Question

Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $150,000 and that Greene is to invest $50,000. 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:
A. Equal division.
B. In the ratio of original investments.
C. In the ratio of time devoted to the business.
D. Interest of 6% on original investments and the remainder equally
E. Interest of 6% on original investments, salary allowances of $40,000 to Morrison and $70,000 to Greene, and the remainder equally
F. 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 $115,000 and (2) net income of $200,000.
(1) (2)
$115,000 200,000
Plan Morrison Greene Morrison Greene
a.
b.
c.
d.
e.
f.

Answer 1

Answer:

Plan             net income $115,000              net income $200,000

                     Morrison     Greene                 Morrison     Greene

a.                    $57,500     $57,500                $100,000    $100,000

b.                    $86,250     $28,750                $150,000    $50,000

c.                    $38,333      $76,667                $66,667      $133,333

d.                    $60,500     $54,500               $103,000    $97,000

e.                    $45,500      $69,500              $88,000     $112,000

f.                     $45,500      $69,500              $80,200     $119,800    

calculations for d:

$150,000 x 6% = $9,000

$50,000 x 6% = $3,000

$115,000 - $12,000 = $103,000

$200,000 - $12,000 = $188,000

calculations for e:

$150,000 x 6% = $9,000

$40,000

$50,000 x 6% = $3,000

$70,000

$115,000 - $122,000 = -$7,000

$200,000 - $122,000 = $78,000 / 2 = $39,000

calculations for fe:

$150,000 x 6% = $9,000

$40,000

$50,000 x 6% = $3,000

$70,000

$115,000 - $122,000 = -$7,000

$200,000 - $122,000 = $78,000 x 20% = $15,600

$78,000 - $15,600 = $62,400 / 2 = $31,200