Question

Dividing Partnership Income

Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $285,000 and that Greene is to invest $95,000. Morrison is to devote one-half time to the business, and Greene is to devote full time. The following plans for the division of income are being considered:

1. Equal division.
2. In the ratio of original investments.
3. In the ratio of time devoted to the business.
4. Interest of 5% on original investments and the remainder equally
5. Interest of 5% on original investments, salary allowances of $40,000 to Morrison and $70,000 to Greene, and the remainder equally
6. Plan (e), except that Greene is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances

Required:

For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $118,000 and (2) net income of $235,000. Round answers to the nearest whole dollar.

	(1)				(2)
	$118,000				$235,000
Plan		Morrison		Greene		Morrison		Greene
a.		$		$		$		$
b.		$		$		$		$
c.		$		$		$		$
d.		$		$		$		$
e.		$		$		$		$
f.		$		$		$		$

Answer 1

	(1) 118000		(2) 235000
Plan	Morrison	Greene	Morrison	Greene
a	118000*1/2=59000	118000*1/2=59000	235000*1/2=117500	235000*1/2=117500
b	118000*285000/380000=88500	118000*95000/380000=29500	235000*285000/380000=176250	235000*95000/380000=58750
c	118000*.5/1.5=39333	118000*1/1.5=78667	235000*.5/1.5=78333	235000*1/1.5=156667
d*	285000*5%+99000*1/2 = 63750	95000*5%+99000*1/2=54250	285000*5%+216000*1/2=122250	95000*5%+216000*1/2=112750
e*	285000*5%+36000 = 50250	95000*5%+63000 = 67750	285000*5%+40000+106000*1/2=107250	95000*5%+70000+106000*1/2=127750
f	285000*5%+36000 = 50250	95000*5%+63000 = 67750	107250- (127750-70000)*20% = 95700	127750+(127750-70000)*20% = 139300

d* = FOR 118000 interest to morrison = 14250 & to greene = 4750, hence remaining (118000-14250-4750) will be distributed equally

FOR 235000 interest to morrison = 14250 & to greene = 4750, hence remaining (235000-14250-4750) will be distributed equally

e* = FOR 118000 interest to morrison = 14250, to greene interest = 4750, salary to morrison = (118000-14250-4750)*40000/110000 = 36000 & salary to greene = (118000-14250-4750)* 70000/110000.= 63000

FOR 235000 interest to morrison = 14250, to greene interest = 4750, salary to morrison = 40000 & salary to greene = 70000, remaining (235000-14250-4750-40000-70000) will be distributed equally

f* = FOR 118000 greene net income is not exceeding his salary hence answer is same as e

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