Required information Problem 12-4A Partnership income allocation, statement of p
ID: 2332505 • Letter: R
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 Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $82,800, $322,000, and $515,200, respectively. They predict annual partnership net income of $540,000 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 $86.800 to Mo. $65,100 to Lu, and $98.500 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. Problem 12-4A Part 1 Requirec 1. Use the table to show how to distribute net income of $540,000 for the calendar year under each of the alternative plans being considered. (Do not round intermediate calculations.)Explanation / Answer
Distribution of Profit Schedule
Plan (a)
Mo
LU
Barb
Total
Net Income (loss)
$ 540,000.00
Balance Allocated Equally
1/3
$ 180,000.00
1/3
$ 180,000.00
1/3
$ 180,000.00
$ 540,000.00
Balance of Income (loss)
$ -
Shares to Partners
$ 180,000.00
$ 180,000.00
$ 180,000.00
$ 540,000.00
Plan (b)
Mo
LU
Barb
Total
Net Income (loss)
$ 540,000.00
Balance Allocated in Proportion to initial Investment
9%
$ 48,600.00
35%
$ 189,000.00
56%
$ 302,400.00
$ 540,000.00
Balance of Income (loss)
$ -
Shares to Partners
$ 48,600.00
$ 189,000.00
$ 302,400.00
$ 540,000.00
Plan (c )
Mo
LU
Barb
Total
Net Income (loss)
$ 540,000.00
Salary Allowance
$ 86,800.00
$ 65,100.00
$ 98,500.00
$ 250,400.00
Interest on Capital
$ 8,280.00
$ 32,200.00
$ 51,520.00
$ 92,000.00
Balance of Income (loss)
$ 197,600.00
Balance Allocated in ratio 2:4:4
$ 39,520.00
$ 79,040.00
$ 79,040.00
$ 197,600.00
Balance of Income (loss)
$ -
Shares to Partners
$ 134,600.00
$ 176,340.00
$ 229,060.00
$ 540,000.00
MLB Partnership
Statement of Partner's Equity
For the Year ended December 31st
Mo
Lu
Barb
Initial Partnership Investment
$ 82,800.00
$ 322,000.00
$ 515,200.00
Net Income
Salary
$ 86,800.00
$ 65,100.00
$ 98,500.00
Interest on Capital
$ 8,280.00
$ 32,200.00
$ 51,520.00
Balance distribution
$ 39,520.00
$ 79,040.00
$ 79,040.00
Total Net Income
$ 134,600.00
$ 176,340.00
$ 229,060.00
Total capital before Drawings
$ 217,400.00
$ 498,340.00
$ 744,260.00
Less: Drawings
$ 44,100.00
$ 58,100.00
$ 74,100.00
Balance capital at end
$ 173,300.00
$ 440,240.00
$ 670,160.00
Journal Entry
Date
General Journal
Debit
Credit
31-Dec
Income Summery
$ 540,000.00
salary to partner Mo Meek
$ 86,800.00
Salary to Partner Lu Ling
$ 65,100.00
Salary to partner Barb Beck
$ 98,500.00
Mo interest on capital
$ 8,280.00
Lu interest on capital
$ 32,200.00
Barb interest on Capital
$ 51,520.00
Mo Meek 's Capital
$ 39,520.00
Lu ling 's Capital
$ 79,040.00
Barb Beck 's Capital
$ 79,040.00
(distribution to partners)
31-Dec
Salary to partner Mo Meek
$ 86,800.00
Salary to Partner Lu Ling
$ 65,100.00
Salary to partner Barb Beck
$ 98,500.00
Mo Meek 's Capital
$ 86,800.00
Lu ling 's Capital
$ 65,100.00
Barb Beck 's Capital
$ 98,500.00
(Salary Transferred to Capital accounts)
31-Dec
Mo interest on capital
$ 8,280.00
Lu interest on capital
$ 32,200.00
Barb interest on Capital
$ 51,520.00
Mo Meek 's Capital
$ 8,280.00
Lu ling 's Capital
$ 32,200.00
Barb Beck 's Capital
$ 51,520.00
(Interest on Capital Transferred to Capital accounts)
Note* First salary and interest is booked as expense and then transferred to capital accounts. Alternatively salary and interest maybe directly credited to Capital accounts of Partners.
Closure of Withdrawals
Date
General Journal
Debit
Credit
31-Dec
Mo Meek's Withdrawals
$ 44,100.00
Lu ling' s Withdrawals
$ 58,100.00
Barb Beck' s Withdrawals
$ 74,100.00
Cash
$ 176,300.00
(Drawings)
31-Dec
Mo Meek 's Capital
$ 44,100.00
Lu ling 's Capital
$ 58,100.00
Barb Beck 's Capital
$ 74,100.00
Mo Meek's Withdrawals
$ 44,100.00
Lu ling' s Withdrawals
$ 58,100.00
Barb Beck' s Withdrawals
$ 74,100.00
(Capital reduced by drawings)
Distribution of Profit Schedule
Plan (a)
Mo
LU
Barb
Total
Net Income (loss)
$ 540,000.00
Balance Allocated Equally
1/3
$ 180,000.00
1/3
$ 180,000.00
1/3
$ 180,000.00
$ 540,000.00
Balance of Income (loss)
$ -
Shares to Partners
$ 180,000.00
$ 180,000.00
$ 180,000.00
$ 540,000.00
Plan (b)
Mo
LU
Barb
Total
Net Income (loss)
$ 540,000.00
Balance Allocated in Proportion to initial Investment
9%
$ 48,600.00
35%
$ 189,000.00
56%
$ 302,400.00
$ 540,000.00
Balance of Income (loss)
$ -
Shares to Partners
$ 48,600.00
$ 189,000.00
$ 302,400.00
$ 540,000.00
Plan (c )
Mo
LU
Barb
Total
Net Income (loss)
$ 540,000.00
Salary Allowance
$ 86,800.00
$ 65,100.00
$ 98,500.00
$ 250,400.00
Interest on Capital
$ 8,280.00
$ 32,200.00
$ 51,520.00
$ 92,000.00
Balance of Income (loss)
$ 197,600.00
Balance Allocated in ratio 2:4:4
$ 39,520.00
$ 79,040.00
$ 79,040.00
$ 197,600.00
Balance of Income (loss)
$ -
Shares to Partners
$ 134,600.00
$ 176,340.00
$ 229,060.00
$ 540,000.00
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