Watts and Lyon are forming a partnership. Watts invests $36,000and Lyon invests $44,000. The partners agree that Watts will workone-fourth of the total time devoted to the partnership and Lyonwill work three-fourths. They have discussed the followingalternative plans for sharing income andloss: (a) in the ratio of their initial capitalinvestments; (b) in proportion to the timedevoted to the business; (c) a salary allowanceof $18,000 per year to Lyon and the remaining balance in accordancewith the ratio of their initial capital investments;or (d) a salary allowance of $18,000 per year toLyon, 12% interest on their initial capital investments, and theremaining balance shared equally. The partners expect the businessto perform as follows: Year 1, $14,000 net loss; Year 2, $35,000net income; and Year 3, $58,333 net income. Required:Complete the tables, one for each of the first three years, byshowing how to allocate partnership income or loss to the partnersunder each of the four plans being considered. (Enterall allowances as positive values. Enter losses and capitaldeficits, if any, as negative values. Do not roundintermediate calculations. Round final answer to the nearest wholedollar.)
- Question 13 Watts And Lyon Are Forming A Partnership Watts Invests 36 000 And Lyon Invests 44 000 The Partners Agr 1 (40.57 KiB) Viewed 34 times
- Question 13 Watts And Lyon Are Forming A Partnership Watts Invests 36 000 And Lyon Invests 44 000 The Partners Agr 2 (20.44 KiB) Viewed 34 times
- Question 13 Watts And Lyon Are Forming A Partnership Watts Invests 36 000 And Lyon Invests 44 000 The Partners Agr 3 (38.33 KiB) Viewed 34 times
- Question 13 Watts And Lyon Are Forming A Partnership Watts Invests 36 000 And Lyon Invests 44 000 The Partners Agr 4 (34.83 KiB) Viewed 34 times
Plan (d) Net Income (loss) Salary allowances Balance of income (loss) Interest allowances Balance of income (loss) Balance allocated equally Balance of income (loss) Shares to the partners +A $ Watts < Year 1 0 $ Year 2 Lyon Total $ (14,000) 0 $ LA LA 0 $ 0 0 0 0
Year 2 Plan (a) Net Income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion to time devoted Balance of income (loss) Shares to the partners Plan (c) Net Income (loss) Salary allowances Balance of income (loss) Balance allocated in proportion to initial investments Balance of income (loss) $ LA $ Watts Watts Watts 0 0 $ LA $ Lyon Lyon Lyon $ $ 0 $ 0 $ Total 35,000 $ 0 Total $ 35,000 35,000 0 0 0 Total $ 35,000 0 0 35,000
Shares the partners Plan (c) Net Income (loss) Salary allowances Balance of income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (d) Net Income (loss) Salary allowances Balance of income (loss) Interest allowances Balance of income (loss) Balance allocated equally Balance of income (loss) Shares to the partners LA $ $ LA Watts Watts 0 0 +A $ $ Lyon Lyon C A Total $ 58,333 0 FA $ LA $ LA LA $ LA 0 $ Total 0 0 0 58,333 0 0 0 OO 0 0