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

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Accounting

Phillip and Case are in the process of forming a partnership toimport Belgian chocolates, to which Phillip will contributeone-third time and Case full time. They have discussed thefollowing alternative plans for sharing profit and losses. a. Inthe ratio of their initial investments, which they have agreed willbe $164,000 for Phillip and $246,000 for Case. b. In proportion tothe time devoted to the business. c. A salary allowance of $4,000per month to Case and the balance in accordance with their initialinvestment ratio. d. A $4,000 per month salary allowance to Case,10% interest on their initial investments, and the balance equally.The partners expect the business to generate profit as follows:Year 1, $101,000 loss; Year 2, $151,000 profit; and Year 3,$251,000 profit. Required: Complete a schedule for each of the fourplans being considered by showing how the partnership profit orloss for each year would be allocated to the partners. (Enter allamounts as positive value. Round the final answer to the nearestwhole dollar.)
Plan a
:year 1 calculations share to philp share to casetotal plan
year 2
year 3
plan B
year 1 calculations share to philp share to casetotal plan
year 2
year 3

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3.6 Ratings (406 Votes)

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Plan a & C	Percentage based on initial investment

	Philips	164000/410000*100	40%
	Case	246000/410000*100	60%

Plan b	Percentage based on time
	Philips	.333/1.333	25%
	Case	1/1.333	75%
Plan c & d	Salary Allowance
	Case	$4000*12	$48,000
Plan d	Interest Allowance
	Philips	164000*10%	$16,400
	Case	246000*10%	$24,600

Income/Loss		Calculation		Yr 1
Sharing Plan			Philips	Case
a
		$101000 Loss*40%	($40,400)
		$101000 Loss*60%		($60,600)
b		$101000 Loss*25%	($25,250)
		$101000 Loss*75%		($75,750)
c		Salary Allowance		$48,000
		($101000 loss +$48000 salary)*40%	($59,600)
		($101000 loss +$48000 salary)*60%		($89,400)
		Sub Total	($59,600)	($41,400)
d		Salary Allowance		$48,000
		Interest Allowance	$16,400	$24,600
		($101000 loss +$48000 salary+$41000)*50%	($95,000)
		($101000 loss +$48000 salary+$41000)*50%		($95,000)
		Sub Total	($78,600)	($22,400)
Income/Loss		Calculation		Yr 2
Sharing Plan			Philips	Case
a
		$151000 *40%	$60,400
		$151000 *60%		$90,600
b		$151000 *25%	$37,750
		$151000 *75%		$113,250
c		Salary Allowance		$48,000
		($151000 -$48000 salary)*40%	$41,200
		($151000 -$48000 salary)*60%		$61,800
		Sub Total	$41,200	$109,800
d		Salary Allowance		$48,000
		Interest Allowance	$16,400	$24,600
		($151000 -$48000 salary-$41000)*50%	$31,000
		($151000 -$48000 salary-$41000)*50%		$31,000
		Sub Total	$47,400	$103,600
Income/Loss		Calculation		Yr 3
Sharing Plan			Philips	Case
a
		$251000 *40%	$100,400
		$251000 *60%		$150,600
b		$251000 *25%	$62,750
		$251000 *75%		$188,250
c		Salary Allowance		$48,000
		($251000 -$48000 salary)*40%	$81,200
		($251000 -$48000 salary)*60%		$121,800
		Sub Total	$81,200	$169,800
d		Salary Allowance		$48,000
		Interest Allowance	$16,400	$24,600
		($251000 -$48000 salary-$41000)*50%	$81,000
		($251000 -$48000 salary-$41000)*50%		$81,000
		Sub Total	$97,400	$153,600

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