Question

PR 12-2B Dividing partnership income OBJ. 2 Dylan Howell and Demond Nickles have decided to form a partnership. They have agreed that Howell is to invest $50,000 and that Nickles is to invest $75,000. Howell is to devote full time to the business, and Nickles is to devote one-half time. The following plans for the division of income are being considered: a. Equal division b. In the ratio of original investments c. In the ratio of time devoted to the business d. Interest of 10% on original investments and the remainder in the ratio of 3:2 e. Interest of 10% on original investments, salary allowances of $38,000 to Howell and $19,000 to Nickles, and the remainder equally. f. Plan (e), except that Howell is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances Instructions For each plan, determine the division of the net income under each of the following as- sumptions: (1) net income of $420,000 and (2) net income of $150,000. Present the data in tabular form, using the following columnar headings: $420,000 Plan Howell Nickles $150,000 Howell Nickles

Answer 1

		(1)		(2)
		$420,000		$150,000
	Plan	Howell	Nickles	Howell	Nickles
	a.	$210,000	$210,000	$75,000	$75,000
	b.	168,000	252,000	60,000	90,000
	c.	280,000	140,000	100,000	50,000
	d.	249,500	170,500	87,500	62,500
	e.	218,250	201,750	83,250	66,750
	f.	254,550	165,450	92,550	57,450
	Details:	$420,000		$150,000
		Howell	Nickles	Howell	Nickles
a.	Net income (1:1)	$210,000	$210,000	$75,000	$75,000
b.	Net income (2:3)	$168,000	$252,000	$60,000	$90,000
c.	Net income (2:1)	$280,000	$140,000	$100,000	$50,000
d.	Interest allowance	$5,000	$7,500	$5,000	$7,500
	Remaining income (3:2)	244,500	163,000	82,500	55,000
	Net income	$249,500	$170,500	$87,500	$62,500
e.	Interest allowance	$5,000	$7,500	$5,000	$7,500
	Salary allowance	38,000	19,000	38,000	19,000
	Remaining income (1:1)	175,250	175,250	40,250	40,250
	Net income	$218,250	$201,750	$83,250	$66,750
f.	Interest allowance	$5,000	$7,500	$5,000	$7,500
	Salary allowance	38,000	19,000	38,000	19,000
	Bonus allowance	72,600 *		18,600 **
	Remaining income (1:1)	138,950	138,950	30,950	30,950
	Net income	$254,550	$165,450	$92,550	$57,450
* 20% × [$420,000 – ($38,000 + $19,000)]
** 20% × [$150,000 – ($38,000 + $19,000)]