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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Question
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 1
Plan (a)
Watts
Lyon
Total
$ (13,000)
Net Income (loss)
Balance allocated in proportion
to initial investments
40,500/90,000
5,850 49,500/90,000
13,000
Balance of income (loss)
$ (26.000)
7,150 X
Transcribed Image Text:Dalalice 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)
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
40,500/90,000
1/4 ✔
40,500/90,000
$ 5,850
Watts
$
5,850 49,500/90,000
$
3,250
3,250
Watts
0✓
12,600
$ 12,600
Watts
$ 4,455
18,950 X
$ 23,405
3/4
49,500/90,000
$
$
$
7,150 X
7,150
Lyon
9,750 X
9,750
Lyon
15,000
15,400
$ 30,400
Lyon
$ 15,000
$
5,445
18,950 X
$ 39,395
13,000
$ (26,000)
$ 13,000
Total
$ (13,000)
13,000
$ (26,000)
$ 13,000
Total
$ (13,000)
15,000
28,000
28,000
$
0
$ 43,000
Total
$ (13,000)
15,000
17,500 X
9,900
7,600
37,900
$ (30,300)
$ 62,800
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