Profit Sharing Arrangement: How Much Can Natasha Retain in Profits?
Question:
Natasha, an RR, and Mike, her customer, have an approved account sharing arrangement. They purchase $100,000 in stock, with the customer contributing $60,000 and the RR contributing $40,000. They sell the shares for a $10,000 profit. How much of the profits can Natasha retain for herself?
(a) $10,000
(b) $6,000
(c) $5,000
(d) $4,000
Final answer:
Answer:
In a profit-sharing arrangement, the profits are divided according to the initial investment contribution. Hence, Natasha, who contributed $40,000 towards a $100,000 investment, gets to retain $4,000 out of a $10,000 profit.
When Natasha and Mike engage in a profit-sharing arrangement, the division of profits is based on the proportion of their initial investment contributions. In this case, Natasha contributed $40,000 while Mike contributed $60,000 to the total $100,000 investment. When they sell the shares for a $10,000 profit, Natasha's share is calculated based on her initial contribution of 40%.
Therefore, Natasha is entitled to retain $4,000 of the $10,000 profit. This division ensures that each party receives a fair share of the profits based on their respective investments.
It is important to have clear agreements and understandings in place when engaging in such financial arrangements to avoid misunderstandings and ensure fair distribution of profits.