Question

Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $75,600, $294,000, and $470,400, respectively. They predict annual partnership net income of $498,000 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 $83,600 to Mo, $62,700 to Lu, and $94,500 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.

Answer 1

Req a.
Allocation of income among Partners
			MO	LU	BARB	TOTAL
Net income for the year						498000
To be shared equally			166000	166000	166000	-498000
Req b.
Allocation of income among Partners
			MO	LU	BARB	TOTAL
Net income for the year						498000
To be shared in capital ratio			44820	174300	278880	-498000
(75600:294000:470400)
Req c:
Allocation of income among Partners
			MO	LU	BARB	TOTAL
Net income for the year						498000
Salary to partners			83600	62700	94500	-240800
Remaining Income						257200
Interest on capital @10%			7560	29400	47040	-84000
Remaining Income						173200
Share of Income in 2:4:4			34640	69280	69280	-173200
Total share of partners			125800	161380	210820	0