Dividing Partnership Income Morrison and Greene have decided to form a partnersh
ID: 2607744 • Letter: D
Question
Dividing Partnership Income
Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $150,000 and that Greene is to invest $50,000. 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 6% on original investments and the remainder equally
e. Interest of 6% on original investments, salary allowances of $40,000 to Morrison and $70,000 to Greene, and the remainder equally
f. Plan (e), except that 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 $115,000 and (2) net income of $200,000. Round answers to the nearest whole dollar.
$115,000 0001,100000 Plan Morrison Greene Morrison Greene a. b. C. d. e.Explanation / Answer
Solution:
S. No. Division of Income $115,000 $200,000 Particulars Morrison Greene Morrison Greene a Equal Division (1:1): Morrision (115000/2), (200000/2)Greene (115000/2), (200000/2) $57,500.00 $57,500.00 $100,000.00 $100,000.00 b In ratio of orignial Invesment: Investment Amount $150,000.00 $50,000.00 $150,000.00 $50,000.00 Share of income (3:1)
Morrision (115000*3/4), (200000*3/4)
Greene (115000*1/4), (200000*1/4) $86,250.00 $28,750.00 $150,000.00 $50,000.00 c In ratio of time devoted to business: Time devoted 0.5 1 0.5 1 Share of income (1:2)
Morrision (115000*1/3) ,(200000*1/3)
Greene (115000*2/3), (200000*2/3) $38,333 $76,667 $66,667 $133,333 d Interest of 6% on original investment and remainder equally: Interest Amount (Investment Amount * 6%)
Morrison (150000*6%)
Greene (50000*6%) $9,000.00 $3,000.00 $9,000.00 $3,000.00 Distribution of remaining income (1:1)
Morrision (103000/2), (188000/2)
Greene (103000/2), (188000/2) $51,500.00 $51,500.00 $94,000.00 $94,000.00 Total Share of Income (Interest + Remaining Distribution) $60,500.00 $54,500.00 $103,000.00 $97,000.00 e Interest of 6% on original investment, Salary Allowances and remainder equally: Interest Amount (Investment Amount * 6%)
Morrison (150000*6%)
Greene (50000*6%) $9,000.00 $3,000.00 $9,000.00 $3,000.00 Salary $40,000.00 $70,000.00 $40,000.00 $70,000.00 Distribution of remaining income (1:1)
Morrision [(115000-12000 - 110000)/2],[(200000-12000 - 110000)/2]
Greene [(115000-12000 - 110000)/2],[(200000-12000 - 110000)/2] -$3,500.00 -$3,500.00 $39,000.00 $39,000.00 Total Share of Income (Interest + Salary + Remaining Distribution) $45,500.00 $69,500.00 $88,000.00 $112,000.00 f Interest of 6% on original investment, Salary Allowances, Bonus and remainder equally: Interest Amount (Investment Amount * 6%)
Morrison (150000*6%)
Greene (50000*6%) $9,000.00 $3,000.00 $9,000.00 $3,000.00 Salary $40,000.00 $70,000.00 $40,000.00 $70,000.00 Bonus to Greene [20% of (Net Income - Salary Allowance)
[115000 - 110000)*20%, (200000-110000)*20% $0.00 $1,000.00 $0.00 $18,000.00 Distribution of remaining income (1:1)
Morrision [(115000-12000 - 110000 -1000)/2],[(200000-12000 - 110000-18000)/2]
Greene [(115000-12000 - 110000 -1000)/2],[(200000-12000 - 110000-18000)/2] -$4,000.00 -$4,000.00 $30,000.00 $30,000.00 Total Share of Income (Interest + Salary + Bonus + Remaining Distribution) $45,000.00 $70,000.00 $79,000.00 $121,000.00