Admission of a new partner with determination of contribute vs. liquidation. Arnold (A), Bower (B), and Chambers (C) are partners in a small manufacturing firm whose net assets are as follows:
The partnership agreement calls for the allocation of profits and losses as follows:
a. Salaries to A, B, and C of $30,000, $30,000, and $40,000, respectively.
b. Bonus to A of 10% of net income after the bonus.
c. Remaining amounts are allocated according to profit and loss percentages of 50%, 20%, and 30% for A, B, and C, respectively.
Unfortunately, the business finds itself in difficult times: Annual profits remain flat at approximately $132,000, additional capital is needed to finance equipment which is necessary to stay competitive, and all of the partners realize that they could make more money working for someone else, with a lot fewer headaches.