Question

Dividing Partnership Income Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $204,000 and that Greene is to invest $68,000. 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: Equal division. In the ratio of original investments. In the ratio of time devoted to the business. Interest of 5% on original investments and the remainder equally Interest of 5% on original investments, salary allowances of $40,000 to Morrison and $80,000 to Greene, and the remainder equally 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 $118,000 and (2) net income of $210,000. Round answers to the nearest whole dollar. (1) (2) $118,000 $210,000 Plan Morrison Greene Morrison Greene a. $ $ $ $ b. $ $ $ $ c. $ $ $ $ d. $ $ $ $ e. $ $ $ $ f. $ $ $ $ Feedback Set up a column for each partner for each net income assumption. a. Allocate income to the partners based on the income sharing agreement, if any. b. Allocate income to the partners based on the partners' original investments. c. Allocate income to the partners based on the ratio of time devoted to the business. d. Apply the interest allowance to the partners first. Then allocate the remaining income equally e. Apply salary and interest allowances first. Then allocate the remaining income/loss equally. f. Apply salary, interest, and bonus allowances first. Then allocate the remaining income/loss equally. Determine the bonus based on net income after salaries.

Answer 1

	Morrison	Greene		Morrison	Greene
a	$        59,000	$        59,000		$     105,000	$     105,000
b	$        88,500	$        29,500		$     157,500	$        52,500
c	$        39,333	$        78,667		$        70,000	$     140,000
d	$        62,400	$        55,600		$     108,400	$     101,600
e	$        42,400	$        75,600		$        88,400	$     121,600
f	$        42,400	$        75,600		$        79,400	$     130,600

Explanation

	$                                     118,000			$                                     210,000
Plan	Morrison	Greene		Morrison	Greene
a.
Equally(1:1)	$          59,000	$          59,000		$        105,000	$        105,000
(Just divide the income in equal ratio)
b.
In ratio of investments	$          88,500	$          29,500		$        157,500	$          52,500
(204000:68000) or (3:1)
c.	$          39,333	$          78,667		$          70,000	$        140,000
In ratio of devoted time
(1:2)
d
Net Icome	$        118,000	$        118,000		$        210,000	$        210,000
Less:Interest on investment
(5%*204000/68000)	$          10,200	$            3,400		$          10,200	$            3,400
Remaining	$                                     104,400			$                                     196,400
Divided equally(1:1)	$          52,200	$          52,200		$          98,200	$          98,200
Net income	$          62,400	$          55,600		$        108,400	$        101,600
e
Net Icome	$        118,000	$        118,000		$        210,000	$        210,000
Less:Interest on investment
(5%*204000/68000)	$          10,200	$            3,400		$          10,200	$            3,400
Less:salary allowance	$          40,000	$          80,000		$          40,000	$          80,000
Remaining	$                                     (15,600)			$                                       76,400
Divided equally(1:1)	$          (7,800)	$          (7,800)		$          38,200	$          38,200
Net income	$          42,400	$          75,600		$          88,400	$        121,600
f
Net Icome	$        118,000	$        118,000		$        210,000	$        210,000
Less:Interest on investment
(5%*204000/68000)	$          10,200	$            3,400		$          10,200	$            3,400
Less:salary allowance	$          40,000	$          80,000		$          40,000	$          80,000
Bonus	no bonus				$          18,000	(210000-120000)*20%
Remaining	$                                     (15,600)			$                                       58,400
Divided equally(1:1)	$          (7,800)	$          (7,800)		$          29,200	$          29,200
Net income	$          42,400	$          75,600		$          79,400	$        130,600