Problem 12-1A Allocating partnership income and loss; sequential years LO P2 Irene Watts and John Lyon are forming a partnership to which Watts will devote three-fourth 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 $31,500 for Watts and $38,500 for Lyon; (b) in proportion to the time devoted to the business; (c) a salary allowance of $1,500 per month to Lyon and the balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $1,500 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, $18,000 net loss; year 2, $45,000 net income; and year 3, $75,000 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 as negative values. Do not round intermediate calculations. Round final answer to the nearest whole dollar.) Year 1 Plan (a) Net Income (loss) Balance allocated in proportion Watts Lyon Total $ (18,000) 18,000 $ (36,000) $ 9,900 18,000 31500/70000 8,100 38500/700009,900 to initial investments Balance of income (losS) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion $8,100 Watts Lyon Total $ (18,000) 18,000 $ (36,000) $ 12,000 18,000 1/3 6,000 2/3 12,000 to time devoted Balance of income (loss) Shares to the partners $ 6,000 Problem 12-1A Allocating partnership income and loss; sequential years LO P2 Irene Watts and John Lyon are forming a partnership to which Watts will devote three-fourth 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 $31,500 for Watts and $38,500 for Lyon; (b) in proportion to the time devoted to the business; (c) a salary allowance of $1,500 per month to Lyon and the balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $1,500 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, $18,000 net loss; year 2, $45,000 net income; and year 3, $75,000 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 as negative values. Do not round intermediate calculations. Round final answer to the nearest whole dollar.) Year 1 Plan (a) Net Income (loss) Balance allocated in proportion Watts Lyon Total $ (18,000) 18,000 $ (36,000) $ 9,900 18,000 31500/70000 8,100 38500/700009,900 to initial investments Balance of income (losS) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion $8,100 Watts Lyon Total $ (18,000) 18,000 $ (36,000) $ 12,000 18,000 1/3 6,000 2/3 12,000 to time devoted Balance of income (loss) Shares to the partners $ 6,000
