Question

Student Center Homework and Tests - Chido... Paraphrasing Tool Quil Bot Al My Home CengageNOWV21 Onnet eBook Show Me How Calculator Dividing Partnership Income Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $258,000 and that Greene is to invest $86,000. 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 5% on original investments and the remainder equally e. Interest of 5% 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 $130,000 and (2) net income of $220,000. Round answers to the nearest whole dollar. (2) $130,000 $220,000 Plan Morrison Greene Morrison Greene 65,000 65,000 110,000 $ 110,000 32,500 $ 55,000 $ 97,500 43,333 → 165,000 ✓ 73,333 $ 86,666 X $ 146,666 X

Answer 1

Solution

1) Given Morrison Investment = $ 258,000

Greene Investment = $ 86,000

A) If the net income is $ 130,000

a) Equal Division

Morrison = $ 130,000/2 = $ 65,000

Greene = $ 130,000/2 = $ 65,000

b) In the ratio of Investment

Ratio = $ 258,000 : $ 86,000 = 3:1

Morisson = $ 130,000/4 x 3 = $ 97,500

Greene = $ 130,000/4 x 1 = $ 32,500

c) In the ratio of time devoted

Morisson :Greene = 1/2 :1 =1:2

Morisson Share = $ 130,000/3 x 1 = $ 43,333.33

Greene Share = $ 130,000/3 x 2 = $ 86,666.67

d) Interest @5%

Morisson = $ 258,000 x 5% = $ 12,900

Greene = $86,000 x 5% = $ 4,300

Total Interest = $ 17,200

Remaining $ 130,000- $ 17,200 = $ 112,800

Morisson = $ 112,800/2 = $56,400

Greene = $ 112,800/2 = $ 56,400

Total Morisson $ 12,900+ $ 56,400 = $69,300

Total Greene $ 4300+ $ 56,400 = $60,700

e) Salary Allowances

Morisson = $ 40,000

Greene = $ 80,000

Total salary = $ 120,000

Interest @ 5% on both investment = $ 12,900 & $ 4,300 respectively

Remaining Amount = $ 130,000- $ 120,000-$ 17,200 = -$ 7200

Loss to born equally = -$7200/2 = -$3600

Morisson Share = $ 40,000 + $ 12,900 - $3,600 = $49,300

Greene Share = $ 80,000 + $ 4,300 - $ 3,600 = $80,700

f) Total Income = $ 130,000

Total Salary Allowance $ 120,000

Difference $10,000

Bonus to greene = $ 10,000 x 20% = $ 2,000

Share of Morisson = $ 49,300 - $ 2,000 = $ 47,300

Share of Greene = $ 80,700 + $ 2,000 = $ 82,700

Part 2

B) If net income is $ 220,000

a) Equal Division

Morrison = $ 220,000/2 = $ 110,000

Greene = $ 220,000/2 = $ 110,000

b) In the ratio of Investment

Ratio = $ 258,000 : $ 86,000 = 3:1

Morisson = $ 220,000/4 x 3 = $ 165,000

Greene = $ 220,000/4 x 1 = $ 55,000

c) In the ratio of time devoted

Morisson :Greene = 1/2 :1 =1:2

Morisson Share = $ 220,000/3 x 1 = $ 73,333.33

Greene Share = $ 220,000/3 x 2 = $ 146,666.67

d) Interest @5%

Morisson = $ 258,000 x 5% = $ 12,900

Greene = $86,000 x 5% = $ 4,300

Total Interest = $ 17,200

Remaining $ 220,000- $ 17,200 = $ 202,800

Morisson = $ 202,800/2 = $101,400

Greene = $ 202,800/2 = $ 101,400

Total Morisson $ 12,900+ $ 101,400 = $114,300

Total Greene $ 4300+ $ 101,400 = $105,700

e) Salary Allowances

Morisson = $ 40,000

Greene = $ 80,000

Total salary = $ 120,000

Interest @ 5% on both investment = $ 12,900 & $ 4,300 respectively

Remaining Amount = $ 220,000- $ 120,000-$ 17,200 = $ 82,800

Profit to Share equally = $82,800/2 = $41,400

Morisson Share = $ 40,000 + $ 12,900 + $41,400 = $94,300

Greene Share = $ 80,000 + $ 4,300 + $ 41,400 = $125,700

f) Total Income = $ 220,000

Total Salary Allowance $ 120,000

Difference $10,0000

Bonus to greene = $ 100,000 x 20% = $ 20,000

Share of Morisson = $ 49,300 - $ 20,000 = $ 29,300

Share of Greene = $ 80,700 + $ 20,000 = $ 100,700