Ben Conway, Ida Chan, and Clair Seghal formed CCS Consulting by making capital contributions of $245,000, $280,000, and $175,000, respectively. They anticipate annual net income of $360,000 and are considering the following alternative plans of sharing net incomes and losses: a. Equally; b. In the ratio of their initial investments; or c. Salary allowances of $110,000 to Conway, $85,000 to Chan, and $60,000 to Seghal and interest allowances of 12% on initial investments, with any remaining balance shared equally.
Required 1. Prepare a schedule with the following column headings:
Use the schedule to show how a net income of $360,000 would be distributed under each of the alternative plans being considered. 2. Prepare a statement of changes in equity showing the allocation of income to the partners, assuming they agree to use alternative (c) and the net income actually earned for the year ended December 31, 2014, is $360,000. During the year, Conway, Chan, and Seghal withdraw $40,000, $30,000, and $20,000, respectively. 3. Prepare the December 31, 2014, journal entry to close Income Summary assuming they agree to use alternative (c) and the net income is $360,000. Also, close the withdrawalsaccounts.