Question

Dividing Partnership Income

Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $174,000 and that Greene is to invest $58,000. 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:

1. Equal division.
2. In the ratio of original investments.
3. In the ratio of time devoted to the business.
4. Interest of 5% on original investments and the remainder equally
5. Interest of 5% on original investments, salary allowances of $50,000 to Morrison and $90,000 to Greene, and the remainder equally
6. 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 $215,000. Round answers to the nearest whole dollar.

	(1)				(2)
	$130,000				$215,000
Plan		Morrison		Greene		Morrison		Greene
a.		$		$		$		$
b.		$		$		$		$
c.		$		$		$		$
d.		$		$		$		$
e.		$		$		$		$
f.		$		$		$		$

Answer 1

Solution:

Note: In Case of Sub-Part e. and f. division of remaining income in case of Net Income $130,000, is computed negative because both withdrawn more amount than invested. Here negative amount will be termed as withdrawal from partnership firm.