Macy and John Have Capital Account Balances at the End

question 22

Multiple Choice

Macy and John have capital account balances at the end of the year of $100 000 and $25 000 respectively. Profit of the partnership is $105 000. The profit and loss sharing agreement calls for (1) a salary of $40 000 to Macy and $35 000 to John, (2) interest of 5% p.a. on capital balances, (3) the residual profit to be split 80:20 in favour of Macy. Macy's share of the distribution is:

• A) $26 000
• B) $64 000
• C) $41 000
• D) $45 000

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Definitions:

Income Inequality

The uneven distribution of income within a population, where earnings are not equally distributed among individuals or groups.

Progressive Income Tax

A tax system where the tax rate increases as the taxable income of the taxpayer increases, aiming at a more equitable distribution of wealth.

After-Tax Lorenz Curve

A graphical representation that shows the distribution of income or wealth within an economy after accounting for taxes.

Before-Tax Lorenz Curve

A graphical representation that shows the distribution of income or wealth among individuals or households before taxes are applied.