CHAPTER-2 Advance Accounting Solman

Partnership Operations

CHAPTER 2 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 2-1:

d Jordan P120,000

Pippen P80,000

( 10,000)

( 10,000)

P110,000

P 70,000

JJ P18,000

KK –

LL –

P15,000

– P 30,000

–) –) P45,000)

( 6,000)

( 6,000)

( 6,000)

P27,000

P 24,000

P39,000

Allan

Michael

Annual salary P200,000 Balance, equally ( 20,000) Total P180,000 2-2:

a

2-3:

Bonus (.20 X P90,000) P 18,000 Interest JJ (.15 X P100,000) KK (.15 X P200,000) LL (.15 X P300,000) 90,000 Balance, equally ( 18,000) Total profit share P 90,000 a

2-4:

a Interest Allan - .10 X (P40,000 + 60,000 /2) Michael - .10 X (P60,000 + 70,000/2) P 11,500 Balance, equally __28,000 Total

P 5,000

) P 6,500)

_14,000

_14,000

P 19,000

P20,500

Greg P 6,000

Henry P 4,000

,000 2-5:

a Interest (.10 of average capital) P 22,000 Salaries 50,000 Balance, equally (105,000) Total

Fred P12,000 30,000

20,000

( 35,000)

( 35,000)

( 35,000)

P 7,000

( P29,000)

(P11,000)

3,000) 2-6:

b Average Capital Date January 1 July 1 August 1

Capital Balance 140,000 180,000 165,000

Months Unchanged 6 1 5 12

Peso Months P 840,000 180,000 __825,000 P1,845,000

Average capital - P1,845,000/12

=

P153,750

Interest

=

P 15,375

(P153,750 X 10%)

22

2-7:

Chapter 2

c Date January 1 April 1 June 1 September 1

Capital Balance P16,000 17,600 19,200 15,200

Months Unchanged 3 2 3 4 12

Average Capital(P201,600/12) = 2-8:

2-9:

P16,800

a Net profit before bonus Net profit after bonus (P24,000/120%) Bonus to RJ Balance (P24,000-P4,000)X3/5 Total profit share

P 24,000 __20,000 4,000 __12,000 P 16,000

a Interest Salaries Balance, 3:2 Total

2-10:

Peso Months P 48,000 35,200 57,600 __60,800 P201,600

LT P3,200 15,000 (11,580) P 6,620

AM P 3,600 7,500 ( 7,720) P 3,380

b Net income after salary, interest and bonus Add back: Salary (P10,000 X 12) P120,000 Interest (P250,000 X .05) __12,500 Net income after bonus (80%) Net income before bonus (P600,000/80%) Paul's bonus

Total P 6,800 22,500 ( 19,300) P 10,000 P467,500 _132,500 P600,000 _750,000 P150,000

2-11:

b CC

DD

EE Total P 14,000

P14,000

P 8,400

Salary 000 Balance 28,000 Additional profit to DD ______– Total

( 1,500)

__2,100

P12,500

P10,500

Net income Fees Earned Expenses Net Income

P90,000 _48,000 P42,000

5,600 (

600)

P 19,000

,000

Partnership Operations

2-12:

c Interest

LL P 2,000

MM P 1,250

NN Total P 750

8,500

–

–

9,500

5,700

3,800

_____–

__7,050

_____–

P20,000

P14,000

P 4,550

RR

SS

TT

P15,000 –

– (P10,000)

_47,500

_35,625

_11,875

P62,500

P25,625

P11,875

BB

CC

000 Annual Salary 8,500 Additional profit to give LL, P20,000 19,000* Additional profit to give MM, P14,000 __7,050 Total 550 *(P9,500/50%) = P19,000 2-13:

a Excess (Deficiency) RR (P80,000 - P95,000) SS (P50,000 - P40,000) P 5,000 Balance 4:3:1 __95,000 Total P100,000 Net Income (200,000 - 100,000) =

2-14:

b AA - 100,000 X 10%

Total –) –)

P100,000 AA P 10,000

Total )

2-15:

150,000 X 20% P 40,000 Remainder, 210,000 BB (60,000 X .05) CC (60,000 X .05) 6,000 Balance, equally _204,000 Total P250,000 a

30,000 P 3,000

) P 3,000

__68,000

_68,000

_68,000

P108,000

P71,000

P71,000

AJ Bonus to CJ Net profit before bonus P44,000 Net profit after bonus (P44,000/110%)P40,000 – – P4,000 Interest to BJ – 1,000 Salaries P 10,000 22,000 Balance, 4:4:2 __6,800 _17,000 Total P 16,800 P44,000 2-16:

)

c Total profit share of Pedro Less: Salary to Pedro Interest Share in the balance (40%)

BJ

CJ P4,000

P1,000

–

–

12,000

_6,800

__3,400

P7,800

P19,400

P200,000 P 50,000 __20,000

Net profit after salary and interest (130,000/40%) Add: Total Salaries Total Interest Total Partnership Income

__70,000 P130,000 P325,000

P150,000 __70,000

24

2-17:

Total

_220,000 P545,000 Chapter 2

c Net income before extraordinary gain and bonus (69,600-12,000) Net income after bonus (57,600/120%) Bonus to RR

P 57,600 _48,000 P 9,600

Distribution of Net Income: JJ Bonus Balance, equally Net profit before extraordinary gain Extraordinary gain Total

– P 24,000 P 24,000 __4,800 P 28,800

RR P 9,600 24,000 P 33,600 __7,200 P 40,800

Total P 9,600 48,000 P 57,600 _12,000 P 69,600

2-18:

a Interest Annual Salary Remainder 60:40 Total

2-19:

Mel P 20,000 36,000 __60,000 P116,000

Jay P 12,000 – _40,000 P 52,000

Total P 32,000 36,000 _100,000 P168,000

DV P 15,000

JE P 3,750

FR Total (P 7,500)

( 36,875)

( 22,125)

( 14,750)

a Interest on excess (Deficiency) P 11,250 Remainder 5:3:2 ( 73,750) Total

(P 21,875)

(P 18,375) (P 22,250)

2,500) 2-20:

c Correction of 2013 profit: Net income per books Understatement of depreciation Overstatement of inventory, December 31 Adjusted net income

P 19,500 ( 2,100) ( 11,400) P 6,000 Pete

Rico Total

Distribution of net income per book: Equally

P 9,750

P 9,750

Distribution of adjusted net income Equally

( 3,000)

( 3,000)

P 6,750

P 6,750

500 000) Required Decrease P 13,500 2-21:

a Tiger P 64,000

Salaries P164,000 Interest 54,000 Bonus (P360,000-P54,000)X.25 76,500 Remainder, 30:70 __65,500 Total P360,000

Woods Total P100,000

24,000

30,000

76,500

–

__19,650

__45,850

P184,150

P175,850

Partnership Operations

2-22:

a Clotty

Cotto

Total

2-23:

Salaries Commission Interest Bonus, schedule 1 Remainder, 60:40 Total Schedule 1 Net income before salary, commission, interest and bonus Less: salaries Net income before bonus Net income after bonus (P180,000/120%) Bonus a

P 20,000 – 32,000 30,000 __35,640 P117,640

Capital balance, beginning P1,000,000 Additional investment 300,000 Capital withdrawal

– P 25,000 33,600 – _23,760 P 82,360

P 20,000 25,000 65,600 30,000 __59,400 P200,000 P200,000 __20,000 P180,000 _150,000 P 30,000

Mike P600,000

Tyson P400,000

100,000

200,000

-200,000

( 100,000)

P500,000

P500,000

P200,000

P300,000

__60,000

__40,000

P260,000

P340,000

P760,000

P840,000

( 200,000)

( 300,000)

P560,000

P540,000

300,000 Capital balance before profit and loss distribution P1,000,000 Net income: Salary 0,000 Balance, 3:2 __100,000 Total 0,000 Total P1,600,000 Drawings 00,000) Capital balance, end P1,100,000 2-24:

d Average Capital - King: Date January 1 April 1

Capital Balance P40,000 55,000

Months Unchanged 3 9 12

Peso Months P120,000 _495,000 P615,000

Months

Peso

Average capital – P615,000/12 = P51,250 Average Capital - Queen: Capital

Date January 1 April 1

Balance P100,000 130,000

Unchanged 7 5 12

Months P700,000 __650,000 P1,350,000

Average capital - P1,350,000 / 12 =P112,500 26 2-24: Continued

Chapter 2

Distribution of Net Income - Schedule 1

Interest Bonus, Schedule 2 Salaries Residual, 50:50 Total

King P 5,125 12,725 25,000 ( 2,050) P40,800

Queen P11,250 – 30,000 _(2,050) P39,200

Total P16,375 12,725 55,000 _(4,100) P80,000

Schedule 2 Net income before allocation Less: Interest Net income before bonus Net income after bonus (P63,625/125%) Bonus

P80,000 _16,375 P63,625 _50,900 P12,725

Capital Balance December 31: Capital balance, January 1 Additional investment Capital balance before profit and loss distribution Net income (Schedule 2) Drawings (P400 X 52) Capital balance, December 31 2-25:

King P40,000 _15,000

Queen P100,000 __30,000

Total P140,000 __45,000

P55,000 40,800 ( 20,800) P75,000

P130,000 39,000 ( 20,800) P148,400

P185,000 80,000 ( 41,600) P223,400

d Total receipts (P1,500,000 + P1,625,000) Expenses Net income Distribution to Partners Red – P1,500,000/P3,125,000 X P2,045,000 = Blue – P1,625,000/P3,125,000 X P2,045,000 =

Capital balance of Blue Dec. 31 Capital Balance, Jan. 1 Additional investment

P3,125,000 ( 1,080,000) P2,045,000 P 981,600 (1) _1,063,400 P2,045,000 P 374,000 ___22,000

Capital balance before profit and loss distribution Profit share Drawings Capital balance, Dec. 31

P 396,000 1,063,400 ( 750,000) P 709,400 (2)

Partnership Operations

2-26:

a Ray P150,000

Sam P180,000

_______

__60,000

150,000

240,000

15,000

20,000

51,000

34,000

66,000

54,000

Total 510,000 Salaries _42,000

216,000

294,000

_18,000

_24,000

Total 552,000 Drawings (42,000)

234,000

318,000

(18,000)

(24,000)

Capital balances, March 1 P330,000 Additional investment, Nov. 1 __60,000 Capital balances before salaries, profit and Drawings 390,000 Profit share: Interest 35,000 Balance, 60:40 85,000 Total 120,000

Capital balances, Feb. 28 P510,000 2-27:

P216,000

P294,000

Susan P150,000

Tanny P30,000

a Capital balances, 1/1 P180,000 Additional investment, 4/1 8,000 Capital withdrawals, 7/1 _(6,000) Balances before profit distribution 182,000 Profit distribution:

8,000 _______

(6,000)

158,000

24,000

Interest

23,400

4,050

27,450 Bonus (20% x P30,000)

6,000

6,000 Balance, equally

(1,725)

(1,725)

Total

21,675

_8,325

179,675

32,325

(12,000)

(12,000)

(3,450) 30,000 Total 212,000 Drawings (24,000) Capital balances, 12/31

P167,675

P20,325

P188,000

28 2-28:

Chapter 2 a Capital balances, beg. 1st year P300,000 Loss distribution, 1st year: Salaries 30,000 Interest 30,000 Balance, 5:3:2 (80,000) Total (20,000) Total 280,000 Drawings (30,000) Capital balances, beg. 2nd year 250,000 Profit distribution, 2nd year: Salaries

Sin P110,000

Tan P80,000

20,000

Uy P110,000 10,000

11,000

8,000

11,000

(40,000)

(16,000)

(24,000)

( 9,000)

( 8,000)

( 3,000)

101,000

72,000

107,000

(10,000)

(10,000)

(10,000)

91,000

62,000

97,000

20,000

10,000

30,000 Interest

9,100

6,200

9,700

( 7,500)

( 4,500)

( 3,000)

21,600

_1,700

16,700

112,600

63,700

113,700

_(10,000)

(10,000)

_(10,000)

P102,600

P53,700

P103,700

Jay P30,000

Kay P30,000

Loi P30,000

_(5,000)

_(4,000)

5,000 ______

25,000

26,000

35,000

3,000 7,000 _1,000

3,000

3,000

_1,000

_1,000

36,000

30,000

39,000

5,000 ______

_(3,000)

_(8,000)

41,000

27,000

31,000

3,600

3,000

3,900

7,000 _1,500

_1,500

_1,500

53,100

31,500

36,400

______

_(4,000)

6,000 _(2,000)

53,100

27,500

40,400

5,310

3,150

3,640

7,000 __3,300

__3,300

__3,300

25,000 Balance, 5:3:2 (15,000) Total 40,000 Total 290,000 Drawings _(30,000) Capital balances, end of 2nd year P260,000 2-29:

c Capital balances, 1/1/011 P90,000 Additional investment, 2011 Capital withdrawal, 2011 _(9,000) Capital balances 86,000 Profit distribution, 2011: Interest Salary Balance, equally __3,000 Capital balances, 1/1/12 105,000 Additional investment, 2012 Capital withdrawal, 2012 (11,000) Capital balances 99,000 Profit distribution, 2012: Interest 10,500 Salary Balance, equally __4,500 Capital balances, 1/1/013 121,000 Additional investment, 2013 Capital withdrawal, 2012 _(6,000) Capital balances 121,000 Profit distribution, 2012: Interest 12,100 Salary Balance, equally ___9,900

Capital balances, 12/31/013 per books P150,000 Understatement of depreciation (6,000) Adjusted capital balances, 12/31/013 P144,000

P68,710

P33,950

(2,000)

(2,000)

P66,710

P31,950

P47,340 (2,000) P45,340

Partnership Operations

2-30:

a Ken Capital balances, 1/1/012 P300,000 Additional investment, 2012 40,000 Capital withdrawal, 2012 ( 20,000) Balances 320,000 Profit distribution, 2012 (Schedule 1) Salary 60,000 Balance, beg. Capital ratio 60,000 Capital balances, 1/1/013 440,000 Capital withdrawal, 2013 ( 60,000) Balances 380,000 Profit distribution, 2013: Salary 60,000 Balance, beg. capital ratio __60,000 Capital balances, 12/31/013 P500,000

P100,000

Len P100,000

P100,000

40,000 ( 20,000)

_______

_______

80,000

140,000

100,000 60,000

20,000

20,000

20,000

100,000

160,000

180,000

( 20,000)

( 40,000)

_______

80,000

120,000

180,000 60,000

__13,636

__21,818

__24,546

P 93,636

P141,818

P264,546

Schedule 1 – Computation of net profit: Total capital, 2013 (P647,500 – P147,500) Total capital, 2012 (P300,000 + P40,000 – P80,000) Total profit for 2 years Net profit per year (P240,000 / 2)

Mon

P500,000 _260,000 P240,000

P120,000

2-31:

d Capital balance, 1/1/013 Additional investment Withdrawals Cap. bal. before P/L dist. NP: Salary (16,500 x 12) Interest on EC (15%) Balance 25:30:45 Total Capital balance 12/31/013

2-32:

_Nardo_ P280,000 96,000 376,000 42,000 ( 19,875 ) 22,125 P398,125

__Orly P300,000 60,000 ( 90,000 ) 270,000 198,000 45,000 ( 23,850 ) 219,150 P 489,150

d Sam capital, beginning Additional investment (Land) Drawings Capital balance before net profit (loss) Capital balance, end Profit share (40%) Net profit (P50,000 ÷ 40%)

__Pedro_ P170,000 ( 72,000 ) 98,000 25,500 ( 35,775 ) ( 10,275 ) P 87,725 P120,000 60,000 ( 80,000 ) 100,000 150,000 50,000 P125,000

30

2-33:

Chapter 2

a __Joe__ Capital balance, 1/2/012 P 80,000 Net loss- 2012: Annual salary 96,000 10% interest on beg. capital 8,000 Bal. beg. cap. ratio: 8:4 ( 108,000) Total ( 4,000) Capital balance 76,000 Drawings ( 4,000) Capital balance, 12/31/012 72,000 Net profit- 2013: Annual salary 96,000 10% interest on BC 7,200 Bonus to Joe–NPBB – P 22000 NPAB (22000/110%)20000 2,000 Balance equally ( 67,300) Total 37,900 Total 109,900 Drawings ( 4,000) Capital balance, 12/31/013

2-34:

_Total_ P750,000 156,000 (162,000) 744,000 198,000 112,500 (79,500 ) 231,000 P975,000

a Decrease in capital Drawings Contribution Profit share Net income (45,000 ÷ 30)

105,900

__Tom__ P 40,000

__Total__ P120,000

48,000 4,000 ( 54,000) ( 2,000) 38,000 ( 4,000) 34,000

144,000 12,000 ( 162,000) ( 6,000) 114,000 ( 8,000) 106,000

48,000 3,400

144,000 10,600

( 67,300) ( 15,900) 18,100 ( 4,000)

2,000 ( 134,600) 22,000 128,000 ( 8,000)

14,100

120,000 P 60,000 ( 130,000) 25,000 45,000 P150,000

2-35:

b 2011: Original profit allocation Salaries Balance of profit Total

Cris P 80,000 100,000 P180,000

Paul P 60,000 100,000 P160,000

Bryan P 60,000 100,000 P160,000

Total P200,000 300,000 P500,000

Revised profit allocation Salaries Interest on capital (Sch. A) Balance of profit Total

P 80,000 7,500 91,200 P178,799

P 60,000 13,200 91,200 P164,400

P 60,000 5,700 91,200 P156,900

P200,000 26,400 273,600 P500,000

Difference in total

P 1,300

P (4,400)

P 3,100

P

Original profit allocation: Salaries Balance of profit Total

Cris P 80,000 70,000 P150,000

Paul P 60,000 70,000 P130,000

Bryan P 60,000 70,000 P130,000

Total P200,000 210,000 P410,000

Revised allocation: Salaries Interest on capital (Sch. B) Balance of profit Total

P 80,000 3,944 66,700 P150,644

P 60,000 2,428 P 66,700 P129,128

P 60,000 3,528 P 66,700 P130,228

P200,000 9,900 P200,000 P410,000

Difference in totals Total of differences

P P

P 872 P (3,528)

0

Partnership Operations 2-35: Continued

2012

(644) 656

P P

(228) 2,872

P P

0 0

Therefore Paul capital should be increased by P3,528 Schedule A: Revised Computation of Interest on Average Capital Partner Cris

Date January 1 March 31 September 30

Capital Balance P180,000 30,000 10,000

Fraction of Year Unchanged 3/12 6/12 3/12

Average Capital P45,000 15,000 2,500 P62,500

Paul

January 1 March 31

P250,000 80,000

3/12 6/12

P62,500 40,000

Bryan

September 30

30,000

3/12

7,500 P110,000

January 1 September 30

P60,000 10,000

9/12 3/12

P45,000 2,500 P47,500

Interest at 12%: Cris: Paul: Bryan:

P62,500 x 12% = P110,000 x 12%= P47,500 x 12% =

P7,500 P13,200 P5,700

32

Chapter 2

2-35: Continued

Schedule B: Revised Computation of Interest on Average Capital Partner Cris

Capital Balance P188,700 18,700

Date January 1 March 31

Fraction of Year Unchanged 1/12 11/12

Average Capital P15,725 17,142 P32,867

Paul

January 1 March 31

P194,400 4,400

1/12 11/12

P16,200 4,033 P20,233

Bryan

January 1 September 30

P166,900 16,900

1/12 11/12

P13,908 15,492 P29,400

Interest at 12%: Cris: Paul: Bryan:

2-36:

P32,867 x 12% = P20,233 x 12%= P29,400 x 12% =

P3,944 P2,428 P3,528

a Salaries

Gabriel P35,000

Harry P40,000

Cumulative Total P 75,000

Bonus (Sch. A) Interest on capital (Sch. B) Remainder of profit Total

12,000 11,467 11,280 P69,747

87,000 103,800 132,000

5,333 16,920 P62,253

Schedule A: Computation of Bonus to Gabriel Bonus = 10% (net income – Bonus) 110% Bonus = 10% (net income) 110% Bonus = P13,200 Bonus = P12,000 Schedule B: Calculation of average capital balances: Partner Gabriel

Date January 1 April 1 November 1 November 1

Capital Balance P120,000 140,000 170,000 160,000

Fraction 3/12 512 2/12 2/12

Average Capital P 30,000 58,333 28,333 26,667 P143,333

Partnership Operations 2-36: Continued: Partner Harry

Date January 1 November 1

Interest therefore: Gabriel: P143,333 x 8% = Harry: P66,667 x 8% =

2-37:

Capital Balance 60,000 100,000

Fraction 10/12 2/12

Average Capital P50,000 16,667 P66,667

P11,467 P5,333

a Adjustments to Income:

Amortization of business name Prepaid expenses, 2011 Accrued expenses, 2011 Fees billed in 2012 Inventory overstatement Accrued expenses, 2012 Accrued income, 2012 Adjustments to income

2011 P(5,000) 3,000 (2,000) 8,400

P 4,400

2012 P (5,000) (3,000) 2,000 (8,400) 4,000 (8,600) (3,000) P(22,000)

Computations of Adjusted Capital Balances: Cory

Dory

Eva

Unadjusted balances, December 31, 2011 Bonus to Cory on change in 2011 income (Sch. 1) Allocation of remaining adjustments to 2011 income Bonus to Cory on change in 2012 income (Sch. 2) Allocation of remaining adjustments to 2012 income Correction of capital withdrawal Adjusted capital balances, December 31, 2012

P25,000 400 1,200 (2,000) (7,000) (5,000) P12,600

P30,000

P28,000

1,200

1,600

(7,000)

(6,000)

P24,200)

P23,600

Schedule 1: Bonus = 10% (1 - Bonus) Bonus = 10% (P4,400 – Bonus) 110% Bonus = P440 Bonus = P400 Schedule 2: Bonus = 10% )1 – Bonus) Bonus = 10% (P22,000 – Bonus) 110% Bonus = (P2,200) Bonus = (P2,000)

34

2-38:

Chapter 2

b Old Partners Capital Balances before Admission of New Partner:

Capital balances, March 1, 2011 2011 net loss: Salaries (10 months) Interest on beginning capital balances Balance, beginning capital ratio Total Total Drawings Capital balances, 1/1/2012 2012net profit: Salaries Interest on beginning capital balances Balance, equally Total Total Drawings Capital balances, 12/31/012

Alma P480,000

Betty P240,000

Total P720,000

480,000 48,000 (552,000) (24,000) 456,000 (24,000) 432,000

240,000 24,000 (276,000) (12,000) 228,000 (24,000) 204,000

720,000 72,000 (828,000) (36,000) 684,000 (48,000) 636,000

576,000 43,200 (397,800) 221,400 653,400 (24,000) P629,400

288,000 20,400 (397,800) (89,400) 114,600 (24,000) P90,600

864,000 63,600 (795,600) 132,000 768,000 (48,000) P720,000

Contributed capital of new partner Cora Agreed capital of Cora (P720,000 + P400,000) x 40% Bonus from Alma and Betty, original capital ratio(reduction from capital) Therefore entry b is correct. 2-39:

b

P400,000 448,000 P 48,000

Capital balances, Jan. 2, 2013 Profit distribution – P23,000* Interest** Salaries Balance, 2:1 Total share Personal drawings Capital balances, Dec. 31, 2013 *

Revenue Cost of goods sold Depreciation Net profit

Interest - Riza: 25,000 x 2/12 = 20,000 x 10/12 = Ave. capital Rate Interest Partnership Operations

Mark P18,000

Total P43,000

1,042 8,705

900 6,000 4,353

P34,747

(8,000) P23,253

1,942 8,000 13,058 23,000 (8,000) P58,000

P108,000 (80,000) ( 5,000) P 23,000

**

2-40:

Riza P25,000

P 4,167 16,667 P20,834 5% P 1,042

Interest - Mark 18,000 x 12/12 = P18,000 Rate 5% Interest P 900

a Distribution of Profit:

Salaries Bonus to Parco** Balance (squeeze) Total profit share * 

**

Romeo P34,000 52,200 P86,200

Parco P59,000 21,750 34,800 P115,550

Total P93,000 21,750 87,000 P201,750

Profit share of Romeo: Capital balance after profit distribution Salary drawing Capital withdrawal Additional investment Beginning capital balance Profit share

P142,200 34,000 35,000 (40,000) (85,000) P 86,200

Bonus to Parco: Net income after salaries and bonus Rate Bonus

P 87,000 25% P 21,750

Partnership Operations

36

SOLUTIONS TO PROBLEMS Problem 2 – 1

1.

Castro Diaz

: :

(P26,000/P42,500) x (P16,500/P42,500) x

P23,800 P23,800

= =

P14,560 __9,240 P23,800

2.

Castro Diaz

: :

(P31,250/P50,000) x (P18,750/P50,000) x

P23,800 P23,800

= =

P14,875 __8,925 P23,800

Computation of Average Capitals: Castro: Capital Date Balances 1/1..................................... P26,000 4/10................................... 29,000 5/1..................................... 36,000 8/1..................................... 32,000

Average capital = P375,000  12 months =

Months Unchanged 3 1 3 5 12 P31,250

Peso Months P 78,000 29,000 108,000 _160,000 P375,000

Diaz:

Capital Date Balances 1/1..................................... P16,500 6/1..................................... 21,500 9/1..................................... 19,500

Months Unchanged 5 3 4 12

Average capital = P225,000 – 12 months = 3.

P18,750

Interest........................................................ Salaries........................................................ Balance, equally.......................................... Total............................................................

Castro P 7,500 36,000 ( 24,100) P19,400

Diaz P4,500 24,000 (24,100) P 4,400

Total P12,000 60,000 ( 48,200) P23,800

Bonus (a).................................................... Interest (b)................................................... Balance, 3:2................................................ Total............................................................

Castro P 4,760 1,100 _10,764 P16,624

Diaz P – – _7,176 P7,176

Total P 4,760 1,100 _17,940 P23,800

4.

37

Chapter 2

Computations: a. Net profit before bonus................................................ Net profit after bonus (P23,800  125%)..................... Bonus........................................................................... b.

5.

Peso Months P 82,500 64,500 __78,000 P225,000

Castro Diaz

P23,800 _19,040 P 4,760

Average capital of Castro [(P26,000 + P32,000)  2]............................ Average of Diaz [(P16,500 + P18,500)  2].......................................... Castro's excess....................................................................................... Multiply by............................................................................................ Interest...................................................................................................

P29,000 _18,000 P11,000 ___10% P 1,100

: :

P14,280 __9,520 P23,800

(P3,000/P5,000) x P23,800 (P2,000/P5,000) x P23,800

= =

Problem 2 – 2 a.

Average Capital: Robin: Date Jan. 1 Feb. 28

Balances P135,000 95,000

Months Unchanged 2 2

Peso Months P270,000 190,000

Apr. 30 Sept. 30

175,000 195,000

5 3 12

875,000 __585,000 P1,920,000

Months Unchanged 3 3 2 2 2 12

Peso Months P420,000 600,000 300,000 440,000 __400,000 P2,160,000

Ave. Capital (P1,920,000  12) = P160,000 Hood:

Date

Balances

Jan. 1 Mar. 31 June 30 Aug. 31 Oct. 31

P140,000 200,000 150,000 220,000 200,000

Ave. Capital (P2,160,000  12) = P180,000 Profit Distribution: Robin : P160,000  P340,000 x P510,000 = Hood : P180,000  P340,000 x P510,000 =

P240,000 _270,000 P510,000

Partnership Operations

b. Interest on ave. capital......................................... Salaries................................................................ Bonus (P510,000 – 30,600 – 160,000) x 25%).... Balance, equally.................................................. Totals................................................................... c. Interest: Robin (P195,000 – P135,000) 10%............. Hood (P200,000 – P140,000) 10%.............. Balance, equally.................................................. Totals................................................................... d.

38

Robin P 14,400 60,000 78,850 _119,775 P274,025

Hood P 16,200 100,000 – _119,775 P235,975

Total P 30,600 160,000 79,850 _239,550 P510,000

Robin

Hood

Totals

P 6,000 249,000 255,000

P 12,000 498,000 510,000

Hood P120,000

Total P200,000 62,000 _248,000 P510,000

P 6,000 249,000 255,000 Robin P 80,000 62,000 _124,000 P266,000

Salaries................................................................ Bonus (see computations below)......................... Balance, equally.................................................. _124,000 Totals................................................................... P244,000 Bonus Computations: Net income before salaries and bonus..................................................... Less Salaries........................................................................................... Net income before bonus........................................................................ Net income after bonus (P310,000  125%)............................................

P510,000 200,000 310,000 _248,000

Bonus......................................................................................................

P 62,000

Problem 2 – 3 a.

b.

De Villa De Vera Salaries................................................................ P 30,000 – Commission (2% x P1,000,000).......................... P 20,000 Interest of 8% on average capital......................... 32,800 31,200 Bonus (see computations below)......................... 9,818 9,818 Balance, equally.................................................. __44,182 __44,182 Total .................................................................... P116,800 P105,200 Bonus Computations: Income before salary, commissions, interest & bonus............................. Salary and commission (P30,000 + P20,000).......................................... Interest.................................................................................................... Income before bonus............................................................................... Income after bonus (P108,000  110%).................................................. Bonus...................................................................................................... Income Summary................................................. De Villa, capital........................................... De Vera, capital...........................................

Total P 30,000 20,000 64,000 19,636 __88,364 P222,000 P222,000 ( 50,000) ( 64,000) 108,000 _98,182 P 9,818

P 222,000 116,800 105,200

39

Chapter 2

Problem 2 – 4 a. Salaries............................................... Bonus (see computation below).......... Interest (see computation below)........ Balance, 3:3:4..................................... Total ...................................................

East P15,000 3,760 2,800 __3,180 P24,740

North P20,000

West P18,000

4,000 __3,180 P27,180

4,800 __4,240 P27,040

Bonus computations: Net income before bonus.......................................................................... Net income after bonus (P78,960  105%)................................................ Bonus........................................................................................................ Interest computations: East (10% x P28,000)............................................................................... North (10% x P40,000)............................................................................. West (10% x P48,000).............................................................................. Total.......................................................................................................... b. Interest (see computations below)...... Salaries............................................... Bonus (see computations below)........ Balance, equally................................. Total ...................................................

East P 3,133 24,000 ( 6,056) P 21,077

North P 3,633 21,000 4,280 ( 6,055) P 22,858

West P 5,200 25,000 ( 6,055) P 24,145

Total P53,000 3,760 11,600 _10,600 P78,960 P78,960 _75,200 P 3,760 P 2,800 4,000 __4,800 P11,600 Total P11,966 70,000 4,280 ( 18,166) P 68,080

Interest computations: Average capitals: East: Date 1/1 5/1 9/1

Months Unchanged 4 4 4 12

Balances P30,000 36,000 28,000

Pesos Months P120,000 144,000 _112,000 P376,000

Average capital (P376,000  12) ..........................................

P 31,333

North:

Pesos Months P80,000 124,000 72,000 _160,000 P436,000

Date 1/1 3/1 7/1 9/1

Months Unchanged 2 4 2 4 12

Balances P40,000 31,000 36,000 40,000

Average capital (P436,000  12)...........................................

P 36,333

Partnership Operations

40

West: Date 1/1 4/1 6/1 8/1

Months Unchanged 3 2 2 5 12

Balances P50,000 57,000 60,000 48,000

Ave. capital (P624,000  12)....................................

P 52,000

Interest Computations: East (10% x P31,333)........................................................... North (10% x P36,333)......................................................... West (10% x P52,000).......................................................... Total.....................................................................................

P 3,133 3,633 __5,200 P 11,966

Bonus Computations: Net income........................................................................... Less Salary........................................................................... Net income before bonus...................................................... Net income after bonus (P47,080  110%)........................... Bonus to North..................................................................... * To Total c.

Pesos Months P150,000 114,000 120,000 _240,000 P624,000

East

North

P 68,000 _21,000 47,080 _42,800 P 4,280 West

Total

Bonus (see comp. below).................... Salaries .......................................... Interest on beginning capital............... Remainder, 8:7:5................................ Total ..................................................

P 8,990 P21,000 P 18,000 – 3,000 4,000 5,000 _13,180 _11,532.50 __8,237.50 P37,180 P33,532.50 P22,227.50

P 8,990 39,000 12,000 _32,950 P92,940

Bonus Computations: Net income before salaries & bonus.......................................................... Less Salaries (P21,000 + P18,000)............................................................ Net income before bonus.......................................................................... Net income after bonus (P53,940  120%)................................................ Bonus to West...........................................................................................

P92,940 _39,000 P53,940 _44,950 P 8,990

Problem 2 – 5 a.

Schedule of Income Distribution: Salaries.............................................. Interest (see computation on p. 30)..... Balance, equally................................. Total ..................................................

Maria P12,000 7,200 __3,133 P22,333

Clara P10,000 9,600 __3,133 P22,733

Rita P 8,000 13,800 __3,134 P24,934

41

Total P30,000 30,600 __9,410 P70,000 Chapter 2

Problem 2-5: Continued

Interest on Average Capital: Maria: P80,000 x 8% x 6 months....................... P100,000 x 5% x 6 months..................... Clara: P120,000 x 8%....................................... Rita: P180,000 x 8% x 9 Mos.. . ...................... P150,000 x 8% x 3 Mos.. . ...................... Total ............................................................... b.

P 3,200 __4,000

P 7,200 9,600

P10,800 __3,000

_13,800 P30,600

Statement of Partners Capital: Balances, Jan. 1.................................. Additional Investment........................ Capital Withdrawal............................. Net Income......................................... Drawings .......................................... Balance, Dec. 31.................................

Maria P 80,000 20,000 – 22,333 ( 10,000) P112,333

Problem 2 – 6

Clara P120,000 – – 22,733 ( 10,000) P132,733

Rita P180,000 – ( 30,000) 24,934 ( 10,000) P164,934

Total P380,000 20,000 ( 30,000) 70,000 ( 30,000) P410,000

1.

Allocation of net loss for 2013: Salary to Alvin.................................... Interests on average capital: Alvin (P120,000 x 10%)............ Benny (P200,000 x 10%)........... Celia (P220,000 x 10%)............. Balance, 30:30:40............................... Total ..................................................

2.

Alvin P 20,000

Benny

Celia

12,000 20,000 (29,400) P 2,600

_(29,400) P( 9,400)

22,000 _(39,200) P(17,200)

54,000 _(98,000) P(24,000)

Benny P180,000 60,000 ________ 240,000 __(9,400) 230,600 _______ P230,600

Celia P220,000 40,000 _(20,000) 240,000 _(17,200) 222,800 _______ P222,800

Total P520,000 100,000 _(20,000) 600,000 _(24,000) 576,000 _(16,000) P560,000

Statement of Partnership Capital Year Ended December 31, 2013 Capitals, January 1, 2013.................... Additional investments....................... Capital withdrawals............................ Balances. ........................................... Net loss (see above)............................ Balances. ........................................... Drawings. .......................................... Capitals, December 31, 2013..............

Alvin P120,000 _______ 120,000 __2,600 122,600 _(16,000) P106,600

Partnership Operations...................................... Problem 2-6: Continued

3.

Total P20,000

42

Correcting entry: Celia capital....................................... 2,400 Alvin capital............................... 2,200 Benny capital............................. 200 To correct capital accounts for error in loss allocation computed as follows: Alvin Benny Celia Correct loss allocation........................ P2,600 P(9,400) P(17,200) Actual loss allocation......................... __(400) __9,600 __14,800 Adjustment......................................... P2,200 P 200 P ( 2,400) Problem 2 – 7

Capital balances, 1/2/011............................ Additional investment, 2011....................... Balances. .................................................... Net income (Loss) - 2011, equally.............. Withdrawals, 2011...................................... Capital balances, 12/31/11.......................... Additional investment, 2012....................... Balances. .................................................... Net income – 2012, 40: 30: 30.................... Withdrawals, 2012......................................

Dino P45,000 _15,000 60,000 (1,800) (17,000) 41,200 _____– 41,200 10,800 (17,000)

Nelson P45,000 _15,000 60,000 ( 1,800) ( 7,000) 51,200 _____– 51,200 8,100 ( 7,000)

Oscar P45,000 __6,000 51,000 ( 1,800) ( 3,200) 46,000 __6,000 52,000 8,100 ( 3,200)

Total P135,000 __36,000 171,000 ( 5,400) ( 27,200) 138,400 ___6,000 144,400 27,000 ( 27,200)

Capital Balances, 12/31/012........................ 35,000 Additional investment, 2013....................... ______– Balances. .................................................... 35,000 Net income, 2013 (schedule 1).................... 56,365 Withdrawals, 2013...................................... (19,000) Capital balances, 12/31/013........................ P72,365

52,300 ______– 52,300 42,272 ( 9,000) P86,572

56,900 ___6,000 62,900 20,363 ( 3,200) P80,063

144,200 ___6,000 150,200 120,000 ( 31,200) P239,000

Nelson P24,000 10,909 3,600 __4,763 P43,272

Oscar P12,000 – 3,600 __4,763 P20,363

Total P84,000 10,909 10,800 __14,291 P120,000

Schedule 1: Annual salaries................................... Bonus (see computations below)........ Interest................................................ Balance, equally................................. Totals..................................................

Dino P48,000 – 3,600 _* 4,765 P56,365

Bonus computations: Net income before bonus...................................................................... Net income after bonus (P120,000  110%)..........................._109,091 Bonus to Nelson....................................................................................

P120,000 P 10,909

* To Total 43 2

Chapter Problem 2 – 8 Red, White & Blue Partnership Statement of Partners' Capital For Year Ended December 31, 2013

Balances, beginning of year Add: 20% of fees billed to personal clients Green's share of fees (Exhibit A) Remaining net income (Exhibit A) Subtotals Less: Withdrawals Uncollectible accounts identified with clients of each partner Excess rent charged to Blue Total deductions Balances, end of year

Red 40,200 8,800

White 20,200 4,800

Blue 40,600 4,400

_22,800 _71,800 10,400

_22,800 _47,800 8,800

_11,400 _56,400 11,600

2,400

900

P12,800 P59,000

P 9,700 P38,100

1,800 P13,400 P43,000

Green

3,200 ______ __3,200 5,000

Total P101,000 18,000 3,200 _57,000 179,200 35,800

P 5,000 P (1,800)

3,300 1,800 P 40,900 P138,300

Red, White & Blue Partnership Exhibit A – Computation and Division of Net income For Year Ended December 31, 2013 Total revenue from fees Expenses, excluding depreciation and doubtful accounts expense Less: Excess rent charged to N ($300 x 6) Subtotal Add: Depreciation, computed as follows:

P120,000 P38,700 __1,800 36,900

$26,000 x 0.10 $10,000 x 0.10 x 1/2 Total expenses, excluding doubtful accounts expense Add: Doubtful accounts expense ($3,000 x 0.60) Total expenses Net income for year ended Dec. 31

2,600 ____500 P40,000 __1,800 41,800 P 78,200

Division of net income: Fees billed to personal clients: Red P44,000 x 20% White P24,000 x 2% Blue, P22,000 x 20% Green's share of fees: Gross fees from new clients after April 1, Year 1 Less: Allocated expenses ($40,000 x $24,000/ $120,000) Net income from new clients Green's share (P16,000 x 20%) Total divided pursuant to special agreement Balance, divided in income-sharing ratio as follows: To Red, 40% To White, 40% To Blue, 20% Total Partnership Operations

P 8,800 48,000 4,400

P18,000

24,000 __8,000 P16,000 P 3,200 __21,200 P 57,000 P22,800 22,800 _11,400 P57,000

Problem 2 – 9 Allan, Eman and Gino Partnership Statement of Profit Distribution Year Ended December 31, 2013 Allan

Eman

Gino

Total

Interest Commission (P16,120 – P5,000) x 10% Balance, equally

P 4,000 – __5,926

P 750 1,112 _5,925

P 250 1,112 _5,925

P 5,000 2,224 _17,776

Total Adjustments (50% of P25,000 to Allan)

P 9,926 __2,574

P7,787 (1,287)

P7,287 (1,287)

P25,000 _____

Total

P12,500

P6,500

P6,000

P25,000

Sonny

Letty

Total

Problem 2 – 10 Gary, Sonny, and Letty Partnership Statement of Partners' Capital Accounts Year Ended December 31, 2013 Gary

Capital balances, 1/1/013 Additional investments

P210,000 ___9,100

P180,000 _______

P 90,000 _______

P480,000 __9,100

Total Profit distribution: Salaries Interest Bonus to Gary and Sonny (Schedule 1) Balance, equally

_219,100

_180,000

_90,000

489,100

10,640 10,800

35,840 58,320

13,680 25,920 – __(9,720)

11,520 21,600 – _(9,720)

_(9,720)(29,160)

Total

__29,880

_23,400

_11,720

Total Drawings _(48,000)

248,980 _(21,000)

203,400 101,720 (18,000) __(9,000)

Capital balances, 12/31/013

P227,980

P185,400

P 92,720

_65,000 554,100

P506,100

Schedule 1: Computation of the bonus. Net profit before interest, salaries and bonus Less:Salaries Interest Net profit (loss) before bonus

P 65,000 P35,840 _58,320

__94,160 P(29,160)

Therefore no bonus is to be given to Gary and Sonny. 45 Chapter 2

Problem 2 – 11 a. Entries to record the formation of the partnership and the events that occurred during 2013: Cash Inventory Land Equipment Mortgage payable

1,100,000 800,000 1,300,000 1,000,000 500,000

Installment note payable Kobe, capital (P600,000 + P800,000 + P1,000,000 – P200,000) Lebron, capital (P500,000 + P1,300,000 - P500,000) (1)

(2)

(3)

Inventory Cash Accounts payable

200,000 2,200,000 1,300,000 300,000 240,000 60,000

Mortgage payable Interest expense Cash

50,000 20,000

Installment note payable

35,000

70,000

Interest expense Cash (4)

(5)

(6) (7)

(8)

Accounts receivable Cash Sales

20,000 55,000 210,000 1,340,000 1,550,000

Selling and general expenses Cash Accrued expenses payable

340,000

Depreciation expense Accumulated depreciation

60,000

Kobe, drawing Lebron, drawing Cash Sales

278,000 62,000 60,000 104,000 104,000 208,000 1,550,000

Income summary (9)

Cost of goods sold Inventory P900,000 = P800,000 + P300,000 – P200,000

1,550,000 900,000 900,000

Partnership Operations

46

Problem 2-11: Continued

Income summary Cost of good sold Selling and general expenses Depreciation expense Interest expense

1,340,000 900,000 340,000 60,000 40,000

Income summary Kobe, capital Lebron, capital

210,000

Kobe, capital Lebron, capital Kobe, drawing Lebron, drawing

104,000 104,000

105,000 105,000

104,000 104,000

Schedule to allocate partnership net income for 2008: Kobe Profit percentage 60% Beginning capital balance P2,200,000 P3,500,000 Net income (P1,550,000 revenue

Lebron 40% P1,300,000

Total 100%

- P 1,340,000 expenses) Interest on beginning capital balances (3%) (105,000)

210,000 66,000

39,000

120,000

120,000

(81,000)

(54,000)

P105,000 Salaries (240,000) P(135,000) Residual deficit (135,000) Total b.

P105,000

P105,000

-0-

Kobe-Lebron Partnership Statement of Comprehensive Income For the Year Ended December 31, 2013 Sales P1,550,000 Less: Cost of goods sold: Inventory, January 1 Purchases Goods available for sale Less: Inventory, December 31 (900,000) Gross profit Less: Selling and general expenses Depreciation expenses Operating income Nonoperating expense- interest Net income

P800,000 300,000 P1,100,000 (200,000) P650,000 340,000 60,000

400,000 P250,000 (40,000) P210,000

47 2

Chapter

Problem 2-11, continued:

c.

Kobe-Lebron Partnership Statement of Financial Position At December 31, 2013 Assets Cash Accounts receivable Inventory Land Equipment (net) Total assets

P1,589,000 210,000 200,000 1,300,000 940,000 P4,239,000

Liabilities and Capital Liabilities: Accounts payable Accrued expenses payable Installment note payable Mortgage payable Total liabilities Capital: Kobe, capital Lebron, capital Total capital Total liabilities and capital

P60,000 62,000 165,000 450,000 P737,000 P2,201,000 1,301,000 3,502,000 P4239,000