Summers and Tyler formed a partnership on December 31, 1989. Summers contributed

Question

Summers and Tyler formed a partnership on December 31, 1989. Summers contributed $25,000 cash and accounts receivable with a fair market value of $11,000. Tyler's investment consisted of: cash $5,000; inventory $18,000; and supplies $1,000 all at fair market values. During the first year and second year of operations, net income was $30,000 and $58,000, respectively. Distribute the net income for each year assuming profits are divided as follows: a) Based on the partners failing to sign an agreement. b) Based on a 1:3 basis. c) Based on the ratio of the partners' original investments. d) If the partners are allowed 12% of the original investments, salaries to Summers of $14,000 and Tyler of $11,000, the remainder to be divided equally.

Explanation / Answer

(a) On failure in signing an agreement the income is divided equally i.e $15000 and $29000 to both (b) [$7500 ; $22500] and [$14500 ; $43500] (c) Summer's contribution = $25000+$11000 = $36000 Tyler's contribution = $5000+$18000+$1000 = $24000 i.e a ratio of 3:2 Thus, [$18000 ; $12000] and [$34800 ; $23200] (d) 12% of the original investment = 0.12*$60000 = $7200 and after salaries to Summers of $14,000 and Tyler of $11,000 Profit left = ($30000+$58000) - (2*7200+$14000+$11000) = $48600 Thus, $24300 will be given to both.

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