Norton and Morris Are Partners

question 17

Essay

Norton and Morris are partners. The partnership agreement provides that Norton will receive a salary of $26,000 and Morris will receive a salary of $20,000. These salaries were paid to the partners during 2013 and were charged to the partners' drawing accounts. Both partners also receive 10 percent on their capital balances at the beginning of the year. The balance of any remaining profits or losses is divided equally. The beginning capital account balances for 2013 were Norton, $100,000, and Morris, $80,000. At the end of the year, the partnership has a net income of $60,000.
1. What amount of net income or loss will be allocated to Norton?
2. What amount of net income or loss will be allocated to Morris?

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Definitions:

International Trade

The trade of products and services across national borders.

Autarky

A situation or policy where a country aims to be completely self-sufficient, avoiding international trade.

Autarky Price

The price of goods or services within a self-sufficient economy that does not engage in international trade.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, representing extra benefit to producers.