Question

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 $84,600, $329,000, and $526,400, respectively. They predict annual partnership net income of $550,500 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 $87,600 to Mo, $65,700 to Lu, and $99,500 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. Problem 12-4A Part 3 3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan cand that net income is $550,500. Mo, Lu, and Barb withdraw $45,300, $59,300, and $75,300, respectively, at year-end. Also close the withdrawals accounts. View transaction list Journal entry worksheet < 1 2

Answer 1

Solution:

Journal Entries
Particulars	Debit	Credit
Closing income summary:
Income Summary Dr	$5,50,500.00
To Mo Capital's A/c		$1,36,800.00
To Lu Capital's A/c		$1,80,080.00
To Barb Capital's A/c		$2,33,620.00
(Being Net income distributed among partners)
Withdrawl of Individual Member 's Equity:
Mo Capital Dr	$45,300.00
Lu Capital Dr	$59,300.00
Barb capital Dr	$75,300.00
To Mo Withdrawl's A/c		$45,300.00
To Lu Withdrawl's A/c		$59,300.00
To Barb Withdrawl's A/c		$75,300.00
(To close withdrawl accounts)

Working:

Schedule of Divison of income
Particulars	Mo	Lu	Barb	Total
Net Income (Loss)				$5,50,500
Salary Allowance	$87,600	$65,700	$99,500	$2,52,800
balance of Income (Loss)				$2,97,700
Interest Allowance	$8,460	$32,900	$52,640	$94,000
balance of Income (Loss)				$2,03,700
Balance Allocated	$40,740	$81,480	$81,480	$2,03,700
Balance of Income (loss) (20%:40%:40%)				$0
shares to partners	$1,36,800	$1,80,080	$2,33,620	$5,50,500