For Q1, if you aren't recalculating the watershed at each contour line, you can use the Split Polygons tool in ArcMap to chop up your watersheds. You need an ArcEditor or ArcInfo license to use it. It will chop the watersheds by the contour lines and retain attributes.
So, a possible process could be to have an acreage field from the original watersheds, split the watersheds, add another acreage field and calculate acreages on the new polygons, then use the Field Calculator on a third field to determine percent of total acreage in each subwatershed.
This method assumes you have converted watersheds to vector data and that the contour lines are also vector data.