Answer:
a. No allocation
                                                       2019       2020       2021
Gross Profit on Sales                350,000  349,000   351,000
Less: Operating Expense         <u>210,000</u>   <u>210,000</u>    <u>210,000</u>
Gross Revenue                         140,000   139,000    141,000
Rent (Prepaid)                                 0                0               0
Revenue after Rent paid           140,000   139,000    141,000
Less: Corporate Taxes at 30% <u>42,000         41,700        42,300</u>
Net Income                               <u>$98,000    $97,300    $98,700</u>
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Considerations for No Allocation
- Taxes are to be deducted from Gross Profit.
- Rent not to be deducted from Gross Profit.
b. Comprehensive Allocation
                                                       2019       2020       2021
Gross Profit on Sales                350,000  349,000   351,000
Less: Operating Expense         <u>210,000</u>   <u>210,000</u>    <u>210,000</u>
Gross Revenue                         140,000   139,000    141,000
Rent (Prepaid)                            <u>60,000</u>    <u>60,000</u>       <u>60,000</u>
Revenue after Rent paid           80,000    79,000        81,000
Less: Corporate Taxes at 30%  <u>24,000</u>    <u>23,700</u>       <u>24,300</u>
Net Income                                 <u>56,000</u>    <u>55,300</u>       <u>56,700</u>
Considerations for Comprehensive Allocation
- Taxes are to be deducted from Gross Profit.
- Rent is to be deducted from Gross Profit.
c. No allocation distorts Mark or Make’s Net Income for all three years. This is because if Rent is not allocated taxes will be calculated on Gross Revenue. That is to say, Rent is a Non-Operating Expense and hence is to be deducted from Revenue to Calculate the Taxes. When Revenue is reduced, obviously, the taxes will be reduced. Hence, less income is seen in Comprehensive Income Statement and more Revenue is seen in Simple - Non Comprehensive Statement.