Problem: Phil LaRue and Russ Small have decided to form a partnership. They have agreed that LaRue is to invest $16,000 and Small $24,000. LaRue is to devote full-time to the business and Small one half time. The following plans for division of income are being considered:
a. Equal division
b. In the ratio of original investments
c. In the ratio of time being 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 $30,000 to LaRue and $15,000 to Small, and the remainder equally.
f. Plan (e) except that LaRue is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the salary allowances.
For each plan, determine the division of net income under each of the following assumptions: (1) net income of $135,000 and (2) net income of $60,000.
Complete calculations are shown for each plan using a net income of $135,000. A checking answer is given for each plan using a net income of $60,000.