Phillip and Case are in the process of forming a partnership to import Belgian chocolates, to which Phillip will

Question

Phillip and Case are in the process of forming a partnership to import Belgian chocolates, to which Phillip will contribute one third time and Case full time. They have discussed the following alternative plans for sharing profit and losses a. In the ratio of their initial investments, which they have agreed will be $160,000 for Phillip and $240.000 for Case b. In proportion to the time devoted to the business. C. A salary allowance or 55.000 per month to Case and the balance in accordance with their initial investinent ratio. d. A $5.000 per month salary allowance to Case, 15% interest on their initial investments, and the balance equally, The partners expect the business to generate profit as follows: Year 1. $100.000 foss: Year 2. $150.000 profit and Year 3. $250.000 profit Required Prepare four schedules with the following column headings: Share to Share to Year Calculations Philip Case Total Complete a schedule for each of the four plans being considered by showing how the

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a. profit sharing ratio is as per their initial investment. profit sharing ratio of them = 160,000 : 240,000 = 2:3 Year Share to Philip Share to Case Total 1 -40,000 -60,000 -100,000 (100,000)X2/5 (100,000)X3/5 2 60,000 90,000 150,000 150,000X2/5 150,000X3/5 3 100,000 150,000 250,000 250,000X2/5 250,000X3/5 b. Profit sharing ratio on the basis of contributed time by Philip and Case would be = 1/3 :1 = 1:3 Year Share to Philip Share to Case Total 1 -25000 -75000 -100000 (100,000X1/4) (100,000X3/4) 2 37500 112500 150000 150,000X1/4 150,000X3/4 3 62500 187500 250000 250,000X1/4 250,000X3/4 c. Year Calculation Share to Philip Share to Case Total 1. Phillip--(100,000)*2/5 Case--(100,000)*3/5 -40,000 -60,000 -100,000 Total -40,000 -60,000 -100,000 2. Case's Salaries -- (5,000 *12) Phillip -- (150,000 -60,000)*2/5 Case --(150,000-60,000)*3/5 - 36,000 60,000 54,000 60,000 90,000 Total 36,000 114,000 150,000 3. Case's salaries -- (5,000.*12) Phillip's share of profit -- (250,000-60,000)*2/5 Case's share of profit -- (250,000-60,000)*3/5 - 76,000 60,000 114,000 60,000 190,000 Total 76,000 174,000 250,000 d. Year Calculation Share to Philip Share to Case Total 1. Philip--(100,000*1/2) Case--(100,000*1/2) -50,000 -50,000 -100,000 Total -50,000 -50,000 -100,000 2. Case's salary --(5,000 *12) 60,000 60,000 Interest on capital : Phillip--(160,000*15%) Case--(240,000*15%) 24,000 36,000 60,000 Share of profit Phillip -- (150,000 - 120,000) * 1/2 Case -- ( 150,000 - 120,000) * 1/2 15,000

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Phillip and Case are in the process of forming a partnership to import Belgian chocolates, to which Phillip will contribute one third time and Case full time

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Archived Solution

Year	Calculation	Share to Philip	Share to Case	Total
1.	Phillip--(100,000)2/5 Case--(100,000)3/5	-40,000	-60,000	-100,000
	Total	-40,000	-60,000	-100,000
2.	Case's Salaries -- (5,000 12) Phillip -- (150,000 -60,000)2/5 Case --(150,000-60,000)*3/5	- 36,000	60,000 54,000	60,000 90,000
	Total	36,000	114,000	150,000
3.	Case's salaries -- (5,000.12) Phillip's share of profit -- (250,000-60,000)2/5 Case's share of profit -- (250,000-60,000)*3/5	- 76,000	60,000 114,000	60,000 190,000
	Total	76,000	174,000	250,000