Question

Dividing Partnership Income IIIIII 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. Required: For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $420,000 and (2) net income of $150,000

Answer 1

a	Equal division	a	b
		$	$
	Net Income	420000	150000
	Dylan Howell Share	210000	75000
	Demond Nickles share	210000	75000
b	In the ratio of investment	a	b
		$	$
	Net Income	420000	150000
	Investment ratio is
	50000:75000
	so th ratio is 2:3
	Dylan Howell Share (420000*2/5) (150000*2/5)	168000	60000
	Demond Nickles share (420000*3/5) (150000*3/5)	252000	90000
c	In the ratio of time devoted in the business	a	b
		$	$
	Net Income	420000	150000
	Time devoted ratio is 2:1
	Dylan Howell Share (420000*2/3) (150000*2/5)	280000	100000
	Demond Nickles share (420000*1/3) (150000*3/5)	140000	50000
d	Interest of 10% on investment and balance in 3:2	a	b
		$	$
	Net Income	420000	150000
	Less Interest on investment
	Dylan Howell Interest (50000*10%)	5000	5000
	Demond Nickles interest (75000*10%)	7500	7500
	Balance Net Income	407500	137500
	Balance net income in the ratio of 3:2
	Dylan Howell Share (407500*3/5) (137500*3/5)	244500	82500
	Demond Nickles share (407500*2/5) (137500*2/5)	163000	55000
e	Interest of 10% on investment, salary allowance & balance in equal	a	b
		$	$
	Net Income	420000	150000
	Less Interest on investment & Salary
	Dylan Howell Interest (50000*10%)	5000	5000
	Demond Nickles interest (75000*10%)	7500	7500
	Howell Salary	38000	38000
	Nickless Salary	19000	19000
	Balance Net Income	350500	80500
	Balance net income in equal ratio
	Dylan Howell Share	175250	40250
	Demond Nickles share	175250	40250
f	Interest of 10% on investment, salary allowance, bonus & balance in equal	a	b
		$	$
	Net Income	420000	150000
	Less Interest on investment & Salary
	Dylan Howell Interest (50000*10%)	5000	5000
	Demond Nickles interest (75000*10%)	7500	7500
	Howell Salary	38000	38000
	Nickless Salary	19000	19000
	Balance Net Income	350500	80500
	Less:- Bonus to Howell 20%	70100	16100
	Balance Net Income after deduction of Bonus	280400	64400
	Balance net income in equal ratio
	Dylan Howell Share	140200	32200
	Demond Nickles share	140200	32200