Question

Dividing a ship 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. (2) (1) $115,000 Morrison $200,000 Morrison Greene Plan Greene

Answer 1

			if income is 115000			If income is 200000
			Morrison	Greene		Morrison	Greene
A-	Equal division	115000*1/2	57500	57500	200000*1/2	100000	100000
B-	In the ratio of original Investment    =150000/50000 Ratio is of 3:1 Morrison 3 Greene 1		86250	28750	200000*3/4   & 200000*1/4	150000	50000
C-	In the ratio of time devoted = 2:1	115000*2/3   & 115000*1/3	76666.66667	38333.33333	200000*2/3 & 200000*1/3	133333.3333	66666.66667
D	Interest on original investment = 150000*6% & 50000*6%		9000	3000		9000	3000
	remainder = 115000-12000 = 103000	103000*1/2 & 103000*1/2	51500	51500	188000*1/2 & 188000*1/2	94000	94000
	total payment		60500	54500		103000	97000
E-	Interest on original investment = 150000*6% & 50000*6%		9000	3000		9000	3000
	Salary allowance		40000	70000		40000	70000
	remainder = 115000-(9000+3000)+(40000-70000) =- 7500 & 200000-(9000+3000)-(40000+70000)	-7500*1/2 & -7500*1/2	-3750	-3750	78000*1/2 & 78000*1/2	39000	39000
	total payment		45250	69250		88000	112000
F	Interest on original investment = 150000*6% & 50000*6%		9000	3000		9000	3000
	Salary allowance		40000	70000		40000	70000
	bonus allowance to greene =20% of 115000-(40000+70000)	5000*20%		1000	20% of 200000-(40000+70000)		18000
	remainder = 115000-(9000+3000)+(40000-70000)-1000 =- 8000 & 200000-(9000+3000)-(40000+70000)-18000	-8000*1/2 & -8000*1/2	-4000	-4000	60000*1/2 & 60000*1/2	30000	30000
	total payment		45000	70000		79000	121000