Chapter 12, Problem 2APSA

To determine

Concept Introduction:

An unincorporated association in which two or more people engage in business as co-owners for profit is known as partnership. In choosing the proper business form one of the many factors which are considered are generally taxes and liability risk. Partners can contribute as much capital to the partnership as they want while forming a partnership.

To calculate:

Prepare three tables with the following column headings.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.

Answer to Problem 2APSA

Explanation of Solution

The partnership income or loss should be allocated in the above manner under the four plans.

Year 1
Income(Loss) Sharing Plan	Calculations	Watts	Lyon
Plan A	$(36000)\times \frac{42}{105}$   $(36000)\times \frac{63}{105}$	(14400)	(21600)
Plan B	$(36000)\times \frac{1}{3}$   $(36000)\times \frac{2}{3}$	(12000)	(24000)
Plan C	Salary allowanceRemaining bal=(-36000-72000=-108000   $(108000)\times \frac{42}{105}$   $(108000)\times \frac{63}{105}$	-(43200)	72000 (64800)
Total		(43200)	7200
Plan D	Salary allowance10% interestRemaining bal=(-36000-72000-4200-6300)=(118500)	- 4200 (59250)	72000 6300 (59250)
Total		(55050)	19050

Year 2
Income(Loss) Sharing Plan	Calculations	Watts	Lyon
Plan A	90000×42/105 90000×63/105	36000	54000
Plan B	90000×1/3 90000×2/3	30000	60000
Plan C	Salary allowanceRemaining bal (90000-72000=18000) 18000×42/105 18000×63/105	- 7200	72000 10800
Total		$7200	$82800
Plan D	Salary allowance10% interestRemaining bal(90000-72000-4200-6300=7500) 7500×1/2 7500×1/2	- 4200 3750	72000 6300 3750
Total		$7950	$82050

Year 3
Income(Loss) Sharing Plan	Calculations	Watts	Lyon
Plan A	150000×42/105 150000×63/105	60000	90000
Plan B	150000×1/3 150000×2/3	50000	100000
Plan C	Salary allowanceRemaining bal(150000-72000=78000) 78000×42/105 78000×63/105	- 31200	72000 46800
Total		$31200	$118800
Plan D	Salary allowance10% interestRemaining bal(150000-72000-4200-6300=67500) 67500×1/2 67500×1/2	- 4200 33750	72000 6300 33750
Total		$37950	$112050