Question

Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $83,700, $325,500, and $520,800, respectively. They predict annual partnership net income of $544,500 and are considering the following alternative plans of sharing income and loss: (a) equally; (b) in the ratio of their initial capital investments; or (c) salary allowances of $87,200 to Mo, $65,400 to Lu, and $99,000 to Barb; interest allowances of 10% on their initial capital investments; and the balance shared as follows: 20% to Mo, 40% to Lu, and 40% to Barb.

Required:
1. Use the table to show how to distribute net income of $450,000 for the calendar year under each of the alternative plans being considered

2. Prepare a statement of partners’ equity showing the allocation of income to the partners assuming they agree to use plan (c), that income earned is $209,000, and that Mo, Lu, and Barb withdraw $34,000, $48,000, and $64,000, respectively, at year-end

3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $209,000. Mo, Lu, and Barb withdraw $34,000, $48,000, and $64,000, respectively, at year-end. Also close the withdrawals accounts.

Answer 1

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