Question

Desmond Drury & Ty Wilkins have decided to form a partnership. They have agreed that Dury is to invest $118,300 & that Wilkins is to invest $50,700. Drury is to devote FULL TIME to the business, & Wilkins is to devote 1/2 time. The following plans for the division of income arebeing considered. (a) equal division (b) In the ratio of orginal investments (c) In the ratio of time devoted to the business (d)Interest of 10% on original investments & the remainder in the ratio of 3:2 (e) Interest of 10% on original investments, salary allowances of $115,000 to Drury & $57,500 to Wilkins & the remainder equally Plan (e) except that Wilkins is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances. For each plan determeine the division of the net income under each of the following assumptions: (1) net income of $507,000 & (2) net income of $223,200

Answer 1

Part 1

(a) equal division
Net income allocated to Drury (507000*1/2)	$             253,500
Net income allocated to Wilkins (507000*1/2)	$             253,500
(b) In the ratio of original investments
Total investments (118300+50700)	$             169,000
Net income allocated to Drury (507000*(118300/169000))	$             354,900
Net income allocated to Wilkins (507000*(50700/169000))	$             152,100
(c) In the ratio of time devoted to the business
Total Portion of time (1+0.5)	1.50
Net income allocated to Drury (507000*(1/1.50))	$             338,000
Net income allocated to Wilkins (507000*(0.50/1.50))	$             169,000

(d) Interest of 10% on original investments & the remainder in the ratio of 3:2

	Drury	Wilkins	Total
Net income			$          507,000
Original investments	$             118,300	$                50,700
Less: Interest (Original investments * 10%)	$               11,830	$                   5,070	$             16,900
Remaining net income			$          490,100
Remaining Net income allocated to Drury (490100*(3/(3+2))	$             294,060		$          294,060
Remaining Net income allocated to Wilkins (490100*(2/(3+2))		$              196,040	$          196,040
			$                      -
Interest	$               11,830	$                   5,070	$             16,900
Remaining Net income	$             294,060	$              196,040	$          490,100
Allocated net income	$             305,890	$              201,110	$          507,000

(e) Interest of 10% on original investments, salary allowances of $115,000 to Drury & $57,500 to Wilkins & the remainder equally

	Drury	Wilkins	Total
Net income			$          507,000
Original investments	$             118,300	$                50,700
Less: Interest (Original investments * 10%)	$               11,830	$                   5,070	$             16,900
Less: salary	$             115,000	$                57,500	$          172,500
Remaining net income			$          317,600
Remaining Net income allocated to Drury (317600/2)	$             158,800		$          158,800
Remaining Net income allocated to Wilkins (317600/2)		$              158,800	$          158,800
			$                      -
Interest	$               11,830	$                   5,070	$             16,900
Salary	$             115,000	$                57,500	$          172,500
Remaining Net income	$             158,800	$              158,800	$          317,600
Allocated net income	$             285,630	$              221,370	$          507,000

(F) Plan (e) except that Wilkins is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances

	Drury	Wilkins	Total
Net income			$          507,000
Less: salary	$             115,000	$                57,500	$          172,500
Net income exceeds the total salary allowances			$          334,500
Less: Bonus (net income exceeds the total salary allowances * 20%)		$                66,900	$             66,900
Less: Interest	$               11,830	$                   5,070	$             16,900
Remaining net income			$          250,700
Remaining Net income allocated to Drury (250700/2)	$             125,350		$          125,350
Remaining Net income allocated to Wilkins (250700/2)		$              125,350	$          125,350
			$                      -
Interest	$               11,830	$                   5,070	$             16,900
Bonus	$                        -	$                66,900	$             66,900
Salary	$             115,000	$                57,500	$          172,500
Remaining Net income	$             125,350	$              125,350	$          250,700
Allocated net income	$             252,180	$              254,820	$          507,000

Part 2

(a) equal division
Net income allocated to Drury (223200*1/2)	$             111,600
Net income allocated to Wilkins (223200*1/2)	$             111,600
(b) In the ratio of original investments
Total investments (118300+50700)	$             169,000
Net income allocated to Drury (223200*(118300/169000))	$             156,240
Net income allocated to Wilkins (223200*(50700/169000))	$               66,960
(c) In the ratio of time devoted to the business
Total Portion of time (1+0.5)	1.50
Net income allocated to Drury (223200*(1/1.50))	$             148,800
Net income allocated to Wilkins (223200*(0.50/1.50))	$               74,400

(d) Interest of 10% on original investments & the remainder in the ratio of 3:2

	Drury	Wilkins	Total
Net income			$          223,200
Original investments	$             118,300	$                50,700
Less: Interest (Original investments * 10%)	$               11,830	$                   5,070	$             16,900
Remaining net income			$          206,300
Remaining Net income allocated to Drury (206300*(3/(3+2))	$             123,780		$          123,780
Remaining Net income allocated to Wilkins (206300*(2/(3+2))		$                82,520	$             82,520
			$                      -
Interest	$               11,830	$                   5,070	$             16,900
Remaining Net income	$             123,780	$                82,520	$          206,300
Allocated net income	$             135,610	$                87,590	$          223,200

(e) Interest of 10% on original investments, salary allowances of $115,000 to Drury & $57,500 to Wilkins & the remainder equally

	Drury	Wilkins	Total
Net income			$          223,200
Original investments	$             118,300	$                50,700
Less: Interest (Original investments * 10%)	$               11,830	$                   5,070	$             16,900
Less: salary	$             115,000	$                57,500	$          172,500
Remaining net income			$             33,800
Remaining Net income allocated to Drury (33800/2)	$               16,900		$             16,900
Remaining Net income allocated to Wilkins (33800/2)		$                16,900	$             16,900
			$                      -
Interest	$               11,830	$                   5,070	$             16,900
Salary	$             115,000	$                57,500	$          172,500
Remaining Net income	$               16,900	$                16,900	$             33,800
Allocated net income	$             143,730	$                79,470	$          223,200

(F) Plan (e) except that Wilkins is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances

	Drury	Wilkins	Total
Net income			$          223,200
Less: salary	$             115,000	$                57,500	$          172,500
Net income exceeds the total salary allowances			$             50,700
Less: Bonus (net income exceeds the total salary allowances * 20%)		$                10,140	$             10,140
Less: Interest	$               11,830	$                   5,070	$             16,900
Remaining net income			$             23,660
Remaining Net income allocated to Drury (23660/2)	$               11,830		$             11,830
Remaining Net income allocated to Wilkins (23660/2)		$                11,830	$             11,830
			$                      -
Interest	$               11,830	$                   5,070	$             16,900
Bonus	$                        -	$                10,140	$             10,140
Salary	$             115,000	$                57,500	$          172,500
Remaining Net income	$               11,830	$                11,830	$             23,660
Allocated net income	$             138,660	$                84,540	$          223,200