Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital con
ID: 2596695 • Letter: M
Question
Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $67,500, $262,500, and $420,000, respectively. They predict annual partnership net income of $450,000 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 $80,000 to Mo, $60,000 to Lu, and $90,000 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.
Use the table to show how to distribute net income of $450,000 for the calendar year under each of the alternative plans being considered
Explanation / Answer
Mo Meek Lu Ling Barb Beck Total Option a 150,000 150,000 150,000 450,000 Option b 40,500 157,500 252,000 450,000 Option c 115,750 144,250 190,000 450,000 Option (a) - Profit is divided equally Mo Meek = $450,000 X 1/3 = $150,000 Lu Ling = $450,000 X 1/3 = $150,000 Barb Beck = $60,600 X 1/3 = $20,200 Option (b) - Profit in the ratio of Intial Capital Investments Mo Meek = $450,000 X ($67,500 / $750,000) = $40,500 Lu Ling = $450,000 X ($262,500 / $750,000) = $157,500 Barb Beck = $60,600 X ($420,000 / $750,000) = $252,000 Option (c) Distribution of Profits: Mo Meek Lu Ling Barb Beck Total Salary Allowances 80,000 60,000 90,000 230,000 Interest Allowance - 10% 6,750 26,250 42,000 75,000 Balance Profit - 20: 40 : 40 29,000 58,000 58,000 145,000 Total 115,750 144,250 190,000 450,000