Watts and Lyon are forming a partnership. Watts invests $42,000 and Lyon invests $63,000. The partners agree that Watts will work one-third of the total time devoted to the partnership and Lyon will work twothirds. 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 $72,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $72,000 per year to Lyon, 10% interest on their initial capital investments, and the remaining balance shared equally. The partners expect the business to perform as follows: Year 1, $36,000 net loss; Year 2, $90,000 net income; and Year 3, $150,000 net income. Required Prepare three tables with the following column headings. 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.
Watts and Lyon are forming a
agree that Watts will work one-third of the total time devoted to the partnership and Lyon will work twothirds.
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 $72,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial
capital investments; or (d) a salary allowance of $72,000 per year to Lyon, 10% interest on their initial
capital investments, and the remaining balance shared equally. The partners expect the business to perform
as follows: Year 1, $36,000 net loss; Year 2, $90,000 net income; and Year 3, $150,000 net income.
Required
Prepare three tables with the following column headings. 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.
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