Irene Watts and John Lyon are forming a partnership to which Watts will devote one half time and Lyon will devote full time. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital investments, which they have agreed will be $42,000 for Watts and $63000 for Lyon; (b) in proportion to the time they devote to the business; (c) a salary allowance of $6,000 per month to Lyon and the balance in accordance with the ratio of their initial capital investment; or (d) a salary allowance of $6000 per month to Lyon, 10% interest on their capital investments, and the 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, $150000 net income. Required Prepare three tables with the following column headings. Year______ Income (Loss)--- Sharing Plan Calculations Watts Iyon
Irene Watts and John Lyon are forming a partnership to which Watts will devote one half time and Lyon will devote full time. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital investments, which they have agreed will be $42,000 for Watts and $63000 for Lyon; (b) in proportion to the time they devote to the business; (c) a salary allowance of $6,000 per month to Lyon and the balance in accordance with the ratio of their initial capital investment; or (d) a salary allowance of $6000 per month to Lyon, 10% interest on their capital investments, and the 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, $150000 net income. Required Prepare three tables with the following column headings. Year______ Income (Loss)--- Sharing Plan Calculations Watts Iyon
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Irene Watts and John Lyon are forming a partnership to which Watts will devote one half time and Lyon will devote full
time. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital
investments, which they have agreed will be $42,000 for Watts and $63000 for Lyon; (b) in proportion to the time they
devote to the business; (c) a salary allowance of $6,000 per month to Lyon and the balance in accordance with the ratio of
their initial capital investment; or (d) a salary allowance of $6000 per month to Lyon, 10% interest on their capital
investments, and the 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, $150000 net income.
Required
Prepare three tables with the following column headings.
Year__
Income (Loss)---
Sharing Plan
Calculations
Watts
Lyon
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