Question

Dividing Partnership Income Dylan Howell and Demond Nickles have decided to form a partnership. They have agreed that Honell 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 Howel 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 (2) $420,000 $150,000 Plan Howell Nickles Howell Nickles 210,000 75,000 75,000 252,000 60,000 90,000 210,000 168,000 * 280,000 249.500 140,000 100,000 50,000 87.500 62.500 170,500 218,250 83,250 66,750 358,900 Check My Work Set up a column for each partner for each net income assumption Allocate income to the partners based on the income sharing agreement, any b. Allocate income to the partners based on the partners original investments Alcate income to the partners based the ratio of time devoted to the business d. Apply the interest allowance to the partners first. The locate the remaining income in the ratio of 32 Apply salary and interest allowances first. Then slocate the remaining income oss equally Apply salary, trest, and bonus slowances frot. Then locate the remaining incomo los equally. Determine the bonus based on a comer

Answer 1

For solving option F please follow the below steps:

1) We have to find out the bonus to be paid to Howell.

Formula: Bonus= (Net income - Total Salary) * 20%

2) Deduct the bonus & interest from the income after deducting the total salary allowance figure to arrive at the Net income to be distributed, shown in table 1.

3) Table 2 shows the calculation of income distribution between Howell & Nickles for plan f option 1 & option 2

4) Table 3 shows the answer to all the plan and options

Table 1: Calculation of bonus & net income to be distributed

	Particulars	Option 1	Option 2
F	Net income	420000	150000
	Less: Total Salary	57000	57000
	Net income after deducting total salary allowance	363000	93000
	Less: Bonus of 20% on the net income after deducting salary	72600	18600
	Net income after deducting bonus'	290400	74400
	Less: Interest	12500	12500
	Net income to be distributed	277900	61900

Table 2:

Calculation of the income distribution
Options	1		2
Particulars	Howell	Nickles	Howell	Nickles
Equal distribution	138950	138950	30950	30950
Add: Bonus of 20%	72600		18600
Add: Salary	38000	19000	38000	19000
Add: Interest	5000	7500	5000	7500
Net income distribution	254550	165450	92550	57450

Table 3:

Option	1		2
Net income	420000		150000
Plan	Howell	Nickles	Howell	Nickles
a	210000	210000	75000	75000
b	168000	252000	60000	90000
c	280000	140000	100000	50000
d	249500	170500	87500	62500
e	218250	201750	83250	66750
f	254550	165450	92550	57450