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9 September, 16:09

Sally and Samantha have decided to form a partnership. They have agreed that Sally is to invest $195,000 and that Samantha is to invest $65,000. Sally is to devote one-half time to the business, and Samantha is to devote full 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 $50,000 to Sally and $85,000 to Samantha, and the remainder equally f. Plan (e), except that Samantha is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances Instructions: Determine the division of Net Income of $235,000.

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  1. 9 September, 16:17
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    a. Equal division.

    $235,000 / 2 = $117,500.

    b. In the ratio of original investments.

    For Samantha = 65,000 / (65000+195000) * 100 = 25%;

    25% of $235,000 = $58,750.

    For Sally = 195,000 / (65000+195000) * 100 = 75%;

    75% of $235,000 = $176,250

    c. In the ratio of time devoted to the business.

    For Sally = 1 x $235,000 = $235,000

    For Samantha = 1/2 x $235,000.

    d. Interest of 5% on original investments and the remainder equally.

    Interest

    For Sally = 5% of $195,000 = $9,750

    For Samantha = 5% of $65,000 = $3,250.

    The remainder = 235,000 - 3,250 + 9750 = $222,000/2 = $111,000 equally.

    e. Interest of 5% on original investments, salary allowances of $50,000 to Sally and $85,000 to Samantha, and the remainder equally

    Interest

    For Sally = 5% of $195,000 = $9,750

    For Samantha = 5% of $65,000 = $3,250.

    The remainder = 235,000 - (9750+50000+3250+85000) = $87,000

    (g), except that Samantha is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances

    Total salary allowances = $85,000+$65,000=$150,000;

    Net income exceeds value by $235,000-$150,000 = $85,000

    Therefore, 20% of 85,000 = $8,500 as bonus.
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