Question

Dividing Partnership Income Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $183,000 and that Greene is to invest $61,000. 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 $80,000 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 $127,000 and (2) net income of $220,000. Round answers to the nearest whole dollar. (2) $127,000 $220,000 Morrison Greene Morrison Greene 63,500 63,500 110,000 ✓ 110,000 n on convoon na oon nnn 1 Check My Work used Next >

Answer 1

	(1)		(2)
	$127,000		$220,000
Plan	Morrison	Greene	Morrison	Greene
a.	63500	63500	110000	110000
b.	95250	31750	165000	55000
c.	42333	84667	73333	146667
d.	67160	59840	113660	106340
e.	47160	79840	93660	126340
f.	46460	80540	83660	136340

Working:

a. The net income is divided in the ratio of 1 : 1

b. The net income is divided in the ratio of $183000 : $61000

c. The net income is divided in the ratio of 0.5 : 1 which is 1 : 2

d.	(1)			(2)
	Morrison	Greene	Total	Morrison	Greene	Total
Interest	10980	3660	14640	10980	3660	14640
Remaining income (1 : 1)	56180	56180	112360	102680	102680	205360
Net income $	67160	59840	127000	113660	106340	220000
e.
	(1)			(2)
	Morrison	Greene	Total	Morrison	Greene	Total
Interest	10980	3660	14640	10980	3660	14640
Salary allowance	40000	80000	120000	40000	80000	120000
Remaining income (1 : 1)	-3820	-3820	-7640	42680	42680	85360
Net income $	47160	79840	127000	93660	126340	220000
f.
	(1)			(2)
	Morrison	Greene	Total	Morrison	Greene	Total
Interest	10980	3660	14640	10980	3660	14640
Salary allowance	40000	80000	120000	40000	80000	120000
Bonus	0	1400	1400	0	20000	20000
Remaining income (1 : 1)	-4520	-4520	-9040	32680	32680	65360
Net income $	46460	80540	127000	83660	136340	220000

Amount eligible for 20% bonus computation:

(1) $127000 - $120000 = $7000

(2) $220000 - $120000 = $100000