Question

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury...

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. $ $ $ $

Homework Answers

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
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