At the end of 2000, before allocating net income, the Simon and Art partnership had to- tal owners’ equity of $100,000, consisting of Simon, capital: $60,000, and Art, capital: $40,000. During 2000 the partnership earned net income of $30,000. The partnership agreement specifies that net income is to be allocated according to three factors as fol- lows:

(a) first, each partner is to be allocated a share of net income equal to 10% of her capital amount,

(b) second, Simon is to be allocated a salary of $7,000, and Art is to be allocated a salary of $10,000 as a share of net income, and

(c) the remaining net income is to be allocated 60% to Simon and 40% to Art.

Required: (1) Prepare a schedule that allocates the net income to Simon and Art according to the partnership agreement. (Hint: The salaries paid to the part- ners are used only to allocate the net income; they are not included as salaries expense on the income statement.)

(2) Explain why you think factors

(a) and

(b) for allocating net income were included in the partnership agreement.  TK-1