Watts and Lyon are forming a partnership. Watts invests $40,500 and Lyon invests $49,500. The partners agree that Watts Will Work one-fourth of the total time devoted to the partnership and Lyon will work three-fourths. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to the business; (c) a salary allowance of $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on their initial capital investments, and the remaining balance shared equally. The partners expect the business to perform as follows: Year 1, $13,000 net loss; Year 2, $32,500 net income; and Year 3, $54,167 net income. Required: Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the partners under each of the four plans being considered. (Enter all allowances as positive values. Enter losses and capital deficits, if any, as negative values. Do not round intermediate calculations. Round final answer to the nearest whole dollar.)
Watts and Lyon are forming a partnership. Watts invests $40,500 and Lyon invests $49,500. The partners agree that Watts Will Work one-fourth of the total time devoted to the partnership and Lyon will work three-fourths. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to the business; (c) a salary allowance of $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on their initial capital investments, and the remaining balance shared equally. The partners expect the business to perform as follows: Year 1, $13,000 net loss; Year 2, $32,500 net income; and Year 3, $54,167 net income. Required: Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the partners under each of the four plans being considered. (Enter all allowances as positive values. Enter losses and capital deficits, if any, as negative values. Do not round intermediate calculations. Round final answer to the nearest whole dollar.)
Chapter21: Partnerships
Section: Chapter Questions
Problem 2BCRQ
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Concept explainers
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Question
Transcribed Image Text: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)
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
$ 5,850
Watts
$
$
Watts
$
Watts
0
0
0
$
$
$
4,667
Lyon
Lyon
Lyon
0
0
0
$ 43,650
$ 10,517
Total
$ 54,167
0
$
0
Total
$ 54,167
0
0
$
0
$
0
Total
$ 54,167
0
0
$
$
0
0
0
Transcribed Image Text:Watts and Lyon are forming a partnership. Watts invests $40,500 and Lyon invests $49,500. The partners agree that Watts will work
one-fourth of the total time devoted to the partnership and Lyon will work three-fourths. They have discussed the following alternative
plans for sharing income and loss: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to the
business; (c) a salary allowance of $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial
capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on their initial capital investments, and the
remaining balance shared equally. The partners expect the business to perform as follows: Year 1, $13,000 net loss; Year 2, $32,500
net income; and Year 3, $54,167 net income.
Required:
Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the partners under
each of the four plans being considered. (Enter all allowances as positive values. Enter losses and capital deficits, if any, as
negative values. Do not round intermediate calculations. Round final answer to the nearest whole dollar.)
X Answer is not complete.
Complete this question by entering your answers in the tabs below.
Year 1
Year 2
Year 3
Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the
partners under each of the four plans being considered.
Year 3
Plan (a)
Watts
Lyon
Total
Net Income (loss)
$ 54,167
Balance allocated in proportion
to initial investments
40,500/90,000
5,850 49,500/90,000
10,517
Balance of income (loss)
43,650
$
$ 10,517
Shares to the partners
5,850
4,667 X
4,667
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