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Chapter 2 - Partnership Operations

Accounting (Mindanao State University)

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20
Chapter 2

CHAPTER 2

MULTIPLE CHOICE ANSWERS AND SOLUTIONS

2-1: d
Jordan Pippen
Annual salary P120,000 P80,000
P200,000
Balance, equally ( 10,000) ( 10,000)
( 20,000)
Total P110,000 P 70,000
P180,000

2-2: a
JJ KK LL
Bonus (.20 X P90,000) P18,000 – –
P 18,000
Interest
JJ (.15 X P100,000) P15,000 – –)
KK (.15 X P200,000) P 30,000 –)
LL (.15 X P300,000) P45,000)
90,000
Balance, equally ( 6,000) ( 6,000) ( 6,000)
( 18,000)
Total profit share P27,000 P 24,000 P39,000
P 90,000
2-3: a

2-4: a
Allan Michael
Interest
Allan - .10 X (P40,000 + 60,000 /2) P 5,000 )
Michael - .10 X (P60,000 + 70,000/2) P 6,500)
P 11,500
Balance, equally _14,000 _14,000
__28,000
Total P 19,000 P20,500
,000

2-5: a
Fred Greg Henry
Interest (.10 of average capital) P12,000 P 6,000 P 4,000
P 22,000
Salaries 30,000 20,000
50,000
Balance, equally ( 35,000) ( 35,000) ( 35,000)
(105,000)

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Total P 7,000 ( P29,000) (P11,000)

3,000)

2-6: b
Average Capital
Capital Months Peso
Date Balance Unchanged Months
January 1 140,000 6 P 840,000
July 1 180,000 1 180,000
August 1 165,000 5 __825,000
12 P1,845,000

Average capital - P1,845,000/12 = P153,750

Interest (P153,750 X 10%) = P 15,375

Partnership Operations 21

2-7: c
Capital Months Peso
Date Balance Unchanged Months
January 1 P16,000 3 P 48,000
April 1 17,600 2 35,200
June 1 19,200 3 57,600
September 1 15,200 4 __60,800
12 P201,600

Average Capital(P201,600/12) = P16,800

2-8: a
Net profit before bonus P 24,000
Net profit after bonus (P24,000/120%) __20,000
Bonus to RJ 4,000
Balance (P24,000-P4,000)X3/5 __12,000
Total profit share P 16,000

2-9: a
LT AM Total
Interest P3,200 P 3,600 P 6,800
Salaries 15,000 7,500 22,500
Balance, 3:2 (11,580) ( 7,720) ( 19,300)
Total P 6,620 P 3,380 P 10,000

2-10: b
Net income after salary, interest and bonus P467,500
Add back: Salary (P10,000 X 12) P120,000
Interest (P250,000 X .05) __12,500 _132,500
Net income after bonus (80%) P600,000
Net income before bonus (P600,000/80%) _750,000

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Paul's bonus P150,000

2-11: b
CC DD EE Total
Salary P 14,000
000
Balance P14,000 P 8,400 5,600
28,000
Additional profit to DD ( 1,500) __2,100 ( 600)
______–
Total P12,500 P10,500 P 19,000
,000

Net income
Fees Earned P90,000
Expenses _48,000
Net Income P42,000

22
Chapter 2

2-12: c
LL MM NN Total
Interest P 2,000 P 1,250 P 750
000
Annual Salary 8,500 – –
8,500
Additional profit to give LL, P20,000 9,500 5,700 3,800
19,000*
Additional profit to give MM, P14,000 _____– __7,050 _____–
__7,050
Total P20,000 P14,000 P 4,550
550
*(P9,500/50%) = P19,000

2-13: a
RR SS TT Total
Excess (Deficiency)
RR (P80,000 - P95,000) P15,000 – –)
SS (P50,000 - P40,000) – (P10,000) –)
P 5,000
Balance 4:3:1 _47,500 _35,625 _11,875
__95,000
Total P62,500 P25,625 P11,875
P100,000

Net Income (200,000 - 100,000) = P100,000

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2-14: b AA BB CC Total
AA - 100,000 X 10% P 10,000 )
150,000 X 20% 30,000 )
P 40,000
Remainder, 210,000
BB (60,000 X .05) P 3,000 )
CC (60,000 X .05) P 3,000
6,000
Balance, equally __68,000 _68,000 _68,000
_204,000
Total P108,000 P71,000 P71,000
P250,000
2-15: a
AJ BJ CJ Total
Bonus to CJ
Net profit before bonus P44,000
Net profit after bonus (P44,000/110%)P40,000 – – P4,000
P4,000
Interest to BJ – P1,000 –
1,000
Salaries P 10,000 – 12,000
22,000
Balance, 4:4:2 __6,800 _6,800 __3,400
_17,000
Total P 16,800 P7,800 P19,400
P44,000

2-16: c
Total profit share of Pedro P200,000
Less: Salary to Pedro P 50,000
Interest __20,000 __70,000
Share in the balance (40%) P130,000

Net profit after salary and interest (130,000/40%) P325,000

Add: Total Salaries P150,000
Total Interest __70,000 _220,000
Total Partnership Income P545,000
Partnership Operations 23

2-17: c
Net income before extraordinary gain and bonus (69,600-12,000) P 57,600
Net income after bonus (57,600/120%) _48,000
Bonus to RR P 9,600

Distribution of Net Income:

JJ RR Total
Bonus – P 9,600 P 9,600
Balance, equally P 24,000 24,000 48,000
Net profit before extraordinary gain P 24,000 P 33,600 P 57,600

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Extraordinary gain __4,800 __7,200 _12,000

Total P 28,800 P 40,800 P 69,600
2-18: a
Mel Jay Total
Interest P 20,000 P 12,000 P 32,000
Annual Salary 36,000 – 36,000
Remainder 60:40 __60,000 _40,000 _100,000
Total P116,000 P 52,000 P168,000

2-19: a
DV JE FR Total
Interest on excess (Deficiency) P 15,000 P 3,750 (P 7,500)
P 11,250
Remainder 5:3:2 ( 36,875) ( 22,125) ( 14,750)
( 73,750)
Total (P 21,875) (P 18,375) (P 22,250)
2,500)

2-20: c
Correction of 1998 profit:
Net income per books P 19,500
Understatement of depreciation ( 2,100)
Overstatement of inventory, December 31 ( 11,400)
Adjusted net income P 6,000

Pete Rico Total

Distribution of net income per book:
Equally P 9,750 P 9,750
500
Distribution of adjusted net income
Equally ( 3,000) ( 3,000)
000)
Required Decrease P 6,750 P 6,750
P 13,500

2-21: a
Tiger Woods Total
Salaries P 64,000 P100,000
P164,000
Interest 24,000 30,000
54,000
Bonus (P360,000-P54,000)X.25 76,500 –
76,500
Remainder, 30:70 __19,650 __45,850
__65,500
Total P184,150 P175,850
P360,000
24
Chapter 2

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2-22: a
Holly Field Total
Salaries P 20,000 – P 20,000
Commission – P 25,000 25,000
Interest 32,000 33,600 65,600
Bonus, schedule 1 30,000 – 30,000
Remainder, 60:40 __35,640 _23,760 __59,400
Total P117,640 P 82,360 P200,000

Schedule 1
Net income before salary, commission,
interest and bonus P200,000
Less: salaries __20,000
Net income before bonus P180,000
Net income after bonus (P180,000/120%) _150,000
Bonus P 30,000
2-23: a
Mike Tyson
Capital balance, beginning P600,000 P400,000
P1,000,000
Additional investment 100,000 200,000
300,000
Capital withdrawal -200,000 ( 100,000)
300,000
Capital balance before profit and loss distribution P500,000 P500,000
P1,000,000

Net income:
Salary P200,000 P300,000
0,000
Balance, 3:2 __60,000 __40,000
__100,000
Total P260,000 P340,000
0,000
Total P760,000 P840,000
P1,600,000
Drawings ( 200,000) ( 300,000)
00,000)
Capital balance, end P560,000 P540,000
P1,100,000

Average Capital - King:

Capital Months Peso
Date Balance Unchanged Months
January 1 P40,000 3 P120,000
April 1 55,000 9 _495,000
12 P615,000

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Average capital – P615,000/12 = P51,250

Average Capital - Queen:

Capital Months Peso
Date Balance Unchanged Months
January 1 P100,000 7 P700,000
April 1 130,000 5 __650,000
12 P1,350,000
Average capital - P1,350,000 / 12 =P112,500
Partnership Operations 25

2-24: d
Distribution of Net Income - Schedule 1

King Queen Total

Interest P 5,125 P11,250 P16,375
Bonus, Schedule 2 12,725 – 12,725
Salaries 25,000 30,000 55,000
Residual, 50:50 ( 2,050) _(2,050) _(4,100)
Total P40,800 P39,200 P80,000

Schedule 2

Net income before allocation P80,000

Less: Interest _16,375
Net income before bonus P63,625
Net income after bonus (P63,625/125%) _50,900
Bonus P12,725

Capital Balance December 31:

King Queen Total
Capital balance, January 1 P40,000 P100,000 P140,000
Additional investment _15,000 __30,000 __45,000
Capital balance before profit and
loss distribution P55,000 P130,000 P185,000
Net income (Schedule 2) 40,800 39,000 80,000
Drawings (P400 X 52) ( 20,800) ( 20,800) ( 41,600)
Capital balance, December 31 P75,000 P148,400 P223,400

2-25: d
Total receipts (P1,500,000 + P1,625,000) P3,125,000
Expenses ( 1,080,000)
Net income P2,045,000

Distribution to Partners
Red – P1,500,000/P3,125,000 X P2,045,000 = P 981,600 (1)
Blue – P1,625,000/P3,125,000 X P2,045,000 = _1,063,400
P2,045,000

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Capital balance of Blue Dec. 31

Capital Balance, Jan. 1 P 374,000
Additional investment ___22,000
Capital balance before profit and
loss distribution P 396,000
Profit share 1,063,400
Drawings ( 750,000)
Capital balance, Dec. 31 P 709,400 (2)

26
Chapter 2

2-26: a
Ray Sam
Capital balances, March 1 P150,000 P180,000
P330,000
Additional investment, Nov. 1 _______ __60,000
__60,000
Capital balances before salaries, profit and Drawings 150,000 240,000
390,000
Profit share:
Interest 15,000 20,000
35,000
Balance, 60:40 51,000 34,000
85,000
Total 66,000 54,000
120,000
Total 216,000 294,000
510,000
Salaries _18,000 _24,000
_42,000
Total 234,000 318,000
552,000
Drawings (18,000) (24,000)
(42,000)
Capital balances, Feb. 28 P216,000 P294,000
P510,000

2-27: a
Susan Tanny
Capital balances, 1/1 P150,000 P30,000
P180,000
Additional investment, 4/1 8,000
8,000
Capital withdrawals, 7/1 _______ (6,000)

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_(6,000)
Balances before profit distribution 158,000 24,000
182,000
Profit distribution:
Interest 23,400 4,050
27,450
Bonus (20% x P30,000) 6,000
6,000
Balance, equally (1,725) (1,725)
(3,450)
Total 21,675 _8,325
30,000
Total 179,675 32,325
212,000
Drawings (12,000) (12,000)
(24,000)
Capital balances, 12/31 P167,675 P20,325
P188,000

Partnership Operations 27

2-28: a
Sin Tan Uy
Capital balances, beg. 1st year P110,000 P80,000 P110,000
P300,000
Loss distribution, 1st year:
Salaries 20,000 10,000
30,000
Interest 11,000 8,000 11,000
30,000
Balance, 5:3:2 (40,000) (16,000) (24,000)
(80,000)
Total ( 9,000) ( 8,000) ( 3,000)
(20,000)
Total 101,000 72,000 107,000
280,000
Drawings (10,000) (10,000) (10,000)
(30,000)

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Capital balances, beg. 2nd year 91,000 62,000 97,000

250,000
Profit distribution, 2nd year:
Salaries 20,000 10,000
30,000
Interest 9,100 6,200 9,700
25,000
Balance, 5:3:2 ( 7,500) ( 4,500) ( 3,000)
(15,000)
Total 21,600 _1,700 16,700
40,000
Total 112,600 63,700 113,700
290,000
Drawings _(10,000) (10,000) _(10,000)
_(30,000)
Capital balances, end of 2nd year P102,600 P53,700 P103,700
P260,000

2-29: c
Jay Kay Loi
Capital balances, 1/1/06 P30,000 P30,000 P30,000
P90,000
Additional investment, 2006 5,000
Capital withdrawal, 2006 _(5,000) _(4,000) ______
_(9,000)
Capital balances 25,000 26,000 35,000
86,000
Profit distribution, 2006:
Interest 3,000 3,000 3,000
Salary 7,000
Balance, equally _1,000 _1,000 _1,000
__3,000
Capital balances, 1/1/07 36,000 30,000 39,000
105,000
Additional investment, 2007 5,000
Capital withdrawal, 2002 ______ _(3,000) _(8,000)
(11,000)
Capital balances 41,000 27,000 31,000
99,000
Profit distribution, 2007:
Interest 3,600 3,000 3,900
10,500
Salary 7,000
Balance, equally _1,500 _1,500 _1,500
__4,500
Capital balances, 1/1/08 53,100 31,500 36,400
121,000
Additional investment, 2008 6,000
Capital withdrawal, 2008 ______ _(4,000) _(2,000)
_(6,000)
Capital balances 53,100 27,500 40,400
121,000
Profit distribution, 2008:
Interest 5,310 3,150 3,640

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12,100
Salary 7,000
Balance, equally __3,300 __3,300 __3,300
___9,900
Capital balances, 12/31/08 per books P68,710 P33,950 P47,340
P150,000
Understatement of depreciation (2,000) (2,000) (2,000)
(6,000)
Adjusted capital balances, 12/31/08 P66,710 P31,950 P45,340
P144,000

28
Chapter 2

2-30: a

Ken Len Mon

Capital balances, 1/1/07 P100,000 P100,000 P100,000

P300,000
Additional investment, 2007 40,000
40,000
Capital withdrawal, 2007 ( 20,000) _______ _______
( 20,000)
Balances 80,000 140,000 100,000
320,000
Profit distribution, 2007 (Schedule 1)
Salary 60,000
60,000
Balance, beg. Capital ratio 20,000 20,000 20,000
60,000
Capital balances, 1/1/08 100,000 160,000 180,000
440,000
Capital withdrawal, 2008 ( 20,000) ( 40,000) _______
( 60,000)
Balances 80,000 120,000 180,000
380,000
Profit distribution, 2008:
Salary 60,000
60,000
Balance, beg. capital ratio __13,636 __21,818 __24,546
__60,000
Capital balances, 12/31/08 P 93,636 P141,818 P264,546
P500,000

Schedule 1 – Computation of net profit:

Total capital, 2008 (P647,500 – P147,500) P500,000
Total capital, 2007 (P300,000 + P40,000 – P80,000) _260,000

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Total profit for 2 years P240,000

Net profit per year (P240,000 / 2) P120,000

2-31: d
_Nardo_ __Orly __Pedro_ _Total_
Capital balance, 1/1/08 P280,000 P300,000 P170,000 P750,000
Additional investment 96,000 60,000 - 156,000
Withdrawals ( 90,000 ) ( 72,000 ) (162,000)
Cap. bal. before P/L dist. 376,000 270,000 98,000 744,000
NP: Salary (16,500 x 12) - 198,000 - 198,000
Interest on EC (15%) 42,000 45,000 25,500 112,500
Balance 25:30:45 ( 19,875 ) ( 23,850 ) ( 35,775 ) (79,500 )
Total 22,125 219,150 ( 10,275 ) 231,000
Capital balance 12/31/08 P398,125 P 489,150 P 87,72 P975,000

2-32: d
Sam capital, beginning P120,000
Additional investment (Land) 60,000
Drawings ( 80,000 )
Capital balance before net profit (loss) 100,000
Capital balance, end 150,000
Profit share (40%) 50,000
Net profit (P50,000 ÷ 40%) P125,000
Partnership Operations 29

2-33: a
__Joe__ __Tom__ __Total__
Capital balance, 1/2/07 P 80,000 P 40,000 P120,000
Net loss- 2007:
Annual salary 96,000 48,000 144,000
10% interest on beg. capital 8,000 4,000 12,000
Bal. beg. cap. ratio: 8:4 ( 108,000) ( 54,000) ( 162,000)
Total ( 4,000) ( 2,000) ( 6,000)
Capital balance 76,000 38,000 114,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/07 72,000 34,000 106,000
Net profit- 2008:
Annual salary 96,000 48,000 144,000
10% interest on BC 7,200 3,400 10,600
Bonus to Joe–NPBB – P 22000
NPAB (22000/110%)20000 2,000 2,000
Balance equally ( 67,300) ( 67,300) ( 134,600)
Total 37,900 ( 15,900) 22,000
Total 109,900 18,100 128,000
Drawings ( 4,000) ( 4,000) ( 8,000)

Capital balance, 12/31/08 105,900 14,100 120,000

2-34: a
Decrease in capital P 60,000

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Drawings ( 130,000)
Contribution 25,000
Profit share 45,000
Net income (45,000 ÷ 30) P150,000

30 Chapter 2

SOLUTIONS TO PROBLEMS

Problem 2 – 1

1. Castro : (P26,000/P42,500) x P23,800 = P14,560

Diaz : (P16,500/P42,500) x P23,800 = __9,240
P23,800

2. Castro : (P31,250/P50,000) x P23,800 = P14,875

Diaz : (P18,750/P50,000) x P23,800 = __8,925
P23,800

Computation of Average Capitals:

Castro: Capital Months Peso
Date Balances Unchanged Months
1/1..................................... P26,000 3 P 78,000
4/10................................... 29,000 1 29,000
5/1..................................... 36,000 3 108,000
8/1..................................... 32,000 5 _160,000
12 P375,000

Average capital = P375,000  12 months = P31,250

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Diaz: Capital Months Peso

Date Balances Unchanged Months
1/1..................................... P16,500 5 P 82,500
6/1..................................... 21,500 3 64,500
9/1..................................... 19,500 4 __78,000
12 P225,000

Average capital = P225,000 – 12 months = P18,750

3. Castro Diaz Total

Interest........................................................ P 7,500 P4,500 P12,000
Salaries........................................................ 36,000 24,000 60,000
Balance, equally.......................................... ( 24,100) (24,100) ( 48,200)
Total............................................................ P19,400 P 4,400 P23,800

4. Castro Diaz Total

Bonus (a).................................................... P 4,760 P – P 4,760
Interest (b)................................................... 1,100 – 1,100
Balance, 3:2................................................ _10,764 _7,176 _17,940
Total............................................................ P16,624 P7,176 P23,800

Partnership Operations 31

Computations:
a. Net profit before bonus................................................ P23,800
Net profit after bonus (P23,800  125%).................... _19,040
Bonus........................................................................... P 4,760

b. Average capital of Castro [(P26,000 + P32,000)  2]........................... P29,000

Average of Diaz [(P16,500 + P18,500)  2]......................................... _18,000
Castro's excess....................................................................................... P11,000
Multiply by............................................................................................ ___10%
Interest................................................................................................... P 1,100

5. Castro : (P3,000/P5,000) x P23,800 = P14,280

Diaz : (P2,000/P5,000) x P23,800 = __9,520
P23,800

Problem 2 – 2

a. Average Capital:
Robin: Date Balances Months Peso
Unchanged Months
Jan. 1 P135,000 2 P270,000
Feb. 28 95,000 2 190,000

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Apr. 30 175,000 5 875,000

Sept. 30 195,000 3 __585,000
12 P1,920,000

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

Hood: Date Balances Months Peso

Unchanged Months
Jan. 1 P140,000 3 P420,000
Mar. 31 200,000 3 600,000
June 30 150,000 2 300,000
Aug. 31 220,000 2 440,000
Oct. 31 200,000 2 __400,000
12 P2,160,000

Ave. Capital (P2,160,000  12) = P180,000

Profit Distribution:
Robin : P160,000  P340,000 x P510,000 = P240,000
Hood : P180,000  P340,000 x P510,000 = _270,000
P510,000

32 Chapter 2

b. Robin Hood Total

Interest on ave. capital......................................... P 14,400 P 16,200 P 30,600
Salaries................................................................ 60,000 100,000 160,000
Bonus (P510,000 – 30,600 – 160,000) x 25%).... 78,850 – 79,850
Balance, equally.................................................. _119,775 _119,775 _239,550
Totals................................................................... P274,025 P235,975 P510,000

c. Robin Hood Totals

Interest:
Robin (P195,000 – P135,000) 10%............. P 6,000
Hood (P200,000 – P140,000) 10%.............. P 6,000 P 12,000
Balance, equally.................................................. 249,000 249,000 498,000
Totals................................................................... 255,000 255,000 510,000

d. Robin Hood Total

Salaries................................................................ P 80,000 P120,000 P200,000
Bonus (see computations below)......................... 62,000 62,000
Balance, equally.................................................. _124,000 _124,000 _248,000
Totals................................................................... P266,000 P244,000 P510,000
Bonus Computations:
Net income before salaries and bonus..................................................... P510,000
Less Salaries........................................................................................... 200,000
Net income before bonus........................................................................ 310,000
Net income after bonus (P310,000  125%)........................................... _248,000

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Bonus...................................................................................................... P 62,000

Problem 2 – 3

a. De Villa De Vera Total

Salaries................................................................ P 30,000 – P 30,000
Commission (2% x P1,000,000).......................... P 20,000 20,000
Interest of 8% on average capital......................... 32,800 31,200 64,000
Bonus (see computations below)......................... 9,818 9,818 19,636
Balance, equally.................................................. __44,182 __44,182 __88,364
Total .................................................................... P116,800 P105,200 P222,000
Bonus Computations:
Income before salary, commissions, interest & bonus............................. P222,000
Salary and commission (P30,000 + P20,000).......................................... ( 50,000)
Interest.................................................................................................... ( 64,000)
Income before bonus............................................................................... 108,000
Income after bonus (P108,000  110%)................................................. _98,182
Bonus...................................................................................................... P 9,818

b. Income Summary................................................. P 222,000

De Villa, capital........................................... 116,800
De Vera, capital........................................... 105,200
Partnership Operations 33

Problem 2 – 4

a. East North West Total

Salaries............................................... P15,000 P20,000 P18,000 P53,000
Bonus (see computation below).......... 3,760 3,760
Interest (see computation below)........ 2,800 4,000 4,800 11,600
Balance, 3:3:4..................................... __3,180 __3,180 __4,240 _10,600
Total ................................................... P24,740 P27,180 P27,040 P78,960

Bonus computations:
Net income before bonus.......................................................................... P78,960
Net income after bonus (P78,960  105%)............................................... _75,200
Bonus........................................................................................................ P 3,760
Interest computations:
East (10% x P28,000)............................................................................... P 2,800
North (10% x P40,000)............................................................................. 4,000
West (10% x P48,000).............................................................................. __4,800
Total.......................................................................................................... P11,600

b. East North West Total

Interest (see computations below)...... P 3,133 P 3,633 P 5,200 P11,966
Salaries............................................... 24,000 21,000 25,000 70,000
Bonus (see computations below)........ 4,280 4,280
Balance, equally................................. ( 6,056) ( 6,055) ( 6,055) ( 18,166)

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Total ................................................... P 21,077 P 22,858 P 24,145 P 68,080

Interest computations:
Average capitals:
East: Months Pesos
Date Balances Unchanged Months
1/1 P30,000 4 P120,000
5/1 36,000 4 144,000
9/1 28,000 4 _112,000
12 P376,000

Average capital (P376,000  12) ......................................... P 31,333

North: Months Pesos

Date Balances Unchanged Months
1/1 P40,000 2 P80,000
3/1 31,000 4 124,000
7/1 36,000 2 72,000
9/1 40,000 4 _160,000
12 P436,000

Average capital (P436,000  12).......................................... P 36,333

34 Chapter 2

West: Months Pesos

Date Balances Unchanged Months
1/1 P50,000 3 P150,000
4/1 57,000 2 114,000
6/1 60,000 2 120,000
8/1 48,000 5 _240,000
12 P624,000

Ave. capital (P624,000  12)................................... P 52,000

Interest Computations:
East (10% x P31,333)........................................................... P 3,133
North (10% x P36,333)......................................................... 3,633
West (10% x P52,000).......................................................... __5,200
Total..................................................................................... P 11,966

Bonus Computations:
Net income........................................................................... P 68,000
Less Salary........................................................................... _21,000
Net income before bonus...................................................... 47,080
Net income after bonus (P47,080  110%).......................... _42,800
Bonus to North..................................................................... P 4,280
* To Total

c. East North West Total

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Bonus (see comp. below).................... P 8,990 P 8,990

Salaries .......................................... P21,000 P 18,000 – 39,000
Interest on beginning capital............... 3,000 4,000 5,000 12,000
Remainder, 8:7:5................................ _13,180 _11,532.50 __8,237.50 _32,950
Total .................................................. P37,180 P33,532.50 P22,227.50 P92,940

Bonus Computations:
Net income before salaries & bonus.......................................................... P92,940
Less Salaries (P21,000 + P18,000)............................................................ _39,000
Net income before bonus.......................................................................... P53,940
Net income after bonus (P53,940  120%)............................................... _44,950
Bonus to West........................................................................................... P 8,990

Problem 2 – 5

a. Schedule of Income Distribution:

Maria Clara Rita Total
Salaries.............................................. P12,000 P10,000 P 8,000 P30,000
Interest (see computation on p. 30)..... 7,200 9,600 13,800 30,600
Balance, equally................................. __3,133 __3,133 __3,134 __9,410
Total .................................................. P22,333 P22,733 P24,934 P70,000
Partnership Operations 35

Interest on Average Capital:

Maria:
P80,000 x 8% x 6 months....................... P 3,200
P100,000 x 5% x 6 months..................... __4,000 P 7,200
Clara:
P120,000 x 8%....................................... 9,600
Rita:
P180,000 x 8% x 9 Mos.. . ...................... P10,800
P150,000 x 8% x 3 Mos.. . ...................... __3,000 _13,800
Total ............................................................... P30,600

b. Statement of Partners Capital:

Maria Clara Rita Total
Balances, Jan. 1.................................. P 80,000 P120,000 P180,000 P380,000
Additional Investment........................ 20,000 – – 20,000
Capital Withdrawal............................. – – ( 30,000) ( 30,000)
Net Income......................................... 22,333 22,733 24,934 70,000
Drawings .......................................... ( 10,000) ( 10,000) ( 10,000) ( 30,000)
Balance, Dec. 31................................. P112,333 P132,733 P164,934 P410,000

Problem 2 – 6

1. Allocation of net loss for 2008:

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Alvin Benny Celia Total

Salary to Alvin.................................... P 20,000 P20,000
Interests on average capital:
Alvin (P120,000 x 10%)............ 12,000
Benny (P200,000 x 10%)........... 20,000
Celia (P220,000 x 10%)............. 22,000 54,000
Balance, 30:30:40............................... (29,400) _(29,400) _(39,200) _(98,000)
Total .................................................. P 2,600 P( 9,400) P(17,200) P(24,000)

2. Statement of Partnership Capital

Year Ended December 31, 2008
Alvin Benny Celia Total
Capitals, January 1, 2008.................... P120,000 P180,000 P220,000 P520,000
Additional investments....................... 60,000 40,000 100,000
Capital withdrawals............................ _______ ________ _(20,000) _(20,000)
Balances. ........................................... 120,000 240,000 240,000 600,000
Net loss (see above)............................ __2,600 __(9,400) _(17,200) _(24,000)
Balances. ........................................... 122,600 230,600 222,800 576,000
Drawings. .......................................... _(16,000) _______ _______ _(16,000)
Capitals, December 31, 2008.............. P106,600 P230,600 P222,800 P560,000
36 Chapter 2

3. 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

Dino Nelson Oscar Total

Capital balances, 1/2/06.............................. P45,000 P45,000 P45,000 P135,000
Additional investment, 2006....................... _15,000 _15,000 __6,000 __36,000
Balances. .................................................... 60,000 60,000 51,000 171,000
Net income (Loss) - 2006, equally.............. (1,800) ( 1,800) ( 1,800) ( 5,400)
Withdrawals, 2006...................................... (17,000) ( 7,000) ( 3,200) ( 27,200)
Capital balances, 12/31/06.......................... 41,200 51,200 46,000 138,400
Additional investment, 2007....................... _____– _____– __6,000 ___6,000
Balances. .................................................... 41,200 51,200 52,000 144,400
Net income - 2007, 40: 30: 30..................... 10,800 8,100 8,100 27,000
Withdrawals, 2007...................................... (17,000) ( 7,000) ( 3,200) ( 27,200)
Capital Balances, 12/31/07.......................... 35,000 52,300 56,900 144,200

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Additional investment, 2008....................... ______– ______– ___6,000 ___6,000

Balances. .................................................... 35,000 52,300 62,900 150,200
Net income, 2008 (schedule 1).................... 56,365 42,272 20,363 120,000
Withdrawals, 2008...................................... (19,000) ( 9,000) ( 3,200) ( 31,200)
Capital balances, 12/31/08.......................... P72,365 P86,572 P80,063 P239,000

Schedule 1:
Dino Nelson Oscar Total
Annual salaries................................... P48,000 P24,000 P12,000 P84,000
Bonus (see computations below)........ – 10,909 – 10,909
Interest................................................ 3,600 3,600 3,600 10,800
Balance, equally................................. _* 4,765 __4,763 __4,763 __14,291
Totals.................................................. P56,365 P43,272 P20,363 P120,000

Bonus computations:
Net income before bonus...................................................................... P120,000
Net income after bonus (P120,000  110%)......................................... _109,091
Bonus to Nelson.................................................................................... P 10,909

* To Total
Partnership Operations 37
Problem 2 – 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008

Red White Blue Green Total

Balances, beginning of year 40,200 20,200 40,600 P101,000
Add: 20% of fees billed to personal clients 8,800 4,800 4,400 18,000
Green's share of fees (Exhibit A) 3,200 3,200
Remaining net income (Exhibit A) _22,800 _22,800 _11,400 ______ _57,000
Subtotals _71,800 _47,800 _56,400 __3,200 179,200
Less: Withdrawals 10,400 8,800 11,600 5,000 35,800
Uncollectible accounts identified
with clients of each partner 2,400 900 3,300
Excess rent charged to Blue 1,800 1,800
Total deductions P12,800 P 9,700 P13,400 P 5,000 P 40,900
Balances, end of year P59,000 P38,100 P43,000 P (1,800) P138,300

Red, White & Blue Partnership

Exhibit A – Computation and Division of Net income
For Year Ended December 31, 2008

Total revenue from fees P120,000

Expenses, excluding depreciation and doubtful
accounts expense P38,700
Less: Excess rent charged to N ($300 x 6) __1,800
Subtotal 36,900
Add: Depreciation, computed as follows:
$26,000 x 0.10 2,600
$10,000 x 0.10 x 1/2 ____500

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Total expenses, excluding doubtful accounts expense P40,000

Add: Doubtful accounts expense ($3,000 x 0.60) __1,800
Total expenses 41,800 ________
Net income for year ended Dec. 31, Year 1 P 78,200

Division of net income:

Fees billed to personal clients:
Red P44,000 x 20% P 8,800
White P24,000 x 2% 48,000
Blue, P22,000 x 20% 4,400 P18,000
Green's share of fees:
Gross fees from new clients after April 1, Year 1 24,000
Less: Allocated expenses ($40,000 x $24,000/
$120,000) __8,000
Net income from new clients P16,000
Green's share (P16,000 x 20%) P 3,200
Total divided pursuant to special agreement __21,200
Balance, divided in income-sharing ratio as follows: P 57,000
To Red, 40% P22,800
To White, 40% 22,800
To Blue, 20% _11,400
Total P57,000
38 Chapter 2

Problem 2 – 9

Allan, Eman and Gino Partnership

Statement of Profit Distribution
Year Ended December 31, 2008

Allan Eman Gino Total

Interest P 4,000 P 750 P 250 P 5,000
Commission (P16,120 – P5,000) x 10% – 1,112 1,112 2,224
Balance, equally __5,926 _5,925 _5,925 _17,776
Total P 9,926 P7,787 P7,287 P25,000
Adjustments (50% of P25,000 to Allan) __2,574 (1,287) (1,287) _____
Total P12,500 P6,500 P6,000 P25,000

Problem 2 – 10

Gary, Sonny, and Letty Partnership

Statement of Partners' Capital Accounts
Year Ended December 31, 2008

Gary Sonny Letty Total

Capital balances, 1/1/08 P210,000 P180,000 P 90,000 P480,000
Additional investments ___9,100 _______ _______ __9,100

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Total _219,100 _180,000 _90,000 489,100

Profit distribution:
Salaries 13,680 11,520 10,640 35,840
Interest 25,920 21,600 10,800 58,320
Bonus to Gary and Sonny (Schedule 1) – –
Balance, equally __(9,720) _(9,720) _(9,720)(29,160)
Total __29,880 _23,400 _11,720 _65,000
Total 248,980 203,400 101,720 554,100
Drawings _(21,000) (18,000) __(9,000)
_(48,000)
Capital balances, 12/31/08 P227,980 P185,400 P 92,720 P506,100

Schedule 1: Computation of the bonus.

Net profit before interest, salaries and bonus P 65,000

Less:Salaries P35,840
Interest _58,320 __94,160
Net profit (loss) before bonus P(29,160)

Therefore no bonus is to be given to Gary and Sonny.

Partnership Operations 39
Problem 2 – 11

a. Entries to record the formation of the partnership and the events that occurred during 2008:

Cash 1,100,000
Inventory 800,000
Land 1,300,000
Equipment 1,000,000
Mortgage payable 500,000

Installment note payable 200,000

Kobe, capital (P600,000 + P800,000
+ P1,000,000 – P200,000) 2,200,000
Lebron, capital (P500,000 + P1,300,000
- P500,000) 1,300,000

(1) Inventory 300,000

Cash 240,000
Accounts payable 60,000

(2) Mortgage payable 50,000

Interest expense 20,000
Cash 70,000

(3) Installment note payable 35,000

Interest expense 20,000
Cash 55,000

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(4) Accounts receivable 210,000

Cash 1,340,000
Sales 1,550,000

(5) Selling and general expenses 340,000

Cash 278,000
Accrued expenses payable 62,000

(6) Depreciation expense 60,000

Accumulated depreciation 60,000

(7) Kobe, drawing 104,000

Lebron, drawing 104,000
Cash 208,000

(8) Sales 1,550,000

Income summary 1,550,000

(9) Cost of goods sold 900,000

Inventory 900,000
P900,000 = P800,000 beginning inventory
+ 300,000 purchases
- 200,000 ending inventory

40 Chapter 2

Income summary 1,340,000

Cost of good sold 900,000
Selling and general expenses 340,000
Depreciation expense 60,000
Interest expense 40,000

Income summary 210,000

Kobe, capital 105,000
Lebron, capital 105,000

Kobe, capital 104,000

Lebron, capital 104,000
Kobe, drawing 104,000
Lebron, drawing 104,000

Schedule to allocate partnership net income for 2008:

Kobe Lebron Total

Profit percentage 60% 40% 100%
Beginning capital balance P2,200,000 P1,300,000
P3,500,000
Net income (P1,550,000 revenue
- P 1,340,000 expenses) 210,000
Interest on beginning capital
balances (3%) 66,000 39,000

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(105,000)
P105,000
Salaries 120,000 120,000
(240,000)

P(135,000)
Residual deficit (81,000) (54,000)
(135,000)
Total P105,000 P105,000 -0-

b. Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008

Sales
P1,550,000
Less: Cost of goods sold:
Inventory, January 1 P800,000
Purchases 300,000
Goods available for sale P1,100,000
Less: Inventory, December 31 (200,000)
(900,000)
Gross profit P650,000
Less: Selling and general expenses 340,000
Depreciation expenses 60,000 400,000
Operating income P250,000
Nonoperating expense- interest (40,000)
Net income P210,000

Partnership Operations 41

c. Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008

Assets
Cash P1,589,000
Accounts receivable 210,000
Inventory 200,000
Land 1,300,000
Equipment (net) 940,000
Total assets P4,239,000

Liabilities and Capital

Liabilities:
Accounts payable P60,000
Accrued expenses payable 62,000
Installment note payable 165,000
Mortgage payable 450,000
Total liabilities P737,000

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Capital:
Kobe, capital P2,201,000
Lebron, capital 1,301,000
Total capital 3,502,000
Total liabilities and capital P4239,000

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