Question

Dividing Partnership Income Dylan Howell and Demond Nickles have decided to form a partnership. They have agreed that Howell 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: Equal division. In the ratio of original investments. In the ratio of time devoted to the business. Interest of 10% on original investments and the remainder in the ratio of 3:2. Interest of 10% on original investments, salary allowances of $38,000 to Howell and $19,000 to Nickles, and the remainder equally. Plan (e), except that Howell 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. (1) (2) $420,000 $150,000 Plan Howell Nickles Howell Nickles a. $ $ $ $ b. $ $ $ $ c. $ $ $ $ d. $ $ $ $ e. $ $ $ $ f. $ $ $ $

Answer 1

Answer Page No ③ o Nebincome of $420,000 Howell Equality 420,000 - $ 210,000 Inves&ment 60,000 50,000 + 45000 X $420000 = $168000 Time = - X 420,000 1 +0.5 r full time - (1/2 time=0.5) = $ 280,000 Interest of 10% = 50,000 X 10% = $5000 & for Nickles = 1500 Remaining profit = = (420,000 – (5000 + 1500)) x 3ta (vaio 3:2) (420000 -10500)x = = 407500 x Š $ 244500 Nickles - Equilý. = 420,000 aone - $ 210.000

Page No ③ Investment = 75000 50000+ 75000 X 420,000 $252000 Time = 0.5 1 +0:5 x 420,000 = $140,000 Interest at 10% = 75000 x 10% = $4500 for Howells = $ 5000 Total = 7500 + 5000 = $12500 372 Remaining profil - (400,000 - 13500) x = 404500 x = $163000 ... Remaining profit - $ 163000 @ Nath income one set 150.000 Howell Equila 150,000 $45000

Page No ③ 50,000 - Investment = 20 X 150,000 50,000 + 75000 : = $ 60,000 Time = I x 150,000 1+0.5 = $ 100,000 Interest at 10% = 50,000 X 10 %. = $5000 for Hickles interest at lon - 45000 X 10% - $500 Total = 5000 + 4500 = $12500 Remaining profit = (150,000 -12500) x 22 e $ 80500 Nickles - Equity = 150,000 2 $75000 Investment = X 150000 75000 75000 + 50000 $ 90,000 -

Page. No 4 015 Time : - X 150000 1+0.5 = $50,000 profit. - (150,000 — | 2500) Ⓡafael Remain ing = 134500 x $ 55000 Plan 0 $420,000 $150,000 Particular Howell Nickles Total flowell 'Nickles Total 0 Equity 210,000 210,000 420,000 75000 75000 150000 @ Investment 168000 252000 420,000 60000 90000 150000 © Time 280,000 140,000 420,000 100,000 50,000 150,000 la Total profit 420,000 150,000 Interest at 10% 5000 7500 12500 | 5000 12500 5000 7500 10500 7500 Remaining profit in 3:2 244500 163000 407500 82500 55000 137500 6 Total profit 420,000 150,000 Interest at 10% 5000 7500 12500 5000 750012500 Salary 38000 19000 57000 38000 19000 57000 Remaining profit in 11175250 175250350,500 402504025080500 Total profit 420,000 Interest at 10% . 5000 17500 1 12500 5000 7500 12500 Salary 38000 19000 54000 38000 19000 54000 Bonus-1420.000-7000207 72 600 72600 1 8600 1 8600 .& (750,000 - 57000)x 2017 Remaining profit in Ml 138950 (138950 274900 30950 | 30950 61900 150,000