Question

kindly put the answers in a table for easy understanding

Watts and Lyon are forming a partnership. Watts invests $36,000 and Lyon invests $54,000. 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 $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, 10% interest on their initial capital investments, and the remaining balance shared equally. The partners expect the business to perform as follows: Year 1, $17,000 net loss; Year 2, $42,500 net income, and Year 3, $70,833 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.)

Answer 1

Notes: Initial capital investments 36000 and 54000. ratio is 40:60.

a) In the ratio of their initial capital investments;

Year 1
Plan (a)		watts		Lyon	Total
Net income(loss)					$ (17000)
Balance allocated in proportion to initial investments	.40	6800	60	10200	17000
Balance of income (loss)					$ 0
Shares to the partners		(6800)		(10200)	$ (17000)

b) in proportion to the time devoted to the business is .25 and .75 that is 1/4th by Watts and 3/4th by lyon.

Year 1
Plan (b)		watts		Lyon	Total
Net income(loss)					$ (17000)
Balance allocated in proportion to time devoted	.25	4250	.75	12750	17000
Balance of income (loss)					0
Shares to the partners		(4250)		(12750)	$ (17000)

c) a salary allowance of $15000 to lyon, remaining in accordance with initial capital investments

Year 1
Plan (c)		watts		Lyon	Total
Net income(loss)					$ (17000)
Salary allowances		0		15000	15000
Balance of income (loss)					$ (32000)
Balance allocated in proportion to initial investments	.4	12800	.6	19200	32000
Balance of income (loss)					$ 0
Shares to the partners	.4	(12800)	.6	(19200)	(32000)

d) a salary allowance of 15000 per year to Lyon, 10% interest on the initial capital investments, and the remaining balance shared equally

Initial capital investments 36000 and 54000. ratio is 40:60.

Year 1
Plan (d)		watts		Lyon	Total
Net income(loss)					$ (17000)
Salary allowances		0		15000	(15000)
Balance of income (loss)					(32000)
Interest allowances		3600		5400	(9000)
Balance of income (loss)					$ (41000)
Balance allocated equally	.5	$20500	.5	$20500	$41000
Balance of income (loss)					0
Shares to the partners		(20500)		(20500)	(41000)

Notes: Initial capital investments 36000 and 54000. ratio is 40:60.

a) In the ratio of their initial capital investments;

Year 2
Plan (a)		watts		Lyon	Total
Net income(loss)					$ 42500
Balance allocated in proportion to initial investments	.40	17000	60	25500	(42500)
Balance of income (loss)					$ 0
Shares to the partners		17000		25500	$ 42500

b) in proportion to the time devoted to the business is .25 and .75 that is 1/4th by Watts and 3/4th by lyon.

Year 2
Plan (b)		watts		Lyon	Total
Net income(loss)					$ 42500
Balance allocated in proportion to time devoted	.25	10625	.75	31875	(42500)
Balance of income (loss)					0
Shares to the partners		10625		31875	$42500

c) a salary allowance of $15000 to lyon, remaining in accordance with initial capital investments

Year 2
Plan (c)		watts		Lyon	Total
Net income(loss)					$ 42500
Salary allowances		0		15000	15000
Balance of income (loss)					$ 27500
Balance allocated in proportion to initial investments	.4	11000	.6	16500	27500
Balance of income (loss)					$ 0
Shares to the partners	.4	11000	.6	31500	$42500

d) a salary allowance of 15000 per year to Lyon, 10% interest on the initial capital investments, and the remaining balance shared equally

Initial capital investments 36000 and 54000. ratio is 40:60.

Year 2
Plan (d)		watts		Lyon	Total
Net income(loss)					$ 42500
Salary allowances		0		15000	(15000)
Balance of income (loss)					27500
Interest allowances		3600		5400	(9000)
Balance of income (loss)					$18500
Balance allocated equally	.5	9250	.5	9250	(18500)
Balance of income (loss)					0
Shares to the partners		12850		29650	42500

Notes: Initial capital investments 36000 and 54000. ratio is 40:60.

a) In the ratio of their initial capital investments;

Year 3
Plan (a)		watts		Lyon	Total
Net income(loss)					$ 70833
Balance allocated in proportion to initial investments	.40	28333	60	42500	(70833)
Balance of income (loss)					$ 0
Shares to the partners		28333		42500	70833

b) in proportion to the time devoted to the business is .25 and .75 that is 1/4th by Watts and 3/4th by lyon.

Year 3
Plan (b)		watts		Lyon	Total
Net income(loss)					$ 70833
Balance allocated in proportion to time devoted	.25	17708	.75	53125	(70833)
Balance of income (loss)					0
Shares to the partners		17708		53125	$ 70833

c) a salary allowance of $15000 to lyon, remaining in accordance with initial capital investments

Year 3
Plan (c)		watts		Lyon	Total
Net income(loss)					$ 70833
Salary allowances		0		15000	(15000)
Balance of income (loss)					$ 55833
Balance allocated in proportion to initial investments	.4	22333	.6	33500	(55833)
Balance of income (loss)					$ 0
Shares to the partners	.4	22333	.6	48500	70833

d) a salary allowance of 15000 per year to Lyon, 10% interest on the initial capital investments, and the remaining balance shared equally

Initial capital investments 36000 and 54000. ratio is 40:60.

Year 3
Plan (d)		watts		Lyon	Total
Net income(loss)					$ 70833
Salary allowances		0		15000	(15000)
Balance of income (loss)					55833
Interest allowances		3600		5400	(9000)
Balance of income (loss)					46833
Balance allocated equally	.5	23416	.5	23417	$46833
Balance of income (loss)					0
Shares to the partners		27016		43817	$ 70833