Response to the following problem:
Maria Karto and J.R. Black are forming a partnership to which Karto will devote one-third time and Black 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 $52,000 for Karto and $78,000 for Black;
(b) in proportion to the time devoted to the business;
(c) a salary allowance of $2,000 per month to Black and the balance in accordance with the ratio of their initial capital investments; or
(d) a salary allowance of $2,000 per month to Black, 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, $38,000 net income; and year 3, $94,000 net income.
Required: Prepare three tables with the following column headings.
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Income (Loss)
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Year
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Sharing Plan
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Calculations
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Karto
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Black
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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 whole dollar.)