4.Dividing Partnership Income Desmond Drury and Ty Wilkins have decided to form

Question

4.Dividing Partnership Income Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $20,000 and that Wilkins is to invest $80,000. 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: 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 $68,000 to Drury and $34,000 to Wilkins, and the remainder equally. f.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 $300,000 and (2) net income of $132,000.

Explanation / Answer

Distribution of net income if the net income is $300,000

If Income is $132000

Scenario Ratio Drury Wilkins Equal diviison 1:1 $150000 $150000 Original Investment 1:4 $60000 $240000 Time Devoted 2:1 $200000 $100000 Interest of 10% and reminder in 3:2 3:2 $176000 $124000 As per e 1:1 $164000 $136000 As per Plan f 1:1 $145200 $154800

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