Question

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 arc loss: (a) in the ratio of their initial capital investments, which they have agreed will Be $24.000 for Watts and $66,000 for Lyon; (D) in proportion to the time devoted to the Business: (c) a salary allowance o' $ 1.750 per month to Lyon and the Balance in accondcance with the ratio of their initial capital investments; or (d) a salary a' allowance of $1.750 per month to Lyon. 12% interest on their initial capital investments, and the balance shared equally. The partners expect the Business to perform as follows: year 1, $19,000 net loss: year 2. $47,500 net income; and year 3. S79.167 net income. Required: Complete the tables, one for each of the firs: three years. By shewing how to allocate partnership income or loss to the partners under each of the four plans being considered. (Amounts to Be deducted should Be indicated with a minus sign. Do not round Intermediate calculations.)

Answer 1

Answer:

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