esWatts and Lyon are forming a partnership. Watts invests $27,000 and Lyon invests $63,000. The partners agree that Watts will workone-fourth of the total time devoted to the partnership and Lyon will work three-fourths. They have discussed the following alternativeplans for sharing income and loss: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to thebusiness; (c) a salary allowance of $18,000 per year to Lyon and the remaining balance in accordance with the ratio of their initialcapital investments; or (d) a salary allowance of $18,000 per year to Lyon, 8% interest on their initial capital investments, and theremaining balance shared equally. The partners expect the business to perform as follows: Year 1, $18,000 net loss; Year 2, $45,000net income; and Year 3, $75,000 net income.Required:Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the partners undereach of the four plans being considered.Note: Enter all allowances as positive values. Enter losses and capital deficits, if any, as negative values. Do not roundintermediate calculations. Round final answer to the nearest whole dollar.Complete this question by entering your answers in the tabs below.Year 1Year 2Year 1Plan (a)Net Income (loss)Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to thepartners under each of the four plans being considered.Balance allocated in proportion toinitial investmentsYear 3Balance of income (loss)Shares to the partnersPlan (b)$WattsWatts$LyonLyon$$0 $Total(18,000)0(18,000)Total0

PLAN (A)WattsLyonTotalNet Income/(Loss)($14,000)Balance allocated in Proportion to initial…

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. Note: 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.

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. Note: 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.

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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