Bob and Dan have decided to establish a partnership. Bob contributes $51,000 in cash, Dan contributes 101,000 cash. They are evaluating two plans for a profit and loss sharing agreement:
Bob to receive a salary of 16,000 annually, the balance to be divided between Bob and Dan according to their opening capital balance ratios.
Bob to receive a salary of 13,000 annually. Bob and Dan to receive 10% interest per year on their opening capital balances, and the balance of profit or loss to be split equally.
1. Calculate the division under each plan in the following schedule, assuming A: a profit of 65,000 per year and B. a loss of 30,000 per year.
2. Comment on the pros and cons of each plan.