Question

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Required information 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, Lu, and Barb formed the MLB Partnership by making investments of $80,100, $311,500, and $498,400, respectively They predict annual partnership net income of $523,500 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 $85,600 to Mo, $64,200 to Lu, and $97,000 to Barb; interest allowances of 10% on their initial capital investments, and the remaining balance shared as follows: 20% to Mo, 40% to Lu, and 40% to Barb.

Answer 1

PlanA
	MO		LU		BARB		Total
Net Income(loss)							$        523,500
Balance allocated equally(523500/3)	174,500		174500		174500		523,500
Balance of Income(loss)							(523500-523500=0)
Shares to the Partners	$ 174,500		$174500		$174500		$523500

Proportional investment

MO= 80100/890000=.09

LU= 311500/890000=.35

BARB=498400/890000=.56

PlanB	MO		LU		BARB		Total
Net Income(loss)							$        523,500
Balance allocated in prop to initial inv	$     47,115		$   183,225		$   293,160		$        523,500
Balance of Income(loss)							(523500-523500=0)
Shares to the Partners	$     47,115		$   183,225		$   293,160		$        523,500

Plan C	MO		LU		BARB		Total
Net Income(loss)							$        523,500
Salary allowances	85,600		64,200		97,000		$        246,800
Balance of Income(loss)							(523500-246800)=$276,700
Interest allowances(@10% of capital inv)	8010		31150		49840		$          89,000
Balance of Income(loss)							(276700-89000)=$187,700
Balance allocated(20%,40%,40% of 187700 )Respectively	37,540		75080		75080		$        187,700
Balance of Income(loss)							0
Shares to the Partners	131,150		170,430		221,920		$        523,500

2.

	MO	LU	Barb	Total
Initial Partnership Investments	$80,100	311,500	498,400	$890,000
Add: Net Income
Salary	85600	64200	97000
Interest	8010	31150	49840
Balance	37540	75080	75080
Total Net Income	131150	170430	221920	523500
Total	$211,250	$481,930	$720,320	$1,413,500
Less:Withdrawls	-42400	-56400	-72400	-171200
Capital at the end	$168,850	$425,530	$647,920	$1,242,300

3. Journal entry for closing

	DR.	CR.
Income summary	523500
Mo, Capital		131150
Lu, Capital		170430
Barb, Capital		221920
(to record the closing of income to capital)

	Dr.	Cr.
Mo, Drawings	42400
Cash		42400
(recording withdrawl of cash)
Mo, Capital	42400
Mo, Drawings		42400
(closing of drawings to capital)
Lu, Drawings	56400
Cash		56400
(recording withdrawl of cash)
Lu, Capital	56400
Lu, Drawings		56400
(closing of drawings to capital)
Barb, Drawings	72400
Cash		72400
(recording withdrawl of cash)
Barb, Capital	72400
Barb, Drawings		72400
(closing of drawings to capital)