Jasmine Watts and Liz Thomas are forming a partnership to which Watts will devote one-half time and

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Jasmine Watts and Liz Thomas are forming a partnership to which Watts will devote one-half time and Thomas 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 $30,000 for Watts and $45,000 for Thomas;
(b) In proportion to the time devoted to the business;
(c) A salary allowance of $3,000 per month to Thomas and the balance in accordance with the ratio of their initial capital investments; or
(d) A salary allowance of $3,000 per month to Thomas, 10% 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
Prepare three tables with the following column headings.

Jasmine Watts and Liz Thomas are forming a partnership to

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. (Round answers to the nearest wholedollar.)

Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
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Managerial Accounting

ISBN: 978-0073379586

2010 Edition

Authors: John J. Wild, Ken W. Shaw

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