# Partnership Income or Loss Allocation## InstructionsTo allocate partnership income or loss to the partners under each of the four plans being considered, follow these steps:1. **Enter all allowances as positive values.**2. **Enter losses and capital deficits, if any, as negative values.**3. **Do not round intermediate calculations. Round the final answer to the nearest whole dollar.**## TaskComplete the following tables for each of the first three years (Year 1, Year 2, Year 3) to allocate partnership income or loss to the partners under the four plans being considered.## Allocation Tables### Year 1#### Plan (a)**Net Income (loss)**- Watts: [Input field]- Lyon: [Input field]**Balance allocated in proportion to initial investments**- Watts: [Input field]- Lyon: [Input field]**Balance of income (loss)**- Watts: [Input field]- Lyon: [Input field]**Shares to the partners**- Watts: [Input field]- Lyon: [Input field]#### Plan (b)**Net Income (loss)**- Watts: [Input field]- Lyon: [Input field]**Balance allocated in proportion to time devoted**- Watts: [Input field]- Lyon: [Input field]**Balance of income (loss)**- Watts: [Input field]- Lyon: [Input field]**Shares to the partners**- Watts: [Input field]- Lyon: [Input field]#### Plan (c)**Net Income (loss)**- Watts: [Input field]- Lyon: [Input field]**Salary allowances**- Watts: [Input field]- Lyon: [Input field]**Balance of income (loss)**- Watts: [Input field]- Lyon: [Input field]**Balance allocated in proportion to initial investments**- Watts: [Input field]- Lyon: [Input field]**Balance of income (loss)**- Watts: [Input field]- Lyon: [Input field]**Shares to the partners**- Watts: [Input field]- Lyon: [Input field]#### Plan (d)**Net Income (loss)**- Watts: [Input field]- Lyon: [Input field]**Salary allowances**- Watts: [Input field]- Lyon: [Input field]**Balance of income (loss)**- Watts: ### Partnership Formation: Watts and LyonWatts 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:1. **Plan (a)**: In the ratio of their initial capital investments.2. **Plan (b)**: In proportion to the time devoted to the business.3. **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.4. **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### Assignment RequirementsComplete 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.**Instructions:**- 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.### Tables for Data EntryProvide data for each year under each plan:**Year 1**| Plan | | Plan (a) | | ||------------|-------|:--------:|------:|-------:|| | Watts | | Lyon | || Net Income (loss) | | | || Balance allocated in proportion to initial investments | | | || Balance of income (loss) | | | || Shares to the partners | | | || Plan (b) | | | || Net Income (loss) | | | || Balance of income (loss) | | | || Shares to the partners | | | |**Year 2**| Plan | | Plan (a) | | |

that Watts will work one-fourth of the total time devoted the partnership and Lyon will work three-fourths. They have discussed the following alternative plans for shari 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 $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on their initial capital investments, and the remaining balan shared equally. The partners expect the business to perform as follows: Year 1, $13,000 net loss; Year 2, $32.500 net income: and Year 3. $54.167 net income.

that Watts will work one-fourth of the total time devoted the partnership and Lyon will work three-fourths. They have discussed the following alternative plans for shari 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 $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on their initial capital investments, and the remaining balan shared equally. The partners expect the business to perform as follows: Year 1, $13,000 net loss; Year 2, $32.500 net income: and Year 3. $54.167 net income.

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter6: Losses And Loss Limitations

Section: Chapter Questions

Problem 20P

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Can I please get help with this practice question 7.13 Watts and Lyon are forming a partnership. Watts invests $40,000 and Lyon invests $60,000. 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: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to the business; (c) a salary allowance of $24,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $24,000 per year to Lyon, 9% interest on their initial capital investments, and the remaining balance shared equally. The partners expect the business to perform as follows: Year 1, $16,000 net loss; Year 2, $40,000 net income; and Year 3, $66,667 net income. . Note: Enter all allowances as positive values. Enter losses and capital deficits, if any, as…
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