Question

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $63,700 and that Wilkins is to invest $27,300. Drury is to devote full time to the business, and Wilkins is to devote one-half time. The following plans for the division of income are being considered:

Equal division.

In the ratio of original investments.

In the ratio of time devoted to the business.

Interest of 10% on original investments and the remainder in the ratio of 3:2.

Interest of 10% on original investments, salary allowances of $61,800 to Drury and $30,900 to Wilkins, and the remainder equally.

Plan (e), except that Wilkins 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 $273,000 and (2) net income of $120,000.

	(1)				(2)
	$273,000				$120,000
Plan		Drury		Wilkins		Drury		Wilkins
a.	$		$		$		$
b.	$		$		$		$
c.	$		$		$		$
d.	$		$		$		$
e.	$		$		$		$
f.	$		$		$		$

Answer 1

STATEMENT OF DISTRIBUTION OF NET INCOME
			NET INCOME $273000			NET INCOME $120,000
			DRURY	WILKINS	TOTAL	DRURY	WILKINS	TOTAL
Plan a:Equal ratio			136500	136500	273000	60000	60000	120000
Plan b: ratio of investment			191100	81900	273000	84000	36000	120000
(i.e. 63700:27300)
Plan C: Ratio of time			182000	91000	273000	80000	40000	120000
(i.e. 2:1)
Plan D: Interest and balance in 3:2
Interest on capital@10%			6370	2730	9100	6370	2730	9100
Add: balance in 3:2			158340	105560	263900	66540	44360	110900
Total distribution under Plan-D			164710	108290	273000	72910	47090	120000
Plan E: Interest, salary andn balance Equally
Interest on capital@10%			6370	2730	9100	6370	2730	9100
Salary			61800	30900	92700	61800	30900	92700
Add: balance in 1:1			85600	85600	171200	9100	9100	18200
Total distribution under Plan-D			153770	119230	273000	77270	42730	120000
Plan-F Interest, Salary, Bonus and Balance equally
Interest on capital@10%			6370	2730	9100	6370	2730	9100
Salary			61800	30900	92700	61800	30900	92700
Bonu to wilkins			0	34240	34240	0	3640	3640
Add: balance in 1:1			68480	68480	136960	7280	7280	14560
Total distribution under Plan-D			136650	136350	273000	75450	44550	120000