Dividing Partnership Income
Lawford and Delgado have decided to form a partnership. They have agreed that Lawford is to invest $90,000 and that Delgado is to invest $30,000. Lawford is to devote one-half time to the business and Delgado 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 12% on original investments and the remainder equally.
Interest of 12% on original investments, salary allowances of $28,000 to Lawford and $60,000 to Delgado, and the remainder equally.
Plan (e), except that Delgado 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 $90,000 and (2) net income of $135,000.
Set up a column for each partner for each net income assumption.
a. Allocate income to the partners based on the income sharing agreement, if any.
b. Allocate income to the partners based on the partners' original investments.
c. Allocate income to the partners based on the ratio of time devoted to the business.
d. Apply the interest allowance to the partners first. Then allocate the remaining income equally
e. Apply salary and interest allowances first. Then allocate the remaining income/loss equally.
f. Apply salary, interest, and bonus allowances first. Then allocate the remaining income/loss equally. Determine the bonus based on net income after salaries.