Applying the Interest Allowance Method, Compute Taylor and Timmy's Share

question 129

Multiple Choice

Applying the interest allowance method, compute Taylor and Timmy's share of net income if Taylor invested $370,000 and Timmy invested $780,000 at a 6% interest rate, for each partner with the remainder to be divided equally. Net income was $90,000.

• A) Taylor, $28,957; Timmy, $61,043
• B) Taylor, $45,000; Timmy, $45,000
• C) Taylor, $32,700; Timmy, $57,300
• D) None of these answers is correct.

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Definitions:

Statute

is a formal written law enacted by a legislative body at the local, state, or federal level.

Perfected Secured Interest

A legal condition in which a creditor has established a priority claim on a debtor's collateral, making their claim stronger against third parties.

Unperfected Secured Interest

A security interest in collateral that has not been publicly filed or recorded, potentially making it subordinate to other claims.

Artisan's Lien

A legal right granted to artisans or mechanics over the property they have improved or repaired, securing payment for their work.