d. Interest of 5% on original investments and the remainder equally e. Interest of 5% on original investments, salary allowances of $80,000 to Dahl and $160,000 to Westhoff, and the remainder equally f. Plan (e), except that Westhoff is also to be allowed a bonus of $50,000 if net income exceeds $200,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Dividing partnership income
Dahl and Westhoff have decided to form a partnership. They have agreed that Dahl is to invest $400,000 and that Westhoff is to invest $100,000. Dahl is to devote one-third time to the business, and Westhoff is to devote two-thirds 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 5% on original investments and the remainder equally
e. Interest of 5% on original investments, salary allowances of $80,000 to Dahl and $160,000 to Westhoff, and the remainder equally
f. Plan (e), except that Westhoff is also to be allowed a bonus of $50,000 if net income exceeds $200,000
Required:
For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $300,000 and (2) net income of $750,000. Round answers to the nearest whole dollar.
(1) $300,000
(2) $750,000
(2) $750,000
Westhoff
Dahl
Westhoff
Plan
a.
b.
C.
d.
e.
f.
(1) $300,000
Dahl
$ 150,000 ✓
$ 240,000 ✓
$100,000
✓
$ 295,000 X
$ 117,500 ✓
$ 117,500 X
Feedback
$ 150,000 ✓
$ 60,000 ✓
$200,000 ✓
$182,500 X
$182,500✔
$182,500 X
$375,000 ✓
$ 600,000 ✓
$ 250,000 ✓
$745,000 X
$ 342,500 ✓
$ 317,500 ✔
$375,000
$150,000
$ 500,000 ✓
$ 730,000 X
$ 407,500 ✓
$432,500
▼ Check My Work
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.
Transcribed Image Text:Dividing partnership income Dahl and Westhoff have decided to form a partnership. They have agreed that Dahl is to invest $400,000 and that Westhoff is to invest $100,000. Dahl is to devote one-third time to the business, and Westhoff is to devote two-thirds 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 5% on original investments and the remainder equally e. Interest of 5% on original investments, salary allowances of $80,000 to Dahl and $160,000 to Westhoff, and the remainder equally f. Plan (e), except that Westhoff is also to be allowed a bonus of $50,000 if net income exceeds $200,000 Required: For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $300,000 and (2) net income of $750,000. Round answers to the nearest whole dollar. (1) $300,000 (2) $750,000 (2) $750,000 Westhoff Dahl Westhoff Plan a. b. C. d. e. f. (1) $300,000 Dahl $ 150,000 ✓ $ 240,000 ✓ $100,000 ✓ $ 295,000 X $ 117,500 ✓ $ 117,500 X Feedback $ 150,000 ✓ $ 60,000 ✓ $200,000 ✓ $182,500 X $182,500✔ $182,500 X $375,000 ✓ $ 600,000 ✓ $ 250,000 ✓ $745,000 X $ 342,500 ✓ $ 317,500 ✔ $375,000 $150,000 $ 500,000 ✓ $ 730,000 X $ 407,500 ✓ $432,500 ▼ Check My Work 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.
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