Question

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Problem 12-4A Partnership income allocation, statement of partners' equity, and closing entries LO P2

[The following information applies to the questions displayed below.]

Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $70,200, $273,000, and $436,800, respectively. They predict annual partnership net income of $466,500 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 $81,200 to Mo, $60,900 to Lu, and $91,500 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.

rev: 09_28_2017_QC_CS-102797

Problem 12-4A Part 1

Required:
1. Use the table to show how to distribute net income of $466,500 for the calendar year under each of the alternative plans being considered. (Do not round intermediate calculations.)

Income (Loss) Sharing Plan Plan (a) Mo Lu Barb Total Net Income (loss) $466,500 Balance allocated equally 0 Balance of income (loss) $466,500 Shares to the partners $0 $0 $0 $0 Plan (b) Mo Lu Barb Total Net Income (loss) $466,500 Balance allocated in proportion to initial investments 0 Balance of income (loss) $466,500 Shares to the partners $0 $0 $0 $0 Plan (c) Mo Lu Barb Total Net income (loss) $466,500 Salary allowances 0 Balance of income (loss) Interest allowances 0 Balance of income (loss) Balance allocated 0 Balance of income (loss) $0 Shares of the partners $0 $0 $0 $0

Problem 12-4A Part 2

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 $466,500, and that Mo, Lu, and Barb withdraw $35,700, $49,700, and $65,700, respectively, at year-end. (Do not round intermediate calculations. Enter all allowances as positive values. Enter losses as negative values.)

	MLB PARTNERSHIP Statement of Partners' Equity For Year Ended December 31 Mo Lu Barb Total Initial partnership investments 0 Net income Total net income 0 Total 0 0 0 0 0 $0 $0 $0 $0

Problem 12-4A Part 3

3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $466,500. Mo, Lu, and Barb withdraw $35,700, $49,700, and $65,700, respectively, at year-end. Also close the withdrawals accounts.

Journal entry worksheet

Record the entry to close the income summary account assuming the partners agree to use plan(c) and net income is $214,100.

Note: Enter debits before credits.

	Date General Journal Debit Credit Dec 31

Journal entry worksheet

Record the entry to close the partners' withdrawals accounts. (Mo, Lu, and Barb withdraw $35,700, $49,700, and $65,700, respectively, at year-end.)

Note: Enter debits before credits.

	Date General Journal Debit Credit Dec 31

Answer 1

1. Table to show how to distribute net income of $466,500 for the calendar year under each of the alternative plans being considered is:

Income (loss) sharing plan
Plan (a)	Mo		Lu		Barb		Total
Net Income (loss)							466,500
Balance allocated equally	466,500/3	155,500	466,500/3	155,500	466,500/3	155,500	466,500
balance of income (loss)							0
Shares to the partners		155,500		155,500		155,500	466,500
Plan (b)
Net Income (loss)							466,500
Initial Investment		70,200		273,000		436,800	780,000
Balance allocated in proportion to initial investment	70,200/780,000*466,500	41,985	273,000/780,000*466,500	163,275	436,800/780,000*466,500	261,240	466,500
Balance of income (loss)							0
Shares to the partners		41,985		163,275		261,240	466,500
Plan (c )
Net Income (loss)							466,500
Initial Investment		70,200		273,000		436,800	780,000
Salary allowances		81,200		60,900		91,500	233,600
Balance of income (loss)							232,900
Interest allowances	70,200*10%	7,020	273,000*10%	27,300	436,800*10%	43,680	78,000
Balance of income (loss)							154,900
Balance allocated	20% of 154,900	30,980	40% of 154,900	61,960	40% of 154,900	61,960	154,900
Balance of income (loss)							0
Shares to the partners		119,200		150,160		197,140	466,500

2. Statement of partners’ equity showing the allocation of income to the partners assuming they agree to use plan (c) is:

MLB Partnership
Statement of partners Equity
For year ended December 31
	Mo	Lu	Barb	Total
Initial Investment	70,200	273,000	436,800	780,000
Net Income
Salary allowances	81,200	60,900	91,500	233,600
Interest allowances	7,020	27,300	43,680	78,000
Balance allocated (154,900 in 20:40:40)	30,980	61,960	61,960	154,900
Total Net Income	119,200	150,160	197,140	466,500
Less: Withdrawal	-35,700	-49,700	-65,700	-151,100
Clsoing Balance	153,700	373,460	568,240	1,095,400

3. Journal entry

Date	Particulars	L.F	Amount ($)	Amount ($)
Dec-31	Income summary		466,500
	Mo Capital			119,200
	Lu Capital			150,160
	Barb capital			197,140
	Mo Capital		35,700
	Lu Capital		49,700
	Barb capital		65,700
	Mo withdrawal			35,700
	Lu waithdrawal			49,700
	Barb Withdrawal			65,700
	(for Income summary account closed)