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

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Accounting

Irene Watts and John Lyon are forming a partnership to whichWatts will devote one-half time and Lyon will devote full time.They have discussed the following alternative plans for sharingincome and loss: (a) in the ratio of their initial capitalinvestments, which they have agreed will be $31,500 for Watts and$38,500 for Lyon; (b) in proportion to the time devoted to thebusiness; (c) a salary allowance of $2,250 per month to Lyon andthe balance in accordance with the ratio of their initial capitalinvestments; or (d) a salary allowance of $2,250 per month to Lyon,11% interest on their initial capital investments, and the balanceshared equally. The partners expect the business to perform asfollows: year 1, $18,000 net loss; year 2, $45,000 net income; andyear 3, $75,000 net income.

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Year 1 Plan A Watts Lyon Total Net Income Loss 18000 Balance allocated in proportion to initial investment 180003150070000 8100 180003850070000 9900 18000 Balance of income loss nil Share to the Partners 8100 9900 18000 Plan B Watts Lyon Total Net IncomeLoss 18000 Balance allocated in proportion to time devoted 180000515 6000 18000115 12000 18000 Balance of income loss nil Share to the Partners 6000 12000 18000 Plan C Watts Lyon Total Net Income Loss 18000 Salary allowances 225012 27000 27000 Balance of income Loss 45000 Balance allocated in proportion of initial investment 450003150070000 20250 450003850070000 24750 45000 See Answer

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In: AccountingIrene Watts and John Lyon are forming a partnership to whichWatts will devote one-half time...Irene Watts and John Lyon are forming a partnership to whichWatts will devote one-half time and Lyon will devote full time.They have discussed the following alternative plans for sharingincome and loss: (a) in the ratio of their initial capitalinvestments, which they have agreed will be $31,500 for Watts and$38,500 for Lyon; (b) in proportion to the time devoted to thebusiness; (c) a salary allowance of $2,250 per month to Lyon andthe balance in accordance with the ratio of their initial capitalinvestments; or (d) a salary allowance of $2,250 per month to Lyon,11% interest on their initial capital investments, and the balanceshared equally. The partners expect the business to perform asfollows: year 1, $18,000 net loss; year 2, $45,000 net income; andyear 3, $75,000 net income.