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Section 2 Division of Income and Loss

Chapter 27. $. Section 2 Division of Income and Loss. $. What You’ll Learn How to divide profits and losses equally. How to divide profits and losses based on a fractional share. How to divide profits and losses based on partners’ investments. $. $.

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Section 2 Division of Income and Loss

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  1. Chapter 27 $ Section 2 Division of Income and Loss $ • What You’ll Learn • How to divide profits and losses equally. • How to divide profits and losses based on a fractional share. • How to divide profits and losses based on partners’ investments. $ $

  2. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Why It’s Important Partnership profits and losses are divided among the partners according to the partnership agreement. $ $ $

  3. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses • There are many ways for partners to divide profits and losses. • The division is generally based on the services and capital contributed by the partners to the partnership. $ $ $

  4. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses Equally During the first year of operation, the partnership earned a net income of $24,000. Each partner’s share is $12,000 ($24,000  2). $ $ $

  5. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses on a Fractional Share Basis $ • Profits or losses are to be divided between the two partners on the following basis: Gill, two-thirds and Putman, one-third. $ $

  6. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses on a Fractional Share Basis (cont'd.) • The division of the $24,000 net income based on a 2:1 ratio is calculated as follows: $ Gill’s share: $24,000  2/3 = $16,000 $ Putman’s share: $24,000  1/3 = $8,000 $

  7. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses Based on Capital Investments $ Individual Partner’s Investment $ = Partner’s Percentage Total Partnership Investment $

  8. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses Based on Capital Investments (cont'd.) $ Molly Gill $50,000 Don Putman $30,000 Total investment $80,000 $ Gill’s Percentage: 50,000 Putman’s Percentage: 30,000 = 62.5% = 37.5% 80,000 80,000 $ Gill’s share $24,000  .625 = $15,000 Putman’s share $24,000  .375 = $9,000

  9. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Dividing Profits and Losses Based on Capital Investments (cont'd.) $ $ $

  10. Section 2 Division of Income and Loss (cont'd.) Chapter 27 $ Check Your Understanding $ Describe how to divide net income or net loss to each partner based on a fractional share basis. $ $

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