Applying the interest allowance method, compute Taylor's 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

Business Dec 25, 2020

Applying the interest allowance method, compute Taylor's 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 $80,000

B. Taylor $37,500; Timmy $37,500

C. Taylor $19,500; Timmy $55,500

D. None of the above

Expert Solution

C. Taylor $19,500; Timmy $55,500

Taylor: 200,000 * 6% = 12,000

Timmy: 800,000 * 6% = 48.000

The remaining 15,000 is split evenly 7,500 and 7,500

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