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Dividing Partnership Income Desmond Drury and Ty Wilkins have decided to form a partnership. They have...

Dividing Partnership Income

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $57,600 and that Wilkins is to invest $14,400. 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 $49,000 to Drury and $24,500 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 $216,000 and (2) net income of $95,100.

(1) (2)
$216,000 $95,100
Plan Drury Wilkins Drury Wilkins
a. $ $ $ $
b. $ $ $ $
c. $ $ $ $
d. $ $ $ $
e. $ $ $ $
f. $ $ $ $

Solutions

Expert Solution

Solution:

Division of Income $216,000 $95,100
S. No Particulars Drury Wilkins Drury Wilkins
a Equal Division (1:1) $108,000.00 $108,000.00 $47,550 $47,550
b In the ratio of original investment (4:1) $172,800.00 $43,200.00 $76,080 $19,020
c In the ratio of time devoted (2:1) $144,000.00 $72,000.00 $63,400 $31,700
d Interest of 10% on original investment and remainder in the ratio of 3:2
Interest Amount (Opening Capital * 10%)
Drury (57600*10%)
Wilkins (14400*10%)
$5,760.00 $1,440.00 $5,760.00 $1,440.00
Distribution of remaining income (3:2)
Remainder income ($216,000) - ($216,000 - $5,760 - $1,440) = $208,800
Remainder income ($95,100) - ($95,100 - $5,760 - $1,440) = $87,900
$125,280.00 $83,520.00 $52,740.00 $35,160.00
Total Share of Income (Interest + Remaining Distribution) $131,040 $84,960 $58,500 $36,600
e Interest of 10% on original investment, Salary Allowances and remainder in the ratio of 1:1
Interest Amount (Opening Capital * 10%)
Drury (57600*10%)
Wilkins (14400*10%)
$5,760.00 $1,440.00 $5,760.00 $1,440.00
Salary Allowance $49,000.00 $24,500.00 $49,000.00 $24,500.00
Distribution of remaining income (1:1)
Drury - [($216,000 - $5,760 - $1,440 - $49,000 - $24500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500)*1/2]
Wilikns - [($216,000 - $5,760 - $1,440 - $49,000 - $24500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500)*1/2]
$67,650.00 $67,650.00 $7,200.00 $7,200.00
Total Share of Income (Interest + Salary + Remaining Distribution) $122,410.00 $93,590.00 $61,960.00 $33,140.00
f Interest of 10% on original investment, Salary Allowances, Bonus and remainder equally:
Interest Amount (Opening Capital * 10%)
Drury (57600*10%)
Wilkins (14400*10%)
$5,760.00 $1,440.00 $5,760.00 $1,440.00
Salary Allowance $49,000.00 $24,500.00 $49,000.00 $24,500.00
Bonus to Wilkins [20% of (Net Income - Salary Allowance)
[216000 - 73500)*20%, (95100-73500)*20%
$0.00 $28,500.00 $0.00 $4,320.00
Distribution of remaining income (1:1)
Drury - [($216,000 - $5,760 - $1,440 - $49,000 - $24500 - $28,500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500 - $4,320)*1/2]
Wilikns - [($216,000 - $5,760 - $1,440 - $49,000 - $24500 - $28,500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500 - $4,320)*1/2]
$53,400.00 $53,400.00 $5,040.00 $5,040.00
Total Share of Income (Interest + Salary + Bonus + Remaining Distribution) $108,160.00 $107,840.00 $59,800.00 $35,300.00

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