Dividing Partnership Income
Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $55,200 and that Wilkins is to invest $36,800. 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 $62,600 to Drury and $31,300 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 $276,000 and (2) net income of $121,500.