Dividing Partnership Income

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $140,700 and that Wilkins is to invest $60,300. 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:

a.Equal division.
b.In the ratio of original investments.
c.In the ratio of time devoted to the business.
d.Interest of 10% on original investments and the remainder in the ratio of 3:2.
e.Interest of 10% on original investments, salary allowances of $136,600 to Drury and $68,300 to Wilkins, and the remainder equally.
f.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.

For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $603,000 and (2) net income of $265,200.

To determine the division of net income for each plan, we need to calculate the allocation of income based on the given conditions. Let's go through each plan and calculate the division of net income for both assumptions.

a. Equal division:
In this plan, the net income will be divided equally between Desmond Drury and Ty Wilkins.

1. For assumption (1):
Net Income = $603,000
Desmond Drury's share = $603,000 / 2 = $301,500
Ty Wilkins's share = $603,000 / 2 = $301,500

2. For assumption (2):
Net Income = $265,200
Desmond Drury's share = $265,200 / 2 = $132,600
Ty Wilkins's share = $265,200 / 2 = $132,600

b. Ratio of original investments:
In this plan, the net income will be divided based on the ratio of their original investments.

1. For assumption (1):
Total investment = $140,700 + $60,300 = $201,000
Desmond Drury's share = ($140,700 / $201,000) * $603,000
Ty Wilkins's share = ($60,300 / $201,000) * $603,000

2. For assumption (2):
Desmond Drury's share = ($140,700 / $201,000) * $265,200
Ty Wilkins's share = ($60,300 / $201,000) * $265,200

c. Ratio of time devoted to the business:
In this plan, the net income will be divided based on the ratio of time devoted to the business.

1. For assumption (1):
Desmond Drury's share = (full-time / (full-time + half-time)) * $603,000
Ty Wilkins's share = (half-time / (full-time + half-time)) * $603,000

2. For assumption (2):
Desmond Drury's share = (full-time / (full-time + half-time)) * $265,200
Ty Wilkins's share = (half-time / (full-time + half-time)) * $265,200

d. Interest of 10% on original investments and the remainder in the ratio of 3:2:
In this plan, the partners will receive interest on their original investments at a rate of 10% and the remaining net income will be divided in the ratio of 3:2.

1. For assumption (1):
Desmond Drury's interest on investment = ($140,700 * 0.10)
Ty Wilkins's interest on investment = ($60,300 * 0.10)
Remaining net income = $603,000 - (Desmond Drury's interest + Ty Wilkins's interest)
Desmond Drury's share of remaining income = (3 / 5) * Remaining net income
Ty Wilkins's share of remaining income = (2 / 5) * Remaining net income

2. For assumption (2):
Desmond Drury's interest on investment = ($140,700 * 0.10)
Ty Wilkins's interest on investment = ($60,300 * 0.10)
Remaining net income = $265,200 - (Desmond Drury's interest + Ty Wilkins's interest)
Desmond Drury's share of remaining income = (3 / 5) * Remaining net income
Ty Wilkins's share of remaining income = (2 / 5) * Remaining net income

e. Interest of 10% on original investments, salary allowances, and the remainder equally:
In this plan, the partners will receive interest on their original investments at a rate of 10%, salary allowances, and the remaining net income will be divided equally.

1. For assumption (1):
Desmond Drury's interest on investment = ($140,700 * 0.10)
Ty Wilkins's interest on investment = ($60,300 * 0.10)
Remaining net income = $603,000 - (Desmond Drury's interest + Ty Wilkins's interest + salary allowances)
Desmond Drury's share of remaining income = Remaining net income / 2
Ty Wilkins's share of remaining income = Remaining net income / 2

2. For assumption (2):
Desmond Drury's interest on investment = ($140,700 * 0.10)
Ty Wilkins's interest on investment = ($60,300 * 0.10)
Remaining net income = $265,200 - (Desmond Drury's interest + Ty Wilkins's interest + salary allowances)
Desmond Drury's share of remaining income = Remaining net income / 2
Ty Wilkins's share of remaining income = Remaining net income / 2

f. Plan (e) with a bonus for Ty Wilkins:
In this plan, the partners will receive interest on their original investments at a rate of $10%, salary allowances, and the remaining net income will be divided equally. Additionally, Ty Wilkins will receive a bonus equal to 20% of the amount by which the net income exceeds the total salary allowances.

1. For assumption (1):
Desmond Drury's interest on investment = ($140,700 * 0.10)
Ty Wilkins's interest on investment = ($60,300 * 0.10)
Remaining net income = $603,000 - (Desmond Drury's interest + Ty Wilkins's interest + salary allowances)
Bonus for Ty Wilkins = 20% of (Remaining net income - Total salary allowances)
Desmond Drury's share of remaining income = Remaining net income / 2
Ty Wilkins's share of remaining income = Remaining net income / 2 + Bonus for Ty Wilkins

2. For assumption (2):
Desmond Drury's interest on investment = ($140,700 * 0.10)
Ty Wilkins's interest on investment = ($60,300 * 0.10)
Remaining net income = $265,200 - (Desmond Drury's interest + Ty Wilkins's interest + salary allowances)
Bonus for Ty Wilkins = 20% of (Remaining net income - Total salary allowances)
Desmond Drury's share of remaining income = Remaining net income / 2
Ty Wilkins's share of remaining income = Remaining net income / 2 + Bonus for Ty Wilkins

By calculating the above formulas, you can determine the division of net income for each plan under both assumptions.