on Investment of $ 100,000) less Craig Salary less Smith Salary

= $ 85,000 - $ 10,000 - $ 14,000 - $ 11,000

= $ 50,000

Carig (50%) = $ 25,000

Smith (50%) = $ 25,000

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