Dividing Partnership Income Desmond Drury and Ty Wilkins have decided to form a
ID: 2417822 • Letter: D
Question
Dividing Partnership Income
Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $69,300 and that Wilkins is to invest $161,700. 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 $157,000 to Drury and $78,500 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 $693,000 and (2) net income of $304,800.
(1) (2) $693,000 $304,800 Plan Drury Wilkins Drury Wilkins a. $ $ $ $ b. $ $ $ $ c. $ $ $ $ d. $ $ $ $ e. $ $ $ $ f. $ $ $ $Explanation / Answer
Drury Wilkins Drury Wilkins a) Equal distributions $ 346,500 $ 346,500 $ 152,400 $ 152,400 b) Net income x original investment / total capital $ 207,900 $ 485,100 $ 91,440 $ 213,360 c) net income x time devoted by partner / total time $ 462,000 $ 231,000 $ 203,200 $ 101,600 d) 10% x partners share of capital + remaining in ratio of 3:2 $ 408,870 $ 284,130 $ 175,950 $ 128,850 e) 10% x Partners share of capital + Fixed salary + (remaining amount x .5) $ 381,130 $ 311,870 $ 187,030 $ 117,770 f) 10% x Partners share of capital + Fixed salary + (remaining amount x .5) + 20% of bonus for wilkins for salary amount exceeding the net income $ 335,380 $ 357,620 $ 180,100 $ 124,700 Total salary allowance = (157000+78500) $ 235,500 $ 235,500 Net income $ 693,000 $ 304,800 Amount exceeded $ 457,500 $ 69,300 Bonus 20% to wilkins $ 91,500 $ 13,860