Dividing Partnership IncomeMorrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $234,000 and that Greene is to invest $78,000. Morrison is to devote one-half time to the business, and Greene 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 6% on original investments and the remainder equallyInterest of 6% on original investments, salary allowances of $45,000 to Morrison and $70,000 to Greene, and the remainder equallyPlan (e), except that Greene is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowancesRequired:For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $121,000 and (2) net income of $230,000. Round answers to the nearest whole dollar.

Partnership is an entity where two or more persons agree to come together and form a business entity…

Answered: Morrison and Greene have decided to…

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter19: Accounting For Partnerships

Section: Chapter Questions

Problem 2SEB

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Dividing Partnership Income

Morrison and Greene have decided to form a partnership. They have agreed that Morrison is to invest $234,000 and that Greene is to invest $78,000. Morrison is to devote one-half time to the business, and Greene 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 6% on original investments and the remainder equally
Interest of 6% on original investments, salary allowances of $45,000 to Morrison and $70,000 to Greene, and the remainder equally
Plan (e), except that Greene 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 $121,000 and (2) net income of $230,000. Round answers to the nearest whole dollar.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement 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, and drawings of a partner.

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