PR 122B Dividing partnership income OBJ 2 Dylan Howell and D

PR 12-2B Dividing partnership income OBJ. 2 Dylan Howell and Demond Nickles have decided to form a partnership. They have agreed that Howell is to invest $50,000 and that Nickles is to invest $75,000. Howell is to devote full time to the business, and Nickles 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 $38,000 to Howell and $19,000 to Nickles, and the remainder equally. f. Plan (e), except that Howell is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances Instructions For each plan, determine the division of the net income under each of the following as- sumptions: (1) net income of $420,000 and (2) net income of $150,000. Present the data in tabular form, using the following columnar headings: $420,000 Plan Howell Nickles $150,000 Howell Nickles

Solution

(1) (2) $420,000 $150,000 Plan Howell Nickles Howell Nickles a. $210,000 $210,000 $75,000 $75,000 b. 168,000 252,000 60,000 90,000 c. 280,000 140,000 100,000 50,000 d. 249,500 170,500 87,500 62,500 e. 218,250 201,750 83,250 66,750 f. 254,550 165,450 92,550 57,450 Details: $420,000 $150,000 Howell Nickles Howell Nickles a. Net income (1:1) $210,000 $210,000 $75,000 $75,000 b. Net income (2:3) $168,000 $252,000 $60,000 $90,000 c. Net income (2:1) $280,000 $140,000 $100,000 $50,000 d. Interest allowance $5,000 $7,500 $5,000 $7,500 Remaining income (3:2) 244,500 163,000 82,500 55,000 Net income $249,500 $170,500 $87,500 $62,500 e. Interest allowance $5,000 $7,500 $5,000 $7,500 Salary allowance 38,000 19,000 38,000 19,000 Remaining income (1:1) 175,250 175,250 40,250 40,250 Net income $218,250 $201,750 $83,250 $66,750 f. Interest allowance $5,000 $7,500 $5,000 $7,500 Salary allowance 38,000 19,000 38,000 19,000 Bonus allowance   72,600 *   18,600 ** Remaining income (1:1) 138,950 138,950 30,950 30,950 Net income $254,550 $165,450 $92,550 $57,450 * 20% × [$420,000 – ($38,000 + $19,000)] ** 20% × [$150,000 – ($38,000 + $19,000)]