Black and Shannon have decided to form a partnership. They have agreed that Black is to invest $360,000 and that Shannon is to invest $120,000. Black is to devote one-half time to the business, and Shannon is to devote full time. The following plans for the division of income are being considered:Equal divisionIn the ratio of original investmentsIn the ratio of time devoted to the businessInterest of 6% on original investments and the remainder equallyInterest of 6% on original investments, salary allowances of $96,000 to Black and $168,000 to Shannon, and the remainder equallyPlan (e), except that Shannon is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowancesRequired: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 $480,000. Round answers to the nearest whole dollar. (1)(2) $276,000$480,000Plan Black Shannon Black Shannona. $ $ $ $b. $ $ $ $c. $ $ $ $d. $ $ $ $e. $ $ $ $f. $ $ $ $

Answered: Black and Shannon have decided to form…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Black and Shannon have decided to form a partnership. They have agreed that Black is to invest $360,000 and that Shannon is to invest $120,000. Black is to devote one-half time to the business, and Shannon is to devote full 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 6% on original investments and the remainder equally
Interest of 6% on original investments, salary allowances of $96,000 to Black and $168,000 to Shannon, and the remainder equally
Plan (e), except that Shannon 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 $480,000. Round answers to the nearest whole dollar.

	(1)	(2)
	$276,000	$480,000
Plan		Black	Shannon	Black	Shannon
a.		$	$	$	$
b.		$	$	$	$
c.		$	$	$	$
d.		$	$	$	$
e.		$	$	$	$
f.		$	$	$	$

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

Expert Solution

Step 1

Ratio of Original Investment = 360,000 : 120,000 = 3 : 1

Ratio of Time Devoted = 1 : 2

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