Homework SourseDividing Partnership Income Morrison and Greene have decided
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.Solution
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 |
