PROBLEM ONE Partners' Disputes over Income Allocation Nathan, Danid and Kaitlyn generally get along well as business associates in their consulting firm. Recently, however, the income-sharing provisions of their partnership agreement have become contentious. These provisions require partnership income to be shared as follows: Salary Interest on Capital % of Remainder Nathan Daniel Kaitlyn. $90,000 75,000 0 4% 4% 20% 20% 30% 50% Note: Salary and interest provisions are to be implemented in that order only to the extent of the available income. Kaitlyn was originally to have been a silent partner, an investor without active participation in the busi- ness. Daniel, on the other hand, was to have had a large voice in business decisions as well as a modest capital investment. As it turns out, Daniel has been shunted to the side whereas Kaitlyn appears to be running the business much of the time. Nathan spends a lot of time on practice development and gener- ates few chargeable hours. In the last three years, partnership income and partners' average capital balances were: Partnership Income Average Capital Balances 2020 2019 2018 Nathan Daniel Kaitlyn $140,000 $205,400 $250,000 $40,000 $70,000 $180,000 Required Explain why the income-sharing provisions have become contentious. b. Would a provision allowing Kaitlyn a 25 percent bonus of income before any allocations satisfy her? What would Daniel's reaction be? Suppose the partners adopt the provision in part 5 for 2021 except that the bonus is based on 25 percent of income before allocations but alter the bonus. Income for 2021 amounts to $220.000 and average capital balances are unchanged. Compare the 2021 income allocations with and without the bonus. Comment on the income redistribution you obserye