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and Lyon are forming a partnership. Watts invest 500 and Lyon invests $49,500. The partners agre Watts will work one-fourth of the total time devote artnership and Lyon will work three-fourths. They discussed the following alternative plans for shar he and loss: (a) in the ratio of their initial capital tments: (b) in proportion to the time devoted to th

and Lyon are forming a partnership. Watts invest 500 and Lyon invests $49,500. The partners agre Watts will work one-fourth of the total time devote artnership and Lyon will work three-fourths. They discussed the following alternative plans for shar he and loss: (a) in the ratio of their initial capital tments: (b) in proportion to the time devoted to th

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Title: Allocating Partnership Income and Loss in Various Scenarios** **Introduction:** 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: - **Plan (a):** In the ratio of their initial capital investments. - **Plan (b):** In proportion to the time devoted to the business. - **Plan (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. - **Plan (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 - **Year 3:** $54,167 net income **Required:** Complete the following tables, one for each of the first three years, to show how to allocate partnership income or loss to the partners under each of the four plans being considered. **Instructions:** - Enter all allowances as positive values. - Enter losses and capital deficits, if any, as negative values. - Do not round intermediate calculations. - Round final answers to the nearest whole dollar. **Year 1 Allocation:** *Plan (a): Sharing in the ratio of their initial capital investments* | | Watts | Lyon | |-----------|-----------------|-------------------| | Net Income (loss) | -$13,000 | | | Balance allocated in proportion to initial investments | $40,500/90,000 or -$5,850 | $49,500/90,000 or -$7,150 | |**Shares to the partners**| **-$5,850** | **-$7,150** | **Plan (b), Plan (c), and Plan (d)** would have similar detailed tables where the net income or loss for each year is allocated according to the specific rules of each plan. The calculations for each year and each alternative plan facilitate understanding how partnerships manage and allocate profits and losses based on
Transcribed Image Text:**Title: Allocating Partnership Income and Loss in Various Scenarios** **Introduction:** 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: - **Plan (a):** In the ratio of their initial capital investments. - **Plan (b):** In proportion to the time devoted to the business. - **Plan (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. - **Plan (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 - **Year 3:** $54,167 net income **Required:** Complete the following tables, one for each of the first three years, to show how to allocate partnership income or loss to the partners under each of the four plans being considered. **Instructions:** - Enter all allowances as positive values. - Enter losses and capital deficits, if any, as negative values. - Do not round intermediate calculations. - Round final answers to the nearest whole dollar. **Year 1 Allocation:** *Plan (a): Sharing in the ratio of their initial capital investments* | | Watts | Lyon | |-----------|-----------------|-------------------| | Net Income (loss) | -$13,000 | | | Balance allocated in proportion to initial investments | $40,500/90,000 or -$5,850 | $49,500/90,000 or -$7,150 | |**Shares to the partners**| **-$5,850** | **-$7,150** | **Plan (b), Plan (c), and Plan (d)** would have similar detailed tables where the net income or loss for each year is allocated according to the specific rules of each plan. The calculations for each year and each alternative plan facilitate understanding how partnerships manage and allocate profits and losses based on
**Instruction:** Complete the tables, one for each of the first three years, 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.)* **Year 1:** --- **Plan (a):** **Watts:** - Net Income (Loss): - Balance allocated in proportion to initial investments: 40,500/90,000 \( \rightarrow \) (5,850) - Balance of Income (Loss): - Shares to the partners: \( - \$ 5,850 \) **Lyon:** - Net Income (Loss): - Balance allocated in proportion to initial investments: 49,500/90,000 \( \rightarrow \) (7,150) - Balance of Income (Loss): - Shares to the partners: \( - \$ 7,150 \) --- **Plan (b):** **Watts:** - Net Income (Loss): - Balance allocated in proportion to time devoted: 1/4 \( \rightarrow \) (3,250) - Balance of Income (Loss): - Shares to the partners: \( - \$ 3,250 \) **Lyon:** - Net Income (Loss): - Balance allocated in proportion to time devoted: 3/4 \( \rightarrow \) (9,750) - Balance of Income (Loss): - Shares to the partners: \( - \$ 9,750 \) --- **Plan (c):** **Watts:** - Net Income (Loss): - Salary allowances: \$ 0 - Balance of Income (Loss): - Balance allocated in proportion to initial investments: 40,500/90,000 \( \rightarrow \) (12,600) - Balance of Income (Loss): - Shares to the partners: \( - \$ 12,600 \) **Lyon:** - Net Income (Loss): - Salary allowances: \$ 15,000 - Balance of Income (Loss): - Balance allocated in proportion to initial investments: 49,500/90,000 \( \rightarrow \) (15,400) - Balance of Income (Loss): - Shares to the partners: \( - \$ 4,850 \) --- **
Transcribed Image Text:**Instruction:** Complete the tables, one for each of the first three years, 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.)* **Year 1:** --- **Plan (a):** **Watts:** - Net Income (Loss): - Balance allocated in proportion to initial investments: 40,500/90,000 \( \rightarrow \) (5,850) - Balance of Income (Loss): - Shares to the partners: \( - \$ 5,850 \) **Lyon:** - Net Income (Loss): - Balance allocated in proportion to initial investments: 49,500/90,000 \( \rightarrow \) (7,150) - Balance of Income (Loss): - Shares to the partners: \( - \$ 7,150 \) --- **Plan (b):** **Watts:** - Net Income (Loss): - Balance allocated in proportion to time devoted: 1/4 \( \rightarrow \) (3,250) - Balance of Income (Loss): - Shares to the partners: \( - \$ 3,250 \) **Lyon:** - Net Income (Loss): - Balance allocated in proportion to time devoted: 3/4 \( \rightarrow \) (9,750) - Balance of Income (Loss): - Shares to the partners: \( - \$ 9,750 \) --- **Plan (c):** **Watts:** - Net Income (Loss): - Salary allowances: \$ 0 - Balance of Income (Loss): - Balance allocated in proportion to initial investments: 40,500/90,000 \( \rightarrow \) (12,600) - Balance of Income (Loss): - Shares to the partners: \( - \$ 12,600 \) **Lyon:** - Net Income (Loss): - Salary allowances: \$ 15,000 - Balance of Income (Loss): - Balance allocated in proportion to initial investments: 49,500/90,000 \( \rightarrow \) (15,400) - Balance of Income (Loss): - Shares to the partners: \( - \$ 4,850 \) --- **
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