Question - Peter and Bob formed a partnership on January 1, 2003. Bill contributed capital of $100,000. Bob contributed capital of $20,000 and agree to manage the firm full time. There were no withdrawals during 2003. The partnership agreement specifies that income is to be distributed as follows: Bob is to receive a bonus of 10%; remaining profit or losses are to be shared in the ratio of 3:2 to Peter and Bob, respectively. The partnership 2003 net income was $100,000.
Refer to the above information. What is the amount of Bob's bonus if the bonus is to be calculated on income before deducting the salary and interest on capital accounts, but after the bonus? Why?