Nathan, Daniel Kaithyn generally get along well as business associates in their consulting firm, Recently, however, the

Question:

Nathan, Daniel Kaithyn 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 net income to be shared as follows:

Salary and interest provisions are to be implemented in that order only to the extent of the available income?
Kaithyn was originally on have been a silent partner, an investor without active participation in the business. 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 generates few chargeable hours.
In the last three years, partnership income and partners average capital balance were?

Required
a. Explain why the income-sharing provisions have become contentious.
b. Would a provision allowing Kaitlyn a 25 percent bonus of net income before any allocations satisfy her? What would Daniel's reaction be?
c. Suppose the partners adopt the provision in part b for 2014 except that the bonus is based on 25 percent of net income before allocations but after the bonus. Net income for 2014 amounts to $220,000 and average capital balances are unchanged. Compare the 2014 income allocations with and without the bonus. Comment on the income redistribution you observe.