Question

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $50,000 and that Wilkins is to invest $12,500. Drury is to devote full time to the business, and Wilkins 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 $42,600 to Drury and $21,300 to Wilkins, and 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.

Required:

For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $187,500 and (2) net income of $82,500.

	(1)				(2)
	$187,500				$82,500
Plan		Drury		Wilkins		Drury		Wilkins
a.	$		$		$		$
b.	$		$		$		$
c.	$		$		$		$
d.	$		$		$		$
e.	$		$		$		$
f.	$		$		$		$

Answer 1

		Drury	Wilkins	Drury	Wilkins
a)	Equal distributions	$93,750	$93,750	$41,250	$41,250
b)	Net income x original investment / total capital	$150,000	$37,500	$   66000	$16,500
c)	net income x time devoted by partner / total time	$125,000	$62,500	$55,000	$27,500
d)	10% x partners share of capital + remaining in ratio of 3:2	$113,750	$73,750	$50,750	$31,750
e)	10% x Partners share of capital + Fixed salary + (remaining amount x .5)	$106,275	$81,225	$53,775	$28,725
f)	10% x Partners share of capital + Fixed salary + (remaining amount x .5) + 20% of bonus for wilkins for salary amount exceeding the net income	$93,915	$93,585	$51,915	$30,585
	Total salary allowance = (42600+21300)	$63,900	$63,900
	Net income	$187,500	$82,500
	Amount exceeded	$123,600	$18,600
	Bonus 20% to wilkins	$   24720	$   3720