Sixty-year-old Jasmine Howard retired from her computer consulting business in Boston and moved to Florida. There she met 27-year-old Dawn Patel, who had just graduated from Eldon Community College with an associate degree in computer science. Jasmine and Dawn formed a partnership called J&D Computer Consultants. Jasmine contributed $25,000 for startup costs and devoted one-half time to the business. Dawn devoted full time to the business. The monthly drawings were $2,000 for Jasmine and $4,000 for Dawn.
At the end of the first year of operations, the two partners disagreed on the division of net income. Jasmine reasoned that the division should be equal. Although she devoted only one-half time to the business, she contributed all of the startup funds. Dawn reasoned that the income-sharing ratio should be 2:1 in her favor because she devoted full time to the business and her monthly drawings were twice those of Jasmine.
Can you identify any flaws in the partners’ reasoning regarding the income sharing ratio?