Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital con
ID: 2328325 • Letter: M
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.
Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $498,000. Mo, Lu, and Barb withdraw $39,300, $53,300, and $69,300, respectively, at year-end. Also close the withdrawals accounts.
Explanation / Answer
a) share equally :
b) in the ratio of their initial capital investments
Total initial capital = 75600+294000+470400 = 840000
Ratio of initial capital = 9;35;56
c)
Mo Meek lu ling Barb beck Net income 498000/3 = 166000 166000 166000