Applying the Interest Allowance Method,compute Taylor and Timmy's Share of Net

question 124

Multiple Choice

Applying the interest allowance method,compute Taylor and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000 at a 6% interest rate,with the remainder to be divided equally.Net income was $75,000.

• A)Taylor,$15,000; Timmy,$60,000
• B)Taylor,$37,500; Timmy,$37,500
• C)Taylor,$19,500; Timmy,$55,500
• D)None of these answers is correct.

---

Definitions:

Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment.

Accounting Rate of Return

The rate of return anticipated on an investment in terms of accounting income, typically used to evaluate the profitability of a project or investment.

Financial Accounting Statements

Formal records of the financial activities and position of a business, person, or other entity, typically including the balance sheet, income statement, and statement of cash flows.

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by annual cash inflow.