Chambers has identified Dawson (D) as an individual who might be willing to acquire an interest in the partnership. Dawson is proposing to acquire a 30% interest in the capital of the partnership and a revised partnership agreement, which calls for the allocation of profits as follows:
a. Salaries to A, B, C, and D of $30,000, $30,000, $40,000, and $30,000, respectively.
b. Bonus to D of $20,000 if net income exceeds $250,000.
c. Remaining amounts are allocated according to profit and loss percentages of 30%, 10%, 30%, and 30% for A, B, C, and D, respectively.
An alternative to admitting a new partner is to liquidate the partnership. Net personal assets of the partners are as follows:
Assuming that you are Bower’s personal CPA, you have been asked to provide your client with your opinions regarding the alternatives facing the partnership.