Question

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

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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 1

Required:
1. Use the table to show how to distribute net income of $550,500 for the calendar year under each of the alternative plans being considered. (Do not round intermediate calculations.)
  

Income (Loss) Sharing Plan MO Lu Barb Mo Lu Barb Plan (a) Net Income (loss) Balance allocated equally Balance of income (loss) Shares to the partners Plan (b) Net Income (loss) Balance allocated in proportion to initial investments Balance of income (loss) Shares to the partners Plan (c) Net income (loss) Salary allowances Balance of income (loss) Interest allowances Balance of income (loss) Balance allocated MAAHHHH 1HHHH Mo Lu Barb

Answer 1

Solution:

a.

Schedule of Divison of income
Particulars	Mo	Lu	Barb	Total
Net Income (Loss)				$5,50,500
Balance allocated Equally	$1,83,500	$1,83,500	$1,83,500	$5,50,500
balance of Income (Loss)				$0
shares to partners	$1,83,500	$1,83,500	$1,83,500	$5,50,500

b.

Schedule of Divison of income
Particulars	Mo	Lu	Barb	Total
Net Income (Loss)				$5,50,500
Balance allocated in proportion to initial capitals	$49,545	$1,92,675	$3,08,280	$5,50,500
balance of Income (Loss)				$0
shares to partners	$49,545	$1,92,675	$3,08,280	$5,50,500

c.

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