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 $45,000 to Black and $80,000 to Shannon, and the remainder equally. f. 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.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is 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, drawings of a partner, etc.
Dividing
Black and Shannon have decided to form a partnership. They have agreed that Black is to invest $201,000 and that Shannon is to invest $67,000. 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:
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 $45,000 to Black and $80,000 to Shannon, and the remainder equally.
f. 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 $160,000 and (2) net income of $205,000. Round answers to the nearest whole dollar. ANSWER ALL CORRECTLY.
| 1 | 2 |
| $160,000 | $205,000 |
| Plan | Black | Shannon | Black | Shannon | ||||
| a. | $ | $ | $ | $ | ||||
| b. | $ | $ | $ | $ | ||||
| c. | $ | $ | $ | $ | ||||
| d. | $ | $ | $ | $ | ||||
| e. | $ | $ | $ | $ | ||||
| f. | $ | $ | $ | $ |
ANSWER ALL CORRECTLY.
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