Question

Please answer the whole question.

Required information

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Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $85,500, $332,500, and $532,000, respectively. They predict annual partnership net income of $555,000 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 $88,000 to Mo, $66,000 to Lu, and $100,000 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.

Required:
1. Use the table to show how to distribute net income of $555,000 for the calendar year under each of the alternative plans being considered. (Do not round intermediate calculations.)

) Sharing Plan Barb Total S 555,000 Balance allocated equally S 555,000 Barb S 555,000 Balance allocated in proportion to initial investments $ 555,000 Shares to the partners Barb S 555,000 Balance of income (loss) Interest allowances Balance of income (loss) Balance of income (loss) Shares of the partners

2. Prepare a statement of partners’ equity showing the allocation of income to the partners assuming they agree to use plan (c), that income earned is $555,000, and that Mo, Lu, and Barb withdraw $46,000, $60,000, and $76,000, respectively, at year-end. (Do not round intermediate calculations. Enter all allowances as positive values. Enter losses as negative values.)

3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $555,000. Mo, Lu, and Barb withdraw $46,000, $60,000, and $76,000, respectively, at year-end. Also close the withdrawals accounts.

Answer 1

The answer to the question has been provided in attached sheet. In the given question profit share has been calculated as per three methods and then distributed as per plan c as specified in question. And then closing journal entries has been passed.