Irma 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 and loss
P12-2A Irma 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
and loss
P12-2A Allocating partnership income and loss; sequential years L.O. P2
Irma 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 and loss:
(a) in the ratio of their initial capital investments,
which they have agreed will be $42,000 for Watts and $63,000 for Lyon; (b) in
proportion to the time devoted to the business; (c) a salary allowance of
$6,000 per month to Lyon and the balance in accordance with the ratio of their
initial capital investments; or (d) a salary allowance of $6,000 per month to
Lyon, 10% interest on their initial capital investments, and the balance shared
equally. The partners expect the business to perform as follows: Year 1,
$36,000 net loss; Year 2, $90,000 net income; and Year 3, $150,000 net income.
Required: Complete the tables, one for each of the first three years, by
showing how to allocate partnership income or
TUTORIAL PREVIEW
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Watts
and Lyon
Preliminary
Calculations
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Plans a and c
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Percentage based
on initial investments:
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Watts
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40%
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<-Correct!
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Lyon
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60%
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<-correct!
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