Question

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

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Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $71,100, $276,500, and $442,400, respectively. They predict annual partnership net income of $471,000 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 $81,600 to Mo, $61,200 to Lu, and $92,000 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.

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 $471,000, and that Mo, Lu, and Barb withdraw $36,400, $50,400, and $66,400, respectively, at year-end. (Do not round intermediate calculations. Enter all allowances as positive values. Enter losses as negative values.)

Answer 1

Req a:
Case-1
Statement of Allocation of Income:
			Mo Meek	Lu Ling	Barb Beck	Total
Net income						471000
Share of income in 1:1:1			157000	157000	157000	-471000
Partner's share			157000	157000	157000	0
Case-2
Statement of Allocation of Income:
			Mo Meek	Lu Ling	Barb Beck	Total
Net income						471000
Share of income			42390	164850	263760	-471000
(711:2765:4424)
Partner's share			42390	164850	263760	0
Case-3
Statement of Allocation of Income:
			Mo Meek	Lu Ling	Barb Beck	Total
Net income						471000
Salary allowance			81600	61200	92000	-234800
Remaining income						236200
Interest on capital			7110	27650	44240	-79000
Remaining income						157200
Share of income in 2:4:4			31440	62880	62880	-157200
Share of partners			120150	151730	199120	0
Req b:
Statement of Equity
			Mo Meek	Lu Ling	Barb Beck	Total
Beginning balance of cappital			71100	276500	442400	790000
Add: share of income			120150	151730	199120	471000
Sub-total			191250	428230	641520	1261000
Less: Drawings			36400	50400	66400	153200
Ending balance of capital			154850	377830	575120	1107800