Will Beck, Ron Beck, and Barb Beck formed the BBB Partnership by making capital contributions of $183,750, $131,250, and $210,000, respectively. They predict annual partnership net income of $225,000 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 $40,000 to Will, $30,000 to Ron, and $45,000 to Barb; interest allowances of 10% on their initial capital investments; and the balance shared equally.
Required
1. Prepare a table with the following column headings.
|
Income (Loss) |
|||||
|
Sharing Plan |
Calculations |
Will |
Ron |
Barb |
Total |
Use the table to show how to distribute net income of $225,000 for the calendar year under each of the alternative plans being considered. (Round answers to the nearest whole dollar.)
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 $104,500, and that Will, Ron, and Barb withdraw $17,000, $24,000, and $32,000, 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 $104,500. Also close the withdrawals accounts.