Bill and Bob formed a partnership on January 1, 2008. Bill contributed capital of $100,000. Bob contributed capital of $20,000 and agreed to manage the firm full time. There were no withdrawals during 2008. The partnership agreement specifies that income is to be distributed as follows: Bob is to be paid a salary of $2,000 per month; interest at 5% is to be paid on beginning capital balances; Bob is to receive a bonus of 10%; remaining profits or losses are to be shared in the ratio of 3:2 to Bill and Bob, respectively.
The partnership 2008 net income was $100,000.
1. Refer to the above information. What is the amount of Bob's bonus if the bonus is to be calculated on income before deducting the salary and interest on capital accounts, but after the bonus? Please show calculations.
A. $10,000
B. $9,091
C. $9,000
D. $11,111
2. Refer to the above information. Assuming Bob's bonus is $10,000, what is the amount of Bob's capital at the end of the year? Please show calculations.
A. $79,000
B. $54,000
C. $30,000
D. $44,000