Question

Ben Conway, Ida Chan, and Clair Scott formed CCS Consulting by making capital contributions of $258,000, $294,000, and $188,000, respectively. They anticipate annual profit of $444,000 and are considering the following alternative plans of sharing profits and losses:

a. Equally;
b. In the ratio of their initial investments; or
c. Salary allowances of $115,000 to Conway, $92,000 to Chan, and $67,000 to Scott and interest allowances of 10% on initial investments, with any remaining balance shared equally.

Required :
1. Use the schedule to show how a profit of $444,000 would be distributed under each of the alternative plans being considered. (Enter all amounts as positive values.)

	Profit (Loss) Sharing Plan Calculations Share to Conway Share to Chan Share to Scott Total (a) Profit $0 (b) Profit $0 (c) Profit $444,000 Salary allowances Interest allowances Total salaries and interest allocation $0 $0 $0 $0 Balance of Profit $444,000 Balance allocated equally 0 Balance of Profit $444,000 Shares of partners $0 $0 $0 $0

2. Prepare a statement of changes in equity showing the allocation of profit to the partners, assuming they agree to use alternative (c) and the profit actually earned for the year ended December 31, 2017, is $444,000. During the year, Conway, Chan, and Scott withdraw $47,000, $37,000, and $27,000, respectively. (Enter all amounts as positive values.)

	CCS Consulting Statement of Changes in Equity For Year Ended December 31, 2017 Conway Chan Scott Total Capital, January 1 0 0 0 Totals 0 0 0 0 0 Capital, December 31 0 0 0 0

3. Prepare the December 31, 2017, journal entry to close Income Summary assuming they agree to use alternative (c) and the profit is $444,000. Also, close the withdrawals accounts.

1.Record the entry to close income summary.

2.Record the entry to close withdrawals accounts.

Answer 1

1. Schedule to show how a profit of $444,000 would be distributed under each of the alternative plans being considered is as shown below:

Income (loss) sharing plan
Plan (a)	Ben		Ida		Clair		Total
Net Income (loss)							444,000
Balance allocated equally	444,000/3	148,000	444,000/3	148,000	444,000/3	148,000	444,000
balance of income (loss)							0
Shares to the partners		148,000		148,000		148,000	444,000
Plan (b)
Net Income (loss)							444,000
Initial Investment		258,000		294,000		188,000	740,000
Balance allocated in proportion to initial investment	444,000/740,000*258,000	154,800	444,000/740,000*294,000	176,400	444,000/740,000*188,000	112,800	444,000
Balance of income (loss)							0
Shares to the partners		154,800		176,400		112,800	444,000
Plan (c )
Net Income (loss)							444,000
Initial Investment		258,000		294,000		188,000	740,000
Salary allowances		115,000		92,000		67,000	274,000
Balance of income (loss)							170,000
Interest allowances	258,000*10%	25,800	294,000*10%	29,400	188,000*10%	18,800	74,000
Balance of income (loss)							96,000
Balance allocated	96,000/3	32,000	96,000/3	32,000	96,000/3	32,000	96,000
Balance of income (loss)							0
Shares to the partners		172,800		153,400		117,800	444,000

2.  statement of changes in equity showing the allocation of profit to the partners, assuming they agree to use alternative (c) and the profit actually earned for the year ended December 31, 2017, is $444,000

MLB Partnership
Statement of partners Equity
For year ended December 31
	Ben	Ida	Clair	Total
Initial Investment	258,000	294,000	188,000	740,000
Net Income
Salary allowances	115,000	92,000	67,000	274,000
Interest allowances	25,800	29,400	18,800	74,000
Balance allocated (154,900 in 20:40:40)	32,000	32,000	32,000	96,000
Total Net Income	172,800	153,400	117,800	444,000
Less: Withdrawal	-47,000	-37,000	-27,000	-111,000
Clsoing Balance	383,800	410,400	278,800	1,073,000

3. Journal entry to close Income Summary is:

Date	Particulars	L.F	Amount ($)	Amount ($)
Dec-31	Income summary		444,000
	Ben capital			172,800
	Ida Capital			153,400
	Clair Capital			117,800
	(For Income closed to capital accounts)
Dec-31	Ben Capital		47,000
	Ida Capital		37,000
	Clair capital		27,000
	Ben Withdrawal			47,000
	Ida Withdrawal			37,000
	Clair Withdrawal			27,000
	(For withdrawals closed)