Rex Baker and Ty Farney are forming a partnership to which Baker will devote three-fourth time and Farney 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 $40,000 for Baker and $60,000 for Farney; (b) in proportion to the time devoted to the business; (c) a salary allowance of $1,750 per month to Farney and the balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $1,750 per month to Farney, 10% interest on their initial capital investments, and the balance shared equally. The partners expect the business to perform as follows: year 1, $19,000 net loss; year 2, $47,500 net income; and year 3, $79,167 net income.
Required:
Complete the tables, one for each of the first three years, by showing how to allocate partnership income or loss to the partners under each of the four plans being considered. (Loss amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the “$” sign in your response.)
Year 1
Income (Loss)
——————————————————————————–
Sharing Plan Baker Farney
(a) $ $
(b) $ $
(c) $ $
(d) $ $
——————————————————————————–
Year 2
Income (Loss)
——————————————————————————–
Sharing Plan Baker Farney
(a) $ $
(b) $ $
(c) $ $
(d) $ $
——————————————————————————–
Year 3
Income (Loss)
——————————————————————————–
Sharing Plan Baker Farney
(a) $ $
(b) $ $
(c) $ $
(d) $ $
