Question

Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $72,900, $283,500, and $453,600, respectively. They predict annual partnership net income of $481,500 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 $82,400 to Mo, $61,800 to Lu, and $93,000 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. 3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $481,500. Mo, Lu, and Barb withdraw $37,600, $51,600, and $67,600, respectively, at year-end. Also close the withdrawals accounts. a.Record the entry to close the income summary account assuming the partners agree to use plan(c) and net income is $481,500. b.Record the entry to close the partners' withdrawals accounts. (Mo, Lu, and Barb withdraw $37,600, $51,600, and $67,600, respectively, at year-end.)

Answer 1

Working for Journal Entries-

Total profit	$481500
Less- Salary to Partners	$237200
Less- Interest of Inital Capital	$81000
Balance Profit	$163300
M's Capital (20%)	32660
L's Capital (40%)	65320
B's Capital (40%)	65320

Journal Entries-

Introduction of Capital-

Bank A/c Dr $ 810000

To M's Capital 72900

To L's Capital 283500

To B's Capital 453600

Partners Withdrawal Account-

M's Withdrawal Account

DAte	Particulars	Amount	Date	PArticular	Amount
	To Bank(Draw)	37600		By Salary	82400
				By Interest	7290
	To Capital Account	84750		By profit	32660
		122350			122350

Journal Entry to Close the withdrawal Account

M's Withdrawal Account Dr 84750

To M's Capital Account 84750

L's Withdrawal Account

DAte	Particulars	Amount	Date	PArticular	Amount
	To Bank	51600		By Salary	61800
				By Interest	28350
	To Capital Account	103870		By Profit	65320
		155470			155470

Journal Entry to Close the withdrawal Account

L's Withdrawal Account Dr 103870

To L's Capital Account 103870

M's Withdrawal Account

DAte	Particulars	Amount	Date	PArticular	Amount
	To BAnk	67600		By Salary	93000
				By Interest	45360
	To Capital Ac	136080		By Profit	65320
		203680			203680

Journal Entry to Close the withdrawal Account

B's Withdrawal Account Dr 136080

To B's Capital Account 136080