Mo, Lu, and Barb formed the MLB Partnership by making investments 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; 

(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 remaining balance shared as follows: 20% to Mo, 40% to Lu, and 40% to Barb.

Required

1. Prepare a table with the following column headings. 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.

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 $209,000; and that Mo, Lu, and Barb withdraw $34,000, $48,000, and $64,000, respectively, at year-end.
3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan c and that net income is $209,000. Also close the withdrawals accounts.

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Income (Loss) Sharing Plan Calculations Mo Lu Barb Total