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-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 accordance with the ratio of their initial capital investments; or (d) a salary allowance of $6,000 per month to Lyon, 10% interest on their initial capital investments, and the balance shared equally. The partners expect the business to perform as follows: year 1, $36,000 net loss; year 2, $90,000 net income, and year 3, $150,000 net income. Required: 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. (Do not round intermediate calculations. Round final answers to the nearest whole dollar. Enter all allowances as positive values. Enter losses as negative values.) Year 1 Year 2 Year 3 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. Watts Lyon Total $ (36,000) Watts Lyon Total $ (36,000) Watts Lyon Total $ (36,000) Year 1 Plan (a) Net Income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion to time devoted Balance of income (loss) Shares to the partners Plan (c) Net Income (loss) Salary allowances Balance of income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (d) Net Income (loss) Salary allowances Balance of income (loss) Interest allowances Balance of income (loss) Balance allocated equally Balance of income (loss) Shares to the partners Watts Lyon Total $ (36,000) < Year 1 Year 2 > Year 1 Year 2 Year 3 Complete the tables, one for each of the first three years, by showing how to allocate partnership income o partners under each of the four plans being considered. Watts Lyon Total 90,000 $ Watts Lyon Total $ 90,000 Watts Lyon Total $ 90,000 Year 2 Plan (a) Net Income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion to time devoted Balance of income (loss) Shares to the partners Plan (c) Net Income (loss) Salary allowances Balance of income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (d) Net Income (loss) Salary allowances Balance of income (loss) Interest allowances Balance of income (loss) Balance allocated equally Balance of income loss) Shares to the partners Watts Lyon Total 90,000 $ < Year 1 Year 3 > Year 1 Year 2 Year 3 Complete the tables, one for each of the first three years, by showing how to allocate partnership income partners under each of the four plans being considered. Watts Lyon Total $ 150,000 Watts Lyon Total $ 150,000 Watts Lyon Total $ 150,000 Year 3 Plan (a) Net Income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion to time devoted Balance of income (loss) Shares to the partners Plan (c) Net Income (loss) Salary allowances Balance of income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (d) Net Income (loss) Salary allowances Balance of income (loss) Interest allowances Balance of income (loss) Balance allocated equally Balance of income (loss) Shares to the partners Watts Lyon Total 150,000 $ < Year 2 Year 3