Question

Mo, Lu, and Barb formed the MLB Partnership by making investments of $69,300, $269,500, and $431,200, respectively. They predict annual partnership net income of $460,500 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 $80,800 to Mo, $60,600 to Lu, and $91,000 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.

3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan c and that net income is $460,500. Mo, Lu, and Barb withdraw $35,200, $49,200, and $65,200, respectively, at year-end. Also close the withdrawals accounts.

Please answer in this format!

Journal entry worksheet 2 Record the entry to close the income summary account assuming the partners agree to use plan c and net income is $460,500. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31

Answer 1

Solution:

Schedule of Divison of income
Particulars	Mo	Lu	Barb	Total
Salary Allowance	$80,800.00	$60,600.00	$91,000.00	$232,400.00
Interest Allowance	$6,930.00	$26,950.00	$43,120.00	$77,000.00
Remaining Income Mo ($151,100*2/10) Lu ($151,100*4/10) Barb ($151,100*4/10)	$30,220.00	$60,440.00	$60,440.00	$151,100.00
Net Income	$117,950.00	$147,990.00	$194,560.00	$460,500.00

Journal Entries
Particulars	Debit	Credit
Closing income summary:
Income Summary Dr	$460,500.00
To Mo Capital's A/c		$117,950.00
To Lu Capital's A/c		$147,990.00
To Barb Capital's A/c		$194,560.00
(Being Net income distributed among partners)
Withdrawl of Individual Member 's Equity:
Mo Capital Dr	$35,200.00
Lu Capital Dr	$49,200.00
Barb capital Dr	$65,200.00
To Mo Withdrawl's A/c		$35,200.00
To Lu Withdrawl's A/c		$49,200.00
To Barb Withdrawl's A/c		$65,200.00
(To close withdrawl accounts)