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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Income Loss Year 1 Sharing Plan Calculations Watts Lyon a 45 x 18000 loss 8100 55 x 18000 loss 9000 b 33 13 x 18000 loss 6000 66 23 x 18000 loss 12000 c Salary allowance 27000 45 x 18000 loss 27000 salary 20250 55 x 18000 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.