Chapter 2

20
Chapter 2
CHAPTER 2
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
2-1: d
Jordan
Pippen
P120,000
P80,000
( 10,000)
( 10,000)
P110,000
P 70,000
JJ
KK
LL
P18,000
P15,000
P 30,000
)
)
P45,000)
( 6,000)
( 6,000)
( 6,000)
P27,000
P 24,000
P39,000
Allan
Michael
Total
Annual salary
P200,000
Balance, equally
( 20,000)
Total
P180,000
2-2: a
Total
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
2-3: a
2-4: a
Total
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 P 28
,000
2-5: a
Total
Interest (.10 of average capital)
P 22,000
with compliments from http://everything.freelahat.com
Fred
Greg
Henry
P12,000
P 6,000
P 4,000
Salaries
50,000
Balance, equally
(105,000)
Total
30,000
20,000
( 35,000)
( 35,000)
P 7,000
( P29,000)
( 35,000)
(P11,000) (P 3
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%)
Partnership Operations
21
2-7: 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) =
Peso
Months
P 48,000
35,200
57,600
__60,800
P201,600
P16,800
2-8: 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
2-9: a
Interest
Salaries
Balance, 3:2
Total
LT
P3,200
15,000
(11,580)
P 6,620
AM
P 3,600
7,500
( 7,720)
P 3,380
Total
P 6,800
22,500
( 19,300)
P 10,000
2-10: b
Net income after salary, interest and bonus
Add back: Salary (P10,000 X 12)
P467,500
P120,000
Interest (P250,000 X .05)

__12,500
Net income after bonus (80%)
Net income before bonus (P600,000/80%)
Paul's bonus
_132,500
P600,000
_750,000
P150,000
2-11: b
CC
DD
EE Total
P 14,000 P 14,
P14,000
P 8,400
Salary
000
Balance
28,000
Additional profit to DD
______
Total
5,600
( 1,500)
__2,100
P12,500
P10,500
P 19,000 P 42
Net income
Fees Earned
Expenses
Net Income
P90,000
_48,000
P42,000
LL
P 2,000
MM
P 1,250
NN Total
P 750 P 4,
8,500
9,500
5,700
3,800
_____
__7,050
_____
P20,000
P14,000
P 4,550 P 38,
RR
SS
P15,000
(P10,000)
_47,500
_35,625
_11,875
P62,500
P25,625
P11,875
600)
,000
22
Chapter 2
2-12: c
Interest
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
TT
Total
)
)
Net Income
(200,000 - 100,000) =
2-14: b
AA - 100,000 X 10%
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
P100,000
AA
P 10,000
30,000
BB
CC
Total
)
)
P 3,000
)
P 3,000
__68,000
_68,000
_68,000
P108,000
P71,000
P71,000
2-15: a
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
BJ
CJ
Total
P4,000
P1,000
12,000
_6,800
__3,400
P7,800
P19,400
2-16: c
Total profit share of Pedro
Less: Salary to Pedro
Interest
Share in the balance (40%)
P 50,000
__20,000
P200,000
Net profit after salary and interest (130,000/40%)

Add: Total Salaries
Total Interest
Total Partnership Income
P150,000
__70,000
__70,000
P130,000
P325,000
_220,000
P545,000
23
2-17: 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
RR
Total
Bonus
Balance, equally
Net profit before extraordinary gain
Extraordinary gain
Total
P 24,000
P 24,000
__4,800
P 28,800
P 9,600
24,000
P 33,600
__7,200
P 40,800
P 9,600
48,000
P 57,600
_12,000
P 69,600
Interest
Annual Salary
Remainder 60:40
Total
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)
2-18: a
2-19: a
Interest on excess (Deficiency)
P 11,250
Remainder 5:3:2
( 73,750)
Total
(P 21,875)
(P 18,375) (P 22,250) (P 6
2,500)
2-20: c
Correction of 1998 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 P 19,
Distribution of adjusted net income

Equally
( 3,000)
( 3,000)( 6,
P 6,750
P 6,750
500
000)
Required Decrease
P 13,500
2-21: a
Salaries
P164,000
Interest
54,000
Bonus (P360,000-P54,000)X.25
76,500
Remainder, 30:70
__65,500
Tiger
P 64,000
Woods Total
P100,000
24,000
30,000
76,500
__19,650
__45,850
Total
P360,000
P184,150
P175,850
Field
P 25,000
33,600
_23,760
P 82,360
Total
P 20,000
25,000
65,600
30,000
__59,400
P200,000
24
Chapter 2
2-22: a
Holly
P 20,000
32,000
30,000
__35,640
P117,640
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
P200,000
__20,000
P180,000
_150,000
P 30,000
2-23: a
Total
Capital balance, beginning
P1,000,000
Additional investment
300,000
Capital withdrawal
Mike
Tyson
P600,000
P400,000
100,000
200,000
-200,000
( 100,000)
P500,000
P500,000
P200,000
P300,000 P 50
__60,000
__40,000
P260,000
P340,000 P 60
P760,000
P840,000
( 200,000)
( 300,000) ( 5
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
Average Capital - King:
Capital
Months
Peso
Date
January 1
April 1
Balance
P40,000
55,000
Unchanged
3
9
12
Months
P120,000
_495,000
P615,000
Months
Unchanged
7
5
12
Peso
Months
P700,000
__650,000
P1,350,000
Average capital P615,000/12 = P51,250

Average Capital - Queen:
Date
January 1
April 1
Capital
Balance
P100,000
130,000
Average capital - P1,350,000 / 12 =P112,500

25
2-24: d
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
Capital balance before profit and
loss distribution
Net income (Schedule 2)
Drawings (P400 X 52)
Capital balance, December 31
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
2-25: d
Total receipts (P1,500,000 + P1,625,000)
Expenses
Net income
P3,125,000
( 1,080,000)
P2,045,000
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
Capital balance before profit and
loss distribution
Profit share
Drawings
Capital balance, Dec. 31
P 981,600 (1)
_1,063,400
P2,045,000
P 374,000
___22,000
P 396,000
1,063,400
( 750,000)
P 709,400 (2)
26
Chapter 2
2-26: a
Ray
Sam
P150,000
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)
Total
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
P216,000
P294,000
Susan
Tanny
2-27: a
Total
Capital balances, 1/1
P180,000
Additional investment, 4/1
8,000
Capital withdrawals, 7/1
_(6,000)
P150,000
P30,000
8,000
Balances before profit distribution

182,000
Profit distribution:
Interest
27,450
Bonus (20% x P30,000)
6,000
Balance, equally
(3,450)
_______
(6,000)
158,000
24,000
23,400
4,050
6,000
Total
(1,725)
(1,725)
21,675
_8,325
179,675
32,325
(12,000)
(12,000)
30,000
Total
212,000
Drawings
(24,000)
Capital balances, 12/31
P167,675
P20,325
P188,000
27
2-28: a
Capital balances, beg. 1st year
P300,000
Loss distribution, 1st year:
Salaries
30,000
Interest
30,000
Balance, 5:3:2
Sin
P110,000
Tan
P80,000
20,000
Uy Total
P110,000
10,000
11,000
8,000
11,000
(40,000)
(16,000)
(24,000)
(80,000)
Total
(20,000)
Total
280,000
Drawings
(30,000)
Capital balances, beg. 2nd year
250,000
Profit distribution, 2nd year:
Salaries
30,000
Interest
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
( 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
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 Total
P30,000
_(5,000)
_(4,000)
5,000 5,000
______
25,000
26,000
3,000
7,000
_1,000
3,000
_1,000
3,000 9,000
7,000
_1,000
36,000
30,000
39,000
5,000
______
_(3,000)
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
2-29: c
Capital balances, 1/1/06
P90,000
Additional investment, 2006
Capital withdrawal, 2006
_(9,000)
Capital balances
86,000
Profit distribution, 2006:
Interest
Salary
Balance, equally
__3,000
105,000
(11,000)
Capital balances
99,000
Interest
10,500
Salary
Balance, equally
__4,500
35,000
5,000
_(8,000)
7,000
121,000
_(6,000)
Capital balances
121,000
Interest
12,100
Salary
Balance, equally
___9,900
Capital balances, 12/31/08 per books
P150,000
Understatement of depreciation
(6,000)
Adjusted capital balances, 12/31/08
P144,000
6,000 6,000
_(2,000)
______
_(4,000)
53,100
27,500
40,400
5,310
3,150
3,640
7,000
__3,300
__3,300
__3,300
P68,710
P33,950
P47,340
(2,000)
P66,710
7,000
(2,000)
P31,950
(2,000)
P45,340
28
Chapter 2
2-30: a
Ken
Len
Mon
Total
P300,000
40,000
( 20,000)
Balances
320,000
Profit distribution, 2007 (Schedule 1)
Salary
60,000
Balance, beg. Capital ratio
60,000
440,000
( 60,000)
Balances
380,000
Salary
60,000
Balance, beg. capital ratio
P100,000
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
__60,000
P500,000
P 93,636
P141,818
Schedule 1 Computation of net profit:

Total capital, 2008 (P647,500 P147,500)
Total capital, 2007 (P300,000 + P40,000 P80,000)
P264,546
P500,000
_260,000
Total profit for 2 years
P240,000
Net profit per year (P240,000 / 2)
P120,000
2-31: d
Capital balance, 1/1/08
Withdrawals
Cap. bal. before P/L dist.
NP: Salary (16,500 x 12)
Interest on EC (15%)
Balance 25:30:45
Total
Capital balance 12/31/08
_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
__Pedro_
P170,000
( 72,000 )
98,000
25,500
( 35,775 )
( 10,275 )
P 87,72
_Total_
P750,000
156,000
(162,000)
744,000
198,000
112,500
(79,500 )
231,000
P975,000
2-32: 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%)
P120,000
60,000
( 80,000 )
100,000
150,000
50,000
P125,000
29
2-33: a
__Joe__
P 80,000

Net loss- 2007:
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)
72,000
Net profit- 2008:
Annual salary
96,000
10% interest on BC
7,200
Bonus to JoeNPBB
P 22000
NPAB (22000/110%)20000 2,000
Balance equally
( 67,300)
__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)
2,000
( 134,600)
Total
Total
Drawings
37,900
109,900
(
4,000)
( 15,900)
18,100
(
4,000)
22,000
128,000
( 8,000)
14,100
120,000
105,900
2-34: a
Decrease in capital
Drawings
Contribution
Profit share
Net income (45,000 30)
P 60,000
( 130,000)
25,000
45,000
P150,000
30
Chapter 2
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
Months
Peso
Date
Balances
1/1..................................... P26,000
4/10...................................
29,000
5/1.....................................
36,000
8/1.....................................
32,000
Unchanged
3
1
3
5
12
Average capital = P375,000 12 months =

Diaz:
P31,250
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.
Peso
Months
P 82,500
64,500
__78,000
P225,000
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.
31
Computations:
a. Net profit before bonus................................................
Net profit after bonus (P23,800 125%)....................
Bonus...........................................................................
b.
5.
Months
P 78,000
29,000
108,000
_160,000
P375,000
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
Apr. 30
Sept. 30
Balances
Months
Unchanged
2
2
5
3
12
P135,000
95,000
175,000
195,000
Peso
Months
P270,000
190,000
875,000
__585,000
P1,920,000
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
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 (P2,160,000 12) = P180,000

Profit Distribution:
Robin : P160,000 P340,000 x P510,000
Hood : P180,000 P340,000 x P510,000
=
=
P510,000
P240,000
_270,000
32
Chapter 2
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.
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
249,000
255,000
P 6,000
249,000
255,000
P 12,000
498,000
510,000
Robin
Hood
Total
P 6,000
Salaries................................................................
P 80,000
P120,000
Bonus (see computations below).........................
62,000
Balance, equally..................................................
_124,000
_124,000
Totals...................................................................
P266,000
P244,000
Bonus Computations:
Net income before salaries and bonus.....................................................
Less Salaries...........................................................................................
Net income before bonus........................................................................
Net income after bonus (P310,000 125%)...........................................
Bonus......................................................................................................
P200,000
62,000
_248,000
P510,000
P510,000
200,000
310,000
_248,000
P 62,000
Problem 2 3
a.
De Villa
P 30,000
De Vera
P 20,000
31,200
9,818
__44,182
P105,200
Salaries................................................................
Commission (2% x P1,000,000)..........................
Interest of 8% on average capital.........................
32,800
Bonus (see computations below).........................
9,818
Balance, equally..................................................
__44,182
Total....................................................................
P116,800
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......................................................................................................
b.
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
33
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)...............................................................................
Total
P53,000
3,760
11,600
_10,600
P78,960
P78,960
_75,200
P 3,760
P 2,800
North (10% x P40,000).............................................................................

West (10% x P48,000)..............................................................................
Total..........................................................................................................
b.
Interest (see computations below)......
Salaries...............................................
Bonus (see computations below)........
Balance, equally.................................
Total...................................................
Interest computations:
Average capitals:
East:
Date
1/1
5/1
9/1
East
P 3,133
24,000
( 6,056)
P 21,077
Balances
P30,000
36,000
28,000
North
P 3,633
21,000
4,280
( 6,055)
P 22,858
West
P 5,200
25,000
( 6,055)
P 24,145
Months
Unchanged
4
4
4
12
4,000
__4,800
P11,600
Total
P11,966
70,000
4,280
( 18,166)
P 68,080
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
Balances
P40,000
31,000
36,000
40,000
Months
Unchanged
2
4
2
4
12
Average capital (P436,000 12).........................................

34
P 36,333
Chapter 2
West:
Date
1/1
4/1
6/1
8/1
Balances
P50,000
57,000
60,000
48,000
Months
Unchanged
3
2
2
5
12
Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000
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.
East
West
P 8,990
5,000
__8,237.50
P22,227.50
Total
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
Bonus (see comp. below)....................

Salaries ..........................................
Interest on beginning capital...............
Remainder, 8:7:5................................
Total..................................................
North
P 68,000
_21,000
47,080
_42,800
P 4,280
P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50
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
35
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.
Total
P30,000
30,600
__9,410
P70,000
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..................................
Maria
P 80,000
Clara
P120,000
Rita
P180,000
Total
P380,000
Additional Investment........................
Capital Withdrawal.............................
Net Income.........................................
Drawings ..........................................
Balance, Dec. 31.................................
20,000
22,333
( 10,000)
P112,333
22,733
( 10,000)
P132,733
( 30,000)
24,934
( 10,000)
P164,934
20,000
( 30,000)
70,000
( 30,000)
P410,000
Benny
Celia
Total
P20,000
Problem 2 6
1.
Allocation of net loss for 2008:

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
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, 2008
Capitals, January 1, 2008....................
Additional investments.......................
Capital withdrawals............................
Balances. ...........................................
Net loss (see above)............................
Balances. ...........................................
Drawings. ..........................................
Capitals, December 31, 2008..............
Alvin
P120,000
_______
120,000
__2,600
122,600
_(16,000)
P106,600
36
3.
Chapter 2
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..............................

Additional investment, 2006.......................
Balances. ....................................................
Net income (Loss) - 2006, equally..............
Withdrawals, 2006......................................
Capital balances, 12/31/06..........................
Balances. ....................................................
Net income - 2007, 40: 30: 30.....................
Withdrawals, 2007......................................
Capital Balances, 12/31/07..........................
Balances. ....................................................
Net income, 2008 (schedule 1)....................
Withdrawals, 2008......................................
Capital balances, 12/31/08..........................
P45,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____
41,200
10,800
(17,000)
35,000
______
35,000
56,365
(19,000)
P72,365
P45,000
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____
51,200
8,100
( 7,000)
52,300
______
52,300
42,272
( 9,000)
P86,572
P45,000
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063
P135,000
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000
Dino
Annual salaries................................... P48,000
Bonus (see computations below)........
Interest................................................
3,600
Balance, equally................................. _* 4,765
Totals.................................................. P56,365
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
Bonus computations:
Net income before bonus......................................................................
Net income after bonus (P120,000 110%).........................................
Bonus to Nelson....................................................................................
P120,000
_109,091
P 10,909
Schedule 1:
* To Total
37
Problem 2 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
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
3,300
1,800
P 5,000 P 40,900
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
Expenses, excluding depreciation and doubtful
accounts expense
Less: Excess rent charged to N ($300 x 6)
Subtotal
Add: Depreciation, computed as follows:
$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, Year 1
P120,000
P38,700
__1,800
36,900
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
38
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
Chapter 2
Problem 2 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Allan
Eman
Interest
Commission (P16,120 P5,000) x 10%
Balance, equally
P 4,000
__5,926
P 750
1,112
_5,925
P 250 P 5,000
1,112
2,224
_5,925 _17,776
Total
Adjustments (50% of P25,000 to Allan)
P 9,926
__2,574
P7,787
(1,287)
P7,287 P25,000
(1,287) _____
Total
P12,500
P6,500
P6,000 P25,000
Gino
Total
Problem 2 10
Gary, Sonny, and Letty Partnership
Statement of Partners' Capital Accounts
Gary
Sonny
Letty
Total

Additional investments
P210,000
___9,100
P180,000
_______
P 90,000P480,000
_______ __9,100
Total
Profit distribution:
Salaries
Interest
Bonus to Gary and Sonny (Schedule 1)
Balance, equally
_219,100
_180,000
_90,000 489,100
13,680
25,920
__(9,720)
11,520
21,600
_(9,720)
35,840
58,320
_(9,720)(29,160)
Total
__29,880
_23,400
_11,720 _65,000
Total
Drawings
_(48,000)
248,980
_(21,000)
203,400
101,720 554,100
(18,000) __(9,000)
P227,980
P185,400
10,640
10,800
P 92,720P506,100
Schedule 1: Computation of the bonus.

Net profit before interest, salaries and bonus
Less:Salaries
Interest
P 65,000
P35,840
_58,320
Net profit (loss) before bonus
__94,160
P(29,160)
Therefore no bonus is to be given to Gary and Sonny.

39
Problem 2 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash
Inventory
Land
Equipment
Mortgage payable
Installment note payable
Kobe, capital (P600,000 + P800,000
+ P1,000,000 P200,000)
Lebron, capital (P500,000 + P1,300,000
- P500,000)
1,100,000
800,000
1,300,000
1,000,000
500,000
200,000
2,200,000
1,300,000
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Inventory
Cash
Accounts payable
300,000
240,000
60,000
Mortgage payable
Interest expense
Cash
50,000
20,000

Interest expense
Cash
35,000
20,000
Accounts receivable
Cash
Sales
70,000
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 beginning inventory
+ 300,000 purchases
- 200,000 ending inventory
1,550,000
900,000
900,000
40
Chapter 2
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
104,000
104,000
105,000
105,000
Kobe, drawing
Lebron, drawing
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
- P 1,340,000 expenses)
Interest on beginning capital
balances (3%)
66,000
(105,000)
Lebron
40%
P1,300,000
Total
100%
210,000
39,000
P105,000
Salaries
(240,000)
P(135,000)
Residual deficit
(135,000)
Total
b.
120,000
120,000
(81,000)
(54,000)
P105,000
P105,000
Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008
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
c.
-0-
400,000
P250,000
(40,000)
P210,000
41
Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008
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
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

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20

with compliments from http://everything.freelahat.com

Average capital - P1,845,000/12

with compliments from http://everything.freelahat.com

Interest (P250,000 X .05)

with compliments from http://everything.freelahat.com

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

Distribution of Net Income:

with compliments from http://everything.freelahat.com

Distribution of net income per book:

Distribution of adjusted net income

with compliments from http://everything.freelahat.com

with compliments from http://everything.freelahat.com

Average capital P615,000/12 = P51,250

Average capital - P1,350,000 / 12 =P112,500

Capital Balance December 31:

with compliments from http://everything.freelahat.com

Capital balance of Blue Dec. 31

Capital balances, Feb. 28

with compliments from http://everything.freelahat.com

Balances before profit distribution

with compliments from http://everything.freelahat.com

with compliments from http://everything.freelahat.com

with compliments from http://everything.freelahat.com

Schedule 1 Computation of net profit:

Total profit for 2 years

Net profit per year (P240,000 / 2)

Capital balance, 1/2/07

with compliments from http://everything.freelahat.com

Capital balance, 12/31/08

Computation of Average Capitals:

with compliments from http://everything.freelahat.com

Average capital = P375,000 12 months =

Average capital = P225,000 12 months =

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

with compliments from http://everything.freelahat.com

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

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

with compliments from http://everything.freelahat.com

with compliments from http://everything.freelahat.com

North (10% x P40,000).............................................................................

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

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

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

with compliments from http://everything.freelahat.com

Bonus (see comp. below)....................

Schedule of Income Distribution:

Interest on Average Capital:

Statement of Partners Capital:

with compliments from http://everything.freelahat.com

Allocation of net loss for 2008:

Statement of Partnership Capital

with compliments from http://everything.freelahat.com

Capital balances, 1/2/06..............................

Balances, beginning of year

with compliments from http://everything.freelahat.com

Red, White & Blue Partnership

Division of net income:

with compliments from http://everything.freelahat.com

Capital balances, 1/1/08