Dividing Partnership Income Black and Shannon have decided to form a partnership. They have agreed that Black is to invest $255,000 and that Shannon is to invest $85,000. 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 5% on original investments and the remainder equally. Interest of 5% on original investments, salary allowances of $50,000 to Black and $75,000 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 $157,000 and (2) net income of $215,000. Round answers to the nearest whole dollar. (1) (2) $157,000 $215,000 Plan Black Shannon Black Shannon a. $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 $fill in the blank 4 b. $fill in the blank 5 $fill in the blank 6 $fill in the blank 7 $fill in the blank 8 c. $fill in the blank 9 $fill in the blank 10 $fill in the blank 11 $fill in the blank 12 d. $fill in the blank 13 $fill in the blank 14 $fill in the blank 15 $fill in the blank 16 e. $fill in the blank 17 $fill in the blank 18 $fill in the blank 19 $fill in the blank 20 f. $fill in the blank 21 $fill in the blank 22 $fill in the blank 23 $fill in the blank 24

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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Dividing Partnership Income

Black and Shannon have decided to form a partnership. They have agreed that Black is to invest $255,000 and that Shannon is to invest $85,000. 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 5% on original investments and the remainder equally.
Interest of 5% on original investments, salary allowances of $50,000 to Black and $75,000 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 $157,000 and (2) net income of $215,000. Round answers to the nearest whole dollar.

	(1)	(2)
	$157,000	$215,000
Plan		Black	Shannon	Black	Shannon
a.		$fill in the blank 1	$fill in the blank 2	$fill in the blank 3	$fill in the blank 4
b.		$fill in the blank 5	$fill in the blank 6	$fill in the blank 7	$fill in the blank 8
c.		$fill in the blank 9	$fill in the blank 10	$fill in the blank 11	$fill in the blank 12
d.		$fill in the blank 13	$fill in the blank 14	$fill in the blank 15	$fill in the blank 16
e.		$fill in the blank 17	$fill in the blank 18	$fill in the blank 19	$fill in the blank 20
f.		$fill in the blank 21	$fill in the blank 22	$fill in the blank 23	$fill in the blank 24

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.

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