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Watts and Lyon are torming 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: (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 balance 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. Required: 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. (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.)

Watts and Lyon are torming 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: (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 balance 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. Required: 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. (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
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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### Partnership Income Allocation Plans This section elucidates various plans for allocating net income between partners Watts and Lyon. Below are the details for each plan based on given calculations. Each plan depicts different methods for distributing net income or losses among partners. #### Plan (a) - **Net Income (loss)**: $32,500 - **Balance Allocated in Proportion to Initial Investments**: - 40,500/90,000: $14,625 (Watts) - 49,500/90,000: $17,875 (Lyon) - **Shares to the Partners**: - $14,625 (Watts) - $17,875 (Lyon) - **Total**: $32,500 #### Plan (b) - **Net Income (loss)**: $32,500 - **Balance Allocated in Proportion to Time Devoted**: - $8,125 (Watts) - $24,375 (Lyon) - **Shares to the Partners**: - $8,125 (Watts) - $24,375 (Lyon) - **Total**: $32,500 #### Plan (c) - **Net Income (loss)**: $32,500 - **Salary Allowances**: - $15,000 (Lyon) - **Balance of Income (loss)**: $17,500 - **Balance Allocated in Proportion to Initial Investments**: - 40,500/90,000: $7,875 (Watts) - 49,500/90,000: $9,625 (Lyon) - **Shares to the Partners**: - $7,875 (Watts) - $24,625 (Lyon) - **Total**: $32,500 #### Plan (d) - **Net Income (loss)**: $32,500 - **Salary Allowances**: - $15,000 (Lyon) - **Balance of Income (loss)**: $17,500 - **Interest Allowances**: - $4,455 (Watts) - $5,445 (Lyon) - **Total**: $9,900 - **Balance of Income (loss)**: $7,600 - **Balance Allocated Equally**: - $3
Transcribed Image Text:### Partnership Income Allocation Plans This section elucidates various plans for allocating net income between partners Watts and Lyon. Below are the details for each plan based on given calculations. Each plan depicts different methods for distributing net income or losses among partners. #### Plan (a) - **Net Income (loss)**: $32,500 - **Balance Allocated in Proportion to Initial Investments**: - 40,500/90,000: $14,625 (Watts) - 49,500/90,000: $17,875 (Lyon) - **Shares to the Partners**: - $14,625 (Watts) - $17,875 (Lyon) - **Total**: $32,500 #### Plan (b) - **Net Income (loss)**: $32,500 - **Balance Allocated in Proportion to Time Devoted**: - $8,125 (Watts) - $24,375 (Lyon) - **Shares to the Partners**: - $8,125 (Watts) - $24,375 (Lyon) - **Total**: $32,500 #### Plan (c) - **Net Income (loss)**: $32,500 - **Salary Allowances**: - $15,000 (Lyon) - **Balance of Income (loss)**: $17,500 - **Balance Allocated in Proportion to Initial Investments**: - 40,500/90,000: $7,875 (Watts) - 49,500/90,000: $9,625 (Lyon) - **Shares to the Partners**: - $7,875 (Watts) - $24,625 (Lyon) - **Total**: $32,500 #### Plan (d) - **Net Income (loss)**: $32,500 - **Salary Allowances**: - $15,000 (Lyon) - **Balance of Income (loss)**: $17,500 - **Interest Allowances**: - $4,455 (Watts) - $5,445 (Lyon) - **Total**: $9,900 - **Balance of Income (loss)**: $7,600 - **Balance Allocated Equally**: - $3
### Partnership Income Allocation Problem 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: - **(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** - **(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 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. (**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 2 Plan (a) Allocation Example:** Here is the allocation for Year 2 under Plan (a): | | Watts | Lyon | Total | |---------------------|-----------------|-----------------|-----------| | **Net Income (loss)** | | | $32,500 | | **Balance allocated in proportion to initial investments** | | | | | 40,500/90,000 | $14,625 | | | | 49,500/90,000 | | $17,875 | $32,500 | | **Balance of income (loss)** | $14,625 | $17,875 | $0 | When completing the tables for other years and plans, follow the same approach by distributing the income or loss according to the specified ratios, salaries, and interests described. **Note:** - **Year Tabs:** These are sections dedicated to each year for entering the respective allocation data. -
Transcribed Image Text:### Partnership Income Allocation Problem 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: - **(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** - **(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 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. (**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 2 Plan (a) Allocation Example:** Here is the allocation for Year 2 under Plan (a): | | Watts | Lyon | Total | |---------------------|-----------------|-----------------|-----------| | **Net Income (loss)** | | | $32,500 | | **Balance allocated in proportion to initial investments** | | | | | 40,500/90,000 | $14,625 | | | | 49,500/90,000 | | $17,875 | $32,500 | | **Balance of income (loss)** | $14,625 | $17,875 | $0 | When completing the tables for other years and plans, follow the same approach by distributing the income or loss according to the specified ratios, salaries, and interests described. **Note:** - **Year Tabs:** These are sections dedicated to each year for entering the respective allocation data. -
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