Question

Exercise 2. David and Rose have decided to form a partnership. They have agreed that David will invest $140,000 and Rose $210,000. David should dispose of his full time to the business, Rose should dispose of half of her time. The following plans for the division of profits have been considered:
a.   Equal division
b.   In the ratio of original investments
c.   In the ratio of time available for business

Instructions: For each plan, determine the net income division by assuming the following:
1. Net income $225,000.00
2. Net income $150,000.00

Answer 1

1. Net Income 225,000

a. Equal Division

David = 225,000 x 1/2 = 112,500

Rose = 225,000 x 1/2 = 112,500

2. Net Income 150,000

a. Equal Divison

David = 150,000 x 1/2 = 75,000

Rose = 150,000 x 1/2 = 75,000

1 Net Income 225,000

b.   In the ratio of original investments

David = 225,000 x 140,000/350,000 = 90,000

Rose = 225,000 x 210,000/350,000 = 135,000

2. Net Income 150,000

b.   In the ratio of original investments

David = 150,000 x 140,000/350,000 = 60,000

Rose = 150,000 x 210,000/350,000 = 90,000

1 Net Income 225,000

c.   In the ratio of time available for business

David = 225,000 x 2/3 = 150,000

Rose = 225,000 x 1/3 = 75,000

2. Net Income 150,000

c.   In the ratio of time available for business

David = 150,000 x 2/3 = 100,000

Rose = 150,000 x 1/3 = 50,000