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

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