Reference no: EM132587336

Watts and Lyon are forming a partnership. Watts invests $28,000 and Lyon invests $52,000. 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 $18,000 per year to Lyon and the remaining balance in accordance with the ratio oftheir initial
capital investments; or

(d) a salary allowance of $18,000 per year to Lyon, 8% interest on their initial capital investments, and the
remaining balance shared equally.

The partners expect the business to perform as follows:

Year 1, $13,000 net loss;

Year 2, $32,500 net income; and

Year 3, $54,167 net income.

Required:

Question 1: 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 and capital de?cits. if any, as negative values. Do not round intermediate calculations. Round final answer to the nearest whole dollar.)