Question

In: Accounting

Irene Watts and John Lyon are forming a partnership to which Watts will devote one-half time...

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 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 $2,250 per month to Lyon and the balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $2,250 per month to Lyon, 11% 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.

Solutions

Expert Solution

Income (Loss) Year 1
Sharing Plan Calculations Watts Lyon
(a) 45% x 18000 loss -8100
55% x 18000 loss -9000
(b) 33 1/3% x 18000 loss   -6000
66 2/3% x 18000 loss   -12000
(c) Salary allowance 27000
45% x (18000 loss + 27000 salary) -20250
55% x (18,000 loss + 27,000 salary) ________ -24,750
Totals -20250 2,250
(d) Salary allowance 27000
Interest allowances 3465 4,235
50% x (18000 loss + 27000 Salary + 7700 Interest) -26350 -26350
Totals -22,885 4,885
Income (Loss) Year 2
Sharing Plan Calculations Watts Lyon
(a) 45% x 45000 20250
55% x 45000 24750
(b) 33 1/3% x 45000 15000
66 2/3% x 45000 30000
(c) Salary allowance 27000
45% x (45000 - 27000 salary) 8100
55% x (45,000 - 27,000 salary) ________ 9,900
Totals 8100 36,900
(d) Salary allowance 27000
Interest allowances 3465 4,235
50% x (45000 - 27000 Salary - 7700 Interest) 5150 5150
Totals 8,615 36,385
Income (Loss) Year3
Sharing Plan Calculations Watts Lyon
(a) 45% x 75000 33750
55% x 75000 41250
(b) 33 1/3% x 75000 25000
66 2/3% x 75000 50000
(c) Salary allowance 27000
45% x (75000 - 27000 salary) 21600
55% x (75,000 - 27,000 salary) ________ 26,400
Totals 21600 53,400
(d) Salary allowance 27000
Interest allowances 3465 4,235
50% x (75000 - 27000 Salary - 7700 Interest) 20150 20150
Totals 23,615 51,385

Related Solutions

Irene Watts and John Lyon are forming a partnership to which Watts will devote one-half time...
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 and loss: (a) in the ratio of their initial capital investments, which they have agreed will be $40,000 for Watts and $60,000 for Lyon; (b) in proportion to the time devoted to the business; (c) a salary allowance of $1,750 per month to Lyon and the balance in...
Irene Watts and John Lyon are forming a partnership to which Watts will devote one-half time...
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 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...
Irene Watts and John Lyon are forming a partnership to which Watts will devote one-half time...
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 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 $2,250 per month to Lyon and the balance in...
Watts and Lyon are forming a partnership. Watts invests $31,500 and Lyon invests $58,500. The partners...
Watts and Lyon are forming a partnership. Watts invests $31,500 and Lyon invests $58,500. 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 $21,000 per year to Lyon and the remaining balance...
Problem 12-2A Allocating partnership income and loss; sequential years LO P2 Irene Watts and John Lyon...
Problem 12-2A Allocating partnership income and loss; sequential years LO P2 Irene Watts and John Lyon are forming a partnership to which Watts will devote one-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 $32,000 for Watts and $48,000 for Lyon; (b) in proportion to the time devoted to the business; (c) a salary...
Bob Short would devote more time to the partnership than would his equal partner Jack Long,...
Bob Short would devote more time to the partnership than would his equal partner Jack Long, it was agreed that Bob would receive a “salary” of $12,000 per year. Bob and Jack agreed to divide the remaining partnership income equally. For the current year, prior to consideration of Bob’s salary, the partnership income was composed of $6,000 long-term capital gain, $2,000 tax-exempt interest, and $8,000 loss from operations. Determine the amount and character of income (loss) reportable by Bob and...
The half-life of a reaction, t1/2, is the time required for one-half of a reactant to...
The half-life of a reaction, t1/2, is the time required for one-half of a reactant to be consumed. It is the time during which the amount of reactant or its concentration decreases to one-half of its initial value.Determine the half-life for the reaction in Part B using the integrated rate law, given that the initial concentration is 1.95 mol⋅L−1 and the rate constant is 0.0019 mol⋅L−1⋅s−1
A candy machine has 9 buttons of which one never works, two work one-half the time,...
A candy machine has 9 buttons of which one never works, two work one-half the time, and the rest work all the time. A coin is inserted and a button is pushed at random. a) What is the probability that no candy is received? b) If no candy is received, what is the probability that the button that never works was the one pushed? c) If candy is received, what is the probability that one of the buttons that work...
Assume that the gender distribution of babies is such that one-half the time females are born and one-half the time males are born. In a family of 3 children, what is the..
Assume that the gender distribution of babies is such that one-half the time females are born and one-half the time males are born. In a family of 3 children, what is the probability that all are girls? In a family of 4? Is it unusual that in a family with 4 children all would be girls? In a family of 5?
Which of the following statements is correct? Group of answer choices One disadvantage of forming a...
Which of the following statements is correct? Group of answer choices One disadvantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. Corporations face more regulations than sole proprietorships. One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. It is generally less expensive to form...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT