In January 2010, Edie Rivera and Babs Bacon agreed to produce and sell chocolate candies. Rivera contributed $240,000 in cash to the business. Bacon contributed the building and equipment, valued at $220,000 and $140,000, respectively. The partnership had an income of $84,000 during 2010 but was less successful during 2011, when income was only $40,000.
1. Prepare the entry in journal form to record the investment of both partners in the partnership.
2. Determine the share of income for each partner in 2010 and 2011 under each of the following conditions:
a. The partners agreed to share income equally.
b. The partners failed to agree on an income-sharing arrangement.
c. The partners agreed to share income according to the ratio of their original investments.
d. The partners agreed to share income by allowing interest of 10 per cent on their original investments and dividing the remainder equally.
e. The partners agreed to share income by allowing salaries of $40,000 for Rivera and $28,000 for Bacon, and dividing the remainder equally.
f. The partners agreed to share income by paying salaries of $40,000 to Rivera and $28,000 to Bacon, allowing interest of 9 per cent on their original investments, and dividing the remainder equally.
3. What are some of the factors that need to be considered in choosing the plan of partners’ income sharing among the options shown in requirement 2?
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