Question

Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $67,500, $262,500, and $420,000, respectively. They predict annual partnership net income of $450,000 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 $80,000 to Mo, $60,000 to Lu, and $90,000 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. Prepare a table with the following column headings. Income (Loss) Sharing Plan Calculations Mo Lu Barb Total 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. (Round answers to the nearest whole dollar.) 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. Check (2) Barb, Ending Capital, $449,600 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. Also close the withdrawals accounts.

Answer 1

Answer 1.
Plan a.
	Mo Meek	Lu Ling	Barb Beck	Total
Net Income (Loss)				450,000.00
Balance allocated equally	150,000.00	150,000.00	150,000.00	450,000.00
Balance of Income (Loss)				-
Shares to partners	150,000.00	150,000.00	150,000.00
Plan b.
	Mo Meek	Lu Ling	Barb Beck	Total
Net Income (Loss)				450,000.00
Balance allocated in propotion to intial Investments	40,500.00	157,500.00	252,000.00	450,000.00
Balance of Income (Loss)				-
Shares to partners	40,500.00	157,500.00	252,000.00
Percentage based on Intial Capital:
Mo Meek - $67,500 / $750,000	9%
Lu Ling - $262,500 / $750,000	35%
Barb Beck - $420,000 / $750,000	56%
Plan c.
	Mo Meek	Lu Ling	Barb Beck	Total
Net Income (Loss)				450,000.00
Salary Allowance	80,000.00	60,000.00	90,000.00	230,000.00
Balance of Income (Loss)				220,000.00
Interest Allowance - 10%	6,750.00	26,250.00	42,000.00	75,000.00
Balance of Income (Loss)				145,000.00
Balance allocated - 20:40:40	29,000.00	58,000.00	58,000.00	145,000.00
Balance of Income (Loss)				-
Shares to partners	115,750.00	144,250.00	190,000.00
Answer 2.
	Mo Meek	Lu Ling	Barb Beck	Total
Net Income (Loss)				209,000.00
Salary Allowance	80,000.00	60,000.00	90,000.00	230,000.00
Balance of Income (Loss)				(21,000.00)
Interest Allowance - 10%	6,750.00	26,250.00	42,000.00	75,000.00
Balance of Income (Loss)				(96,000.00)
Balance allocated - 20:40:40	(19,200.00)	(38,400.00)	(38,400.00)	(96,000.00)
Balance of Income (Loss)				-
Shares to partners	67,550.00	47,850.00	93,600.00
	Capital
	Mo Meek	Lu Ling	Barb Beck
Intial Investment	67,500.00	262,500.00	420,000.00
Add: Net Income	67,550.00	47,850.00	93,600.00
Sub-total	135,050.00	310,350.00	513,600.00
Less: Withdrawl	(34,000.00)	(48,000.00)	(64,000.00)
Enidng Balance	101,050.00	262,350.00	449,600.00

Answer 3.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Income Summary	209,000.00
	Mo Meek, Capital		67,550.00
	Lu Ling, Capital		47,850.00
	Barb Beck, Capital		93,600.00
	(record the closing of income summary)
2	Mo Meek, Capital	34,000.00
	Lu Ling, Capital	48,000.00
	Barb Beck, Capital	64,000.00
	Mo Meek, Withdrawl		34,000.00
	Lu Ling, Withdrawl		48,000.00
	Barb Beck, Withdrawl		64,000.00
	(record the closing of withdrawl accont)