Question

Morrison and Green have decided to form a partnership. They have agreed that Morrison os to invest 282000 and that Greene is to invest $94000. 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:

a. Equal division.
b. In the ratio of original investments.
c. In the ratio of time devoted to the business.
d. Interest of 5% on original investments, the remainder equally
e. Interest of 5% on original investments, salary allowances of 45,000 to Morrison and 90,000 to Greene, and the remainder equally
f. Plan (e), except the 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 $154000 and (2) net income of 240000. Round answers to the nearest whole dollar.

Answer 1

Solution:

S. No	Division of Income	$154,000	$240,000
Particulars	Morrison	Greene	Morrison	Greene
a	Equal Division (1:1):
	Morrision (154000/2), (154000/2) Greene (240000/2), (240000/2)	$77000	$77000	$120000	$120000
b	In ratio of orignial Invesment:
	Investment Amount	$282000	$94000	$282000	$94000
	Share of income (282000:94000) i.e., (3:1) Morrision (154000*3/4), (240000*3/4) Greene (154000*1/4), (240000*1/4)	$115500	$38500	$180000	$60000
c	In ratio of time devoted to business:
	Time devoted	0.5	1	0.5	1
	Share of income (1:2) Morrision (154000*1/3) ,(240000*1/3) Greene (154000*2/3), (240000*2/3)	$51,333	$102,667	$80000	$160000
d	Interest of 5% on original investment and remainder equally:
	Interest Amount (Investment Amount * 5%) Morrison (282000*5%) Greene (94000*5%)	$14100	$4700	$14100	$4700
	Distribution of remaining income (1:1) Morrision (135200/2), (221200/2) Greene (135200/2), (221200/2)	$67600	$67600	$110600	$110600
	Total Share of Income (Interest + Remaining Distribution)	$81700	$72300	$124700	$115300
e	Interest of 5% on original investment, Salary Allowances and remainder equally:
	Interest Amount (Investment Amount * 5%) Morrison (282000*5%) Greene (94000*5%)	$14100	$4700	$14100	$4700
	Salary	$45000	$90000	$45000	$90000
	Distribution of remaining income (1:1) Morrision [(154000-18800 - 135000)/2],[(240000-18800- 135000)/2] Greene [(154000-18800 - 135000)/2],[(240000-18800- 135000)/2]	$100	$100	$43100	$43100
	Total Share of Income (Interest + Salary + Remaining Distribution)	$59200	$94800	$102200	$137800
f	Interest of 5% on original investment, Salary Allowances, Bonus and remainder equally:
	Interest Amount (Investment Amount * 5%) Morrison (282000*5%) Greene (94000*5%)	$14100	$4700	$14100	$4700
	Salary	$45000	$90000	$45000	$90000
	Bonus to Greene [20% of (Net Income - Salary Allowance) [154000 - 135000)*20%, (240000-135000)*20%	$0	$3800	$0	$21000
	Distribution of remaining income (1:1) Morrision [(154000-18800 - 135000-3800)/2],[(240000-18800 - 135000-21000)/2] Greene [(154000-18800 - 135000-3800)/2],[(240000-18800 - 135000-21000)/2]	-$1800	-$1800	$32600	$32600
	Total Share of Income (Interest + Salary + Bonus + Remaining Distribution)	$57300	$96700	$91700	$148300

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