Explain to me how you got 5850 as the answer for number a . did you subtract or multiply or divide or what I’m confused ### Allocation of Partnership Income or Loss: An Educational Exercise#### OverviewThis exercise illustrates how to allocate partnership income or loss among partners using different plans. The four plans considered are based on initial investments, time devotion, salary allowances, and interest allowances. All allowances are entered as positive values and losses or capital deficits as negative values. Intermediate calculations should not be rounded, but the final answer should be rounded to the nearest whole dollar.---### InstructionsComplete the tables for each of the first three years to allocate partnership income or loss among the partners Watts, Lyon, and Doran under the four plans being considered.#### Year 1 Allocation**Plan (a): Allocated Proportionally to Initial Investments**- **Net Income (Loss)**: Distributed based on the ratio of initial investments. - Watts: $40,500 / $90,000 = ($5,850) - Lyon: $49,500 / $90,000 = ($7,150) - Doran: Not Included**Plan (b): Allocated Proportionally to Time Devoted**- **Net Income (Loss)**: Distributed based on time devoted to the partnership. - Watts: (1/4) = ($3,250) - Lyon: (3/4) = ($9,750) - Doran: Not Included**Plan (c): Salary Allowances and Balance Allocated to Initial Investments**- **Net Income (Loss)**: Reduced by salary allowances. - Salary Allowances: - Watts: $0 - Lyon: $15,000 - Balance divided according to initial investments: - Watts: $40,500 / $90,000 = ($12,600) - Lyon: $49,500 / $90,000 = ($15,400)**Plan (d): Salary and Interest Allowances, and the Balance Allocated Equally**- **Net Income (Loss)**: Reduced by both salary and interest allowances. - Salary Allowances: - Watts: $0 - Lyon: $15,000 - Interest Allowances: - Watts: $4,455 - Lyon: $5,445 - Remaining Balance Divided Equally: - Watts: ($18,950) - Lyon: ($18,950)The diagrams represent the results for Year 1. Continue using the same methods for ### Partnership Agreement Analysis: Watts and LyonWatts and Lyon are forming a partnership. The initial investments are as follows:- Watts: $40,500- Lyon: $49,500The partners have agreed on the working arrangement:- Watts: One-fourth of the total time devoted to the partnership- Lyon: Three-fourths of the total time devoted to the partnership### Alternative Plans for Sharing Income and LossThe partners have discussed four 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.### Expected Business PerformanceThe business is expected to perform as follows:- **Year 1:** $13,000 net loss- **Year 2:** $32,500 net income- **Year 3:** $54,167 net income### TaskComplete the tables 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. Round the final answer to the nearest whole dollar.### Allocation Table for Year 1 - Plan (a)| **Plan (a)** | **Watts** | **Lyon** ||--------------|------------------|------------------|| **Net Loss** | $(13,000)$ | $(13,000)$ || **Balance Allocated in Proportion to Initial Investments** | 40,500/90,000 = 0.45 | 49,500/90,000 = 0.55 || **Balance of Income (Loss)** | (5,850) | (7,150) || **Shares to the Partners** | $(5,850)$ | $(7,150)$ |Note: This table demonstrates how the net loss in Year 1 is distributed between Watts and Lyon based on their initial capital investments.For the complete analysis, similar tables

Appropriation of profit indicates the allocation of net profit or loss incurred (after deducting…

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.) Complete this question by entering your ans below. Year 1 Year 2 Year 3 Complete the tables, one for each of the first three to allocate partnership income or loss to the partn four plans being considered. Year 1 Plan (a) Watts Lyo Net Income (loss) Balance allocated in proportion to initial investments 40,500/90,000✔ (5,850) 49,500/90,000✔ (7.1 Balance of income (loss) Shares to the partners $ (5,850) $ (7.1 Plan (b) Watts Lyo Net Income (loss) Balance allocated in proportion to time devoted (9,7 Balance of income (loss) Shares to the partners $ (9,7 Lyo Plan (c) Net Income (loss) Salary allowances $ 15, Balance of income (loss) Balance allocated in proportion to initial investments (15,4 Balance of income (loss) Shares to the partners $ (4 Plan (d) Lyo Net Income (loss) Salary allowances $ 15, Balance of income (loss) Interest allowances $ 5, Balance of income (loss) Balance allocated equally (18,9 Balance of income (loss) Shares to the partners 1, 1/4 40,500/90,000✔ (3,250) $ (3,250) Watts $ 0 (12,600) 49,500/90,000 $ (12,600) Watts $ 0 $ 4,455 (18,950)✔ 3/4✓ $ (14,495) $

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q