Question

Bill Beck, Bruce Beck, and Barb Beck formed the BBB Partnership by making capital contributions of $79,200, $308,000, and $492,800, respectively. They predict annual partnership net income of $519,000 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 $85,200 to Bill, $63,900 to Bruce, and $96,500 to Barb; interest allowances of 10% on their initial capital investments; and the balance shared as follows: 20% to Bill, 40% to Bruce, and 40% to Barb. Bill, Bruce, and Barb withdraw $41,700, $55,700, and $71,700, respectively, at year-end. 1. Use the table to show how to distribute net income of $519,000 for the calendar year under each of the alternative plans being considered. (Do not round intermediate calculations.) 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 $231,100, and that Bill, Bruce, and Barb withdraw $41,700, $55,700, and $71,700, respectively, at year-end. (Do not round intermediate calculations. Enter all allowances as positive values. Enter losses as negative values.) 3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $231,100. Also close the withdrawals accounts.

Answer 1

Part 1

	Bill Beck	Bruce Beck	Barb Beck	Total
Plan A
Net Income (loss)				519,000.00
Balance allocated equally	173,000.00	173,000.00	173,000.00	(519,000.00)
Balance of income (loss)				-
Shares to the partners	173,000.00	173,000.00	173,000.00	(519,000.00)
Plan B
Net Income (loss)				519,000.00
Balance allocated in proportion to initial investment (9%,35%,56%)	46,710.00	181,650.00	290,640.00	(519,000.00)
Balance of income (loss)				-
Shares to the partners	46,710.00	181,650.00	290,640.00	(519,000.00)
Plan C
Net Income (loss)				519,000.00
Salary allowances	82,500.00	63,900.00	96,500.00	(242,900.00)
Balance of income (loss)				276,100.00
Interest allowances	7,920.00	30,800.00	49,280.00	(88,000.00)
Balance of income (loss)				188,100.00
Balance allocated 20% ,40% 40%	37,620.00	75,240.00	75,240.00	(188,100.00)
Balance of income (loss)				-
Shares to the partners	128,040.00	169,940.00	221,020.00

workings

		%	Interest 10%
Bill Beck	79200	9%	7920
Bruce Beck	308000	35%	30800
Barb Beck	492800	56%	49280
	880000

Part 2

Plan C
Net Income (loss)				231,100.00
Salary allowances	82,500.00	63,900.00	96,500.00	(242,900.00)
Balance of income (loss)				(11,800.00)
Interest allowances	7,920.00	30,800.00	49,280.00	(88,000.00)
Balance of income (loss)				(99,800.00)
Balance allocated 20% ,40% 40%	(19,960.00)	(39,920.00)	(39,920.00)	99,800.00
Balance of income (loss)				-
Shares to the partners	70,460.00	54,780.00	105,860.00	231,100.00

	DR	CR
Income summary	231100.00
Bill Beck, Capital		70,460.00
Bruce Beck, Capital		54,780.00
Barb Beck, Capital		105,860.00
Bill Beck, Capital	41,700.00
Bruce Beck, Capital	55,700.00
Barb Beck, Capital	71,700.00
Bill Beck, Withdrawals		41,700.00
Bruce Beck, Withdrawals		55,700.00
Barb Beck,Withdrawals		71,700.00