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Problems

Problem I
1. Beginning Capital.
Income summary
X, drawing.
Y, drawing.

345,600
144,000
201,600

X, capital, January 1..


X, capital, January 1..
Total capitals

P 360,000
504,000
P 864,000

Xs share of net income: 360/864 of P345,600


Ys share of net income 504/864of P345,600
Total capitals

P 144,000
201,600
P 345,600

2. Ending Capital.
Income summary
X, drawing.
Y, drawing.

345,600
153,600
192,000

X, capital, December 31..


X, capital, December 31..
Total capitals

P 432,000
540,000
P 972,000

Xs share of net income: 432/972 of P345,600


Ys share of net income 540/972 of P345,600
Total

P 153,600
192,000
P 345,600

3. Interest on Excess Average Capital Balance.


Income summary
Y, drawing.

4,320
4,320

Interest allowed based on average capitals.

Ys interest on excess average capital:


6% of (P486,000 P414,000)..

X:
1/1/x4:
4/1/x4:

Capital
balance
P360,000
432,000

x
x

No. of Mos.
Unchanged
3
9
12

Average

Y:
1/1/x4:
3/1/x4:
11/1/x4:
Average
Total

Capital
balance
P504,000
468,000
540,000

x
X
x

No. of Mos.
Unchanged
2
8
2
12

P 4,320

P1,080,000
3,888,000
P4,968,000
P 414,000

P 1,008,000
3,744,000
1,080,000
P5,832,000
P 486,000
P 900,000

The net effect of the foregoing on capitals is:


X
Interest on excess
average capital
Balance (1:2)..
Total

P
P 113,760
P 113,760

Y
4,320

227,520
P 231,840

Total
4,320

341,280
P345,600

The allocation of net income may be summarized in a single entry as follows:


Income summary.
X, drawing.
Y, drawing.

345,600
113,760
231,840

Problem II
1. A bonus of 20% of net income before the bonus is deducted, the bonus would be computed
as follows:
Let B
B
B
B

= Bonus
= 20% of Net income
= 20% of P504,000
= P100,800

2. A bonus of 20% of net income after deduction of the bonus, the bonus would be computed
as follows:
Let B
B
B
B
1.20 B
B

= Bonus
= 20% of Net income after Bonus
= 20% (P504,000 B)
= P100,800 - .20B
= P100,800
= P84,000

Problem III
1. Bonus is based on net income before bonus, salaries and interest
The schedule showing the allocation of net income is presented as follows:
Bonus.
Salaries
Interest.
Balance (2;1).
Total

2.

A
P 100,800
48,000
14,400
172,800
P336,000

B
P 72,000
9,600
86,400
P168,000

Total
P 100,800
120,000
24,000
259,200
P504,000

Bonus is based on net income after bonus but before salaries and interest
The schedule showing the allocation of net income is presented as follows:
Bonus.
Salaries
Interest.
Balance (2;1).
Total

A
P 84,000
48,000
14,400
184,000
P330,400

B
P 72,000
9,600
92,000
P173,600

Total
P 84,000
120,000
24,000
276,000
P504,000

3. Bonus is based on net income after bonus and salaries but before interest:
Let B
B
B
B
B
B
1.20 B
B

= Bonus; S = Salaries; and I = Interest.


= 20% of Net income after Bonus and Salaries before Interest
= 20% (P504,000 B S)
= 20% (P504,000 B P120,000)
= 20% (P384,000 B)
= P76,800 - .20B
= P76,800
= P64,000

Proof:
Net income before bonus, salaries and interests
Less: Bonus
Salaries0
Net income after bonus, salaries before interests
Multiplied by: Bonus rate.
Bonus

P504,000
64,000
120,000
P320,000
20%
P 64,000

The schedule showing the allocation of net income is presented as follows:


Bonus.
Salaries
Interest.
Balance (2;1).
Total

A
P 64,000
48,000
14,400
197,333
P323,733

B
P 72,000
9,600
98,667
P180,267

Total
P 64,000
120,000
24,000
296,000
P504,000

4. Bonus is based on net income after bonus, salaries and interest:


Let B
B
B
B
B
B
1.20 B
B

= Bonus; S = Salaries; and I = Interest.


= 20% of Net income after Bonus, Salaries and Interest
= 20% (P504,000 B S - I)
= 20% (P504,000 B P120,000 P24,000)
= 20% (P360,000 B)
= P72,000 - .20B
= P72,000
= P60,000

Proof:
Net income before bonus, salaries and interests
Less: Bonus
Salaries
Interest..
Net income after bonus, salaries before interests
Multiplied by: Bonus rate.
Bonus

P504,000
60,000
120,000
24,000
P300,000
20%
P 60,000

The schedule showing the allocation of net income is presented as follows:


Bonus.
Salaries
Interest.
Balance (2;1).
Total

A
P 60,000
48,000
14,400
200,000
P322,400

B
P 72,000
9,600
100,000
P181,600

Total
P 60,000
120,000
24,000
300,000
P504,000

5. Bonus is based on net income after salaries but before bonus and interest:
Let B
B
B
B
B
B

= Bonus; S = Salaries; and I = Interest.


= 20% of Net income after Salaries before Bonus and Interest
= 20% (P504,000 S)
= 20% (P504,000 P120,000)
= 20% (P384,000)
= P76,800

Refer to Note of No. 3.


6. Bonus is based on net income after interest but before bonus and salaries:
Let B
B
B
B
B

= Bonus; S = Salaries; and I = Interest.


= 20% of Net income after Interest before Bonus and Salaries
= 20% (P504,000 P24,000I
= 20% (P480,000)
= P96,000

Refer to Note of No. 3.


7. Bonus is based on net income before bonus but after income tax (tax rate is 35%):
Let B
B
B

= Bonus;
= 20% (P504,000 T)
= P100,800 - .20T

Let T
T
T

= Income tax
= 35% (P504,000)
= P176,400

Substituting the equation for T in the equation for B:


Let B
B
B

= P100,800 - .20 (P176,400)


= P100,800 P35,280
= P65,520

Proof:
Net income before bonus and income tax
Less: Bonus
Net income before bonus after income tax..
Less: Income tax
Net income after bonus and income tax

P504,000
65,520
P438,480
_176,400
P262,080

Bonus as computed above:


Net income before bonus and income tax
Less: Income tax (35% x P504,000)
Net income after income tax before bonus..
Multiplied by: Bonus rate
Net income after bonus and income tax

8. Bonus is based on net income, that is, after bonus and income tax:
Let B
B
B

= Bonus; T = Income tax


= 20% (P504,000 B - T)
= P100,800 - .20B - .20T

Let T
T
T

= Income tax
= 35% (P504,000)
= P176,400

P504,000
176,400
P327,600
____ 20%
P 65,520

Substituting the equation for T in the equation for B:


Let B
B
1.20B
1.20B
B

= P100,800 - .20B - .20T


= P100,800 - .2B - .20 (P176,400)
= P100,800 P35,280
= P65,520
= P54,600

Proof:
Net income before bonus and income tax
Less: Bonus
Net income before income tax..
Less: Income tax (35% x P504,000)
Net income after bonus and income tax

P504,000
54,600
P449,400
176,400
P273,000

Bonus as computed above:


Net income after bonus and income tax
Multiplied by: Bonus rate
Bonus

P273,000
____ 20%
P 54,600

Problem IV

B = Bonus to Rodgers
B = 0.20(Net Income - interest - salary - bonus)
B = 0.20(P168,000 - [0.08(P150,000)] - P60,000 B)
B = 0.20(P96,000 - B)
B = P19,200 - 0.20B
1.20B = P19,200
B = P16,000

Problem V
Interest (8%)
Salary

James
P4,400 (below)
13,000

Remaining income (loss):


P30,000
(17,200)
(48,000)
P(35,000)
(7,040)
Totals
P10,360

Keller
P5,600
15,000

Rivers
P7,200
20,000

Totals
P17,200
48,000

(10,560)
P10,040

(17,600)
P9,600

(36,200)
P30,000

CALCULATION OF JAMES INTEREST ALLOCATION


Balance, January 1 June 1 (P48,000 x 5 months)
Balance, June 1 December 31 (60,000 x 7 months)
Total
Months
Average monthly capital balance
Interest rate
Interest allocation (above)

P240,000
420,000
P660,000

12
P 55,000
x
8%
_P 4,400

STATEMENT OF PARTNERS CAPITAL

Beginning balances
Additional contribution
Income (above)
Drawings (P1,000/month)
Ending capital balances

James
P 48,000
12,000
10,060
(12,000)
P58,360

Keller
P70,000
0
10,040
(12,000)
P68,040

Rivers
P90,000
0
9,600
(12,000)
P87,600

Totals
P208,000
12,000
30,000
(36,000)
P214,000

P
P 80,000
21,600
9,800
___53,160
P 164,560

Q
P 100,000
43,200
16,800
__35,440
P195,440

Total
P180,000
64,800
26,600
___88,600
P 360,000

P
P 80,000
14,400
9,800
_(4,900)
P 99,300

Q
P 100,000
28,800
16,800
__(4,900)
P 140,700

Total
P 180,000
43,200
26,600
__(9,800)
P240,000

P
P 80,000
0
9,800
(123,300)
(P33,500)

Q
P 100,000
0
16,800
(123,300)
(P 6,500)

Total
P 180,000
0
26,600
(246,600)
(P 40,000)

Problem VI
1: Net income is P360,000
Salaries
Bonus on net income
Interest on average capital balances
Remainder is P 88,600 (positive)
Totals
2. Net income is P240,000
Salaries
Bonus on net income
Interest on average capital balances
Remainder is P 9,800 (negative)
Totals
3. Net loss is P40,000
Salaries
Bonus (no distribution)
Interest on average capital balances
Remainder is P 246,600 (negative)
Totals
Problem VII:

1 and 2.
Total to allocate:
As Bonus (Note A below)
As Salaries
As Interest (Note B below)
Subtotal:
Residual Profit-sharing
Final Allocations:
Note A (Bonus):
Bonus = .20(Net Income
1.2Bonus = .20(P150,000)
1.2Bonus = 30,000
Bonus = P25,000

Total
P150,000
(25,000)
(72,000)
(10,720)
P 42,280
(42,280)
P
0

Bonus)

Carey

Drew

P25,000
36,000
6,560
P67,560
21,140
P88,700

P36,000
4,160
P40,160
21,140
P61,300

Note B (Interest):
Carey:

Drew:

Capital
Amount
P100,000
(12,000)
88,000
(12,000)
76,000
(12,000)
P 64,000

Fraction
of Year
1/12

Interest
Rate
0.08

= Subtotal
P 667

6/12

0.08

3,520

3/12

0.08

1,520

2/12
1.0000

0.08

853
P6,560

Capital
Amount
P70,000
(12,000)
58,000
(12,000)
46,000
(12,000)
P34,000

Fraction
of Year
1/12

Interest
Rate
0.08

= Subtotal
P 467

6/12

0.08

2,320

3/12

0.08

920

2/12
1.0000

0.08

453
P4,160

Problem VIII
1. It should be noted that the order of priority is of no significance when it comes to allocation
of net income. Unless in cases, when there is a resulting residual loss, wherein the residual loss
should be allocated based on their agreement. In this case, there is no such agreement, so
the allocation would still be to satisfy completely all provisions of the profit and loss
agreement and use the profit and loss ratios to absorb any deficiency or additional loss cause
by such action.
Olsen
Katch
Total
Interest
P 2,000
P 2,400
P 4,400
Bonus
10,000
10,000
Salaries
48,000
36,000
84,000
Remainder (6:4)
__8,040
__5,360
_13,400
P58,040
P26,960
P85,000
Weighted Average Calculation:
Olsen:
1/1 to 4/1
4/1 to 10/1
10/1 to 12/31
Total
Average

Capital
Balance
20,000
25,000
30,000

Gross
# of Months
3
6
3

Capital
60,000
150,000
90,000
300,000
25,000

Katch:
Capital
Balance
40,000
30,000
20,000
30,000

1/1 to 3/1
3/1 to 9/1
9/1 to 11/1
11/1 to 12/31
Total
Average
2.

Olsen
P48,000

Salaries
Bonus
Interest*
Remainder
Final Profit:

2,000
39,960
P89,960

Gross
# of Months
2
6
2
2

Katch
P36,000
10,000
2,400
26,640
P75,040

Capital
80,000
180,000
40,000
60,000
360,000
30,000
Total
P 84,000
10,000
4,400
66,600
P165,000

*see part 'a' solution for weighted average capital calculation


Problem IX
Jones would have to receive a bonus of P12,000 to be indifferent to the two profit-sharing
options. Since Cable would receive the same bonus, the total bonus would have to be P24,000.
Therefore,
P24,000 = 10% (Net income - Salaries - Bonuses)
P24,000 = 10% (Net income - [30,000 + 40,000] - 24,000)
P24,000 = 10% (Net income - 94,000)
P24,000 = 10% Net income - 9,400
P33,400 = 10% Net income
Net income $334,000
Problem X

Weighted Average Capital Calculation:

1/1 to 6/1
6/1 to 10/1
10/1
to
12/31

1/1 to 3/1
3/1 to 9/1
9/1 to 11/1
11/1
to
12/1

Matt
Cap Bal # months
35,000
5
45,000
4
50,000
3

Gross Cap
175,000
180,000
150,000

Total
Average

505,000
42,083

Jeff
Cap Bal # months
25,000
2
35,000
6
25,000
2
20,000
1

Gross Cap
50,000
210,000
50,000
20,000

12/1
12/31

to

1.

28,000

28,000

Total
Average

358,000
29,833

Salary
Bonus
Interest
Subtotal
Remainder
Total

Matt
P N/A
N/A
4,208
P 4,208
29,404
P33,612

Jeff
P N/A
N/A
2,983
P 2,983
29,405
P32,388

Total
P
0
0
7,191
P 7,191
58,809
P66,000

Salary
Bonus
Interest
Subtotal
Remainder
Total

Matt
P
0
N/A
5,000
P 5,000
29,520
P34,520

Jeff
P 9,000
N/A
2,800
P11,800
19,680
P31,480

Total
P 9,000
0
7,800
P16,800
49,200
P66,000

Salary
Bonus
Interest
Subtotal
Remainder
Total

Matt
P10,000
N/A
N/A
P10,000
23,992
P33,992

Jeff
P15,000
N/A
N/A
P15,000
17,008
P32,008

Total
P25,000
0
0
P25,000
41,000
P66,000

Salary
Bonus*
Interest
Subtotal
Remainder
Total

Matt
P20,000
6,000
4,208
P30,208
(1,096)
P29,112

Jeff
P35,000
N/A
2,983
P37,983
(1,095)
P36,888

Total
P55,000
6,000
7,191
P68,191
(2,191)
P66,000

AA
14,400
12,960
( 1,200)
26,160

BB
12,000
17,280
( 900)
28,380

CC
13,600
24,840
( 900)
37,540

Total
40,000
55,080
( 3,000)
92,080

AA
96,000

BB
144,000

CC
216,000

Total
456,000

2.

3.

4.

Problem XI

1. Allocation/Distribution of Net Income


Salaries
Interest-12% of Ave. Cap.
Balance/Remainder (4:3:3)
Share in Net Income
2. Statement of Partners Capital
Capital, January 2, 2010
Additional Investments

(Withdrawals)
Net Income
Personal Withdrawals
Capital, December 31, 2010

24,000
26,160
( 9,000)
137,160

(36,000)
37,540
( 9,000)
208,540

(12,000)
92,080
(27,000)
509,080

AA
BB
CC
Interest-12% of Ave. Cap.
12,960
17,280
24,840
Balance/Remainder (4:3:3)
( 1,200)
( 900)
( 900)
Share in Net Income
11,760
16,380
23,940
*Net income before partners salaries and interestsP 92,080
Less: Operating expenses (including salaries).. 40,000
Net Income after partners salaries but before interestsP 52,080

Total
55,080
( 3,000)
52,080*

28,380
( 9,000)
163,380

3. Allocation/Distribution of Net Income

Incidentally, the entry to record the salaries would be:


Operating expenses (for salaries). 40,000
AA, capital..
BB, capital..
CC, capital..

14,400
12,000
13,600

3. Statement of Partners Capital


Capital, January 2, 2010
Additl. Inv. (Withdrawals)
Net Income
Sal. (refer to entry above)
Personal Withdrawals
Capital. December 31, 2010

AA
96,000
24,000
11,760
14,400
( 9,000)
137,160

BB
144,000
16,380
12,000
( 9,000)
163,380

CC
216,000
( 36,000)
23,940
13,600
( 9,000)
208,540

Problem XII

1. Allocation/Distribution of Net Income


DD
EE
Salaries
18,000
24,000
Interest (10% of Ave. Cap.)
15,000
20,000
Balance/Remainder (60%:40%)
25,800
17,200
Share in Net Income
58,800
61,200
*P 500,000 P100,000 (excluding salaries and int. P100,000

Total
42,000
35,000
__43,000
120,000*

2. Statement of Partners Capital


Capital, March 1, 2010
Additional Investments
Net Income
Personal Withdrawals
Capital, March 1, 2011

DD
150,000
58,800
(18,000)
190,800

EE
180,000
60,000
61,200
(24,000)
277,200

Total
330,000
60,000
1240,000
( 42,000)
468,000

DD
P 15,000
51,000
P 66,000

EE
P20,000
34,000
P54,000

Total
P 35,000
85,000
P 120,000

DD
P 150,000

EE
P 180,000
60,000

3. Allocation/Distribution of Net Income


Interest on Average Capital 10%
Balance/Remainder 60%:40%
Share in Net Income
4. Statement of Partners Capital
Capital balance, March 1, 2010
Additional Investment

Share in Net Income


Salaries
Salary withdrawals
Capital balance, March 1, 2011

66,000
18,000
( 18,000)
P 216,000

54,000
24,000
( 24,000)
P 294,000

Problem XIII
1. Distribution of income for 20x4:
Interest
Compensation
Subtotals
Allocation of remainder
Totals

Norr
P 12,000
__10,000
P 22,000
__14,640
P 36,640

Caylor
P 9,600
__14,000
P 23,600
__9,760
P 33,360

Total
P 21,600
__24,000
P 45,600
__24,400
P 70,000

2. Capital account balances at the end of 20x4:


Beginning capital balances
Share of income
Withdrawals
Ending capital balances

Norr
P 100,000
36,640
_(12,000)
P 124,640

Caylor
P 80,000
33,360
_(12,000)
P 101,360

3. Distribution of income for 20x5:


Interest
Compensation
Subtotals
Allocation of remainder
Totals

Norr
P 14,957
__8,000
P 22,957
__13,872
P 9,085

Caylor
P 12,163
__12,000
P 24,163
__9,248
P 14,915

Total
P 27,120
__240,000
P 47,120
_(23,120)
P 24,000

4. Capital account balances at the end of 20x5:


Beginning capital balances
Share of income
Withdrawals
Ending capital balances

Norr
P 124,640
9,085
_(12,000)
P 121,725

Caylor
P 101,360
14,915
_(12,000)
P 104,275

Problem XIV
1.

The interest factor was probably inserted to reward Page for contributing P50,000 more to the
partnership than Childers. The salary allowance gives an additional P15,000 to Childers in recognition
of the full-time (rather than part-time) employment. The 40:60 split of the remaining income was
probably negotiated by the partners based on other factors such as business experience, reputation,
etc.

2.

The drawings show the assets removed by a partner during a period of time. A salary allowance is
added to each partner's capital for the year (usually in recognition of work done) and is a component
of net income allocation. The two numbers are often designed to be equal but agreement is not
necessary. For example, a salary allowance might be high to recognize work contributed by one
partner. The allowance increases the appropriate capital balance. The partner might, though, remove
little or no money so that the partnership could maintain its liquidity.

3.

Page, Drawings .................................................................................

5,000

Repair Expense ............................................................................


(To reclassify payment made to repair personal residence.)

5,000

Page, Capital .....................................................................................


Childers, Capital ................................................................................
Page, Drawings (adjusted) .........................................................
Childers, Drawings .......................................................................
(To close drawings accounts for 2008.)

13,000
11,000

Revenues ........................................................................................90,000
Expenses (adjusted by first entry) ...............................................
Income Summary ........................................................................
(To close revenue and expense accounts for 2008.)
Income Summary ...............................................................................
Page, Capital ..............................................................................
Childers, Capital ..........................................................................

4.

59,000
31,000
31,000

(To close net income to partners' capitalsee allocation plan shown below.)
Allocation of Income
Page
Interest (10% of beginning balance)
P 8,000
Salary allowances
5,000
Remaining income (loss):
P31,000
(11,000)
(25,000)
P (5,000)
(2,000) (40%)
P11,000

13,000
11,000

11,000
20,000

Childers
P 3,000
20,000

(3,000) (60%)
P20,000

Total capital (original balances of P110,000 plus 2008


net income less drawings) ..........................................................
P117,000
Investment by Smith ...........................................................................
43,000
Total capital after investment ............................................................
P160,000
Ownership portion acquired by Smith ...............................................
20%
Smith, capital
.................................................................................P 32,000
Amount paid
................................................................................. 43,000
Bonus paid by Smithassigned to original partners .......................... P 11,000
Bonus to Page (40%) ..........................................................................

P4,400

Bonus to Childers (60%) ......................................................................

P6,600

Cash
...............................................................................................
Smith, Capital (20% of total capital) ...........................................
Page, Capital ..............................................................................
Childers, Capital ..........................................................................

43,000

Multiple Choice Problems


1. c
Capital, Beg
Additional Investment
Withdrawal (800 x 12)
Net income (?)
Capital, Ending

45,000
50,000
(96,000)
31,000
P 30,000

2. b
Salaries

A
2,000

B
25,000

10M
45,000

32,000
4,400
6,600

Bonus
Interest (20% x average capital)
Balance - equally
10M

8,000
8,000
8,500
44,500

0
10,000
8,500

8,000
18,000
1,700
8,800

*Bonus= 10% (NI - B)


B= .10 (8,800 - B)
B= 8,800 - .10B
1.10B= 8,800
B= 8,000
3.

The net income of P80,000 is allocated to Blue and Green in the following
manner:
Blue
Green
Net Income
P 80,000
Salary allowances
P 55,000
P45,000
(100,000)
Remainder
P (20,000)
Allocation of the negative
remainder in the
60:40 ratio
(12,000)
(8,000)
20,000
Allocation of net income
P 43,000
P37,000
P
-0-

4. b
Salary
Interest: 10% x average capital
Balance: equally
X: P100,000 x 6 = P600,000
P160,000 x 6 = 960,000

XX
60,000

YY
48,000

5,000

5,000

ZZ
36,000
7,500
5,000

Total
144,000
48,750
15,000
207,750

P1,560,000 / 12 = P 130,000

Y (same with beginning since no additional


investments or withdrawals were made)
Z: P225,000 x 9 = P2,025,000
P155,000 x 3 = 465,000 P2,490,000/12 =

5. d - ASSIGNMENT OF INCOME
Interest10% of
beginning capital ..........................
Salary ..................................................
Allocation of remaining income
(P6,000 divided on a 3:3:4 basis) .......... 1,800
Totals ........................................
STATEMENT OF CAPITAL
Beginning capital .................................
Net income (above) .............................
Drawings (given) ...................................
Ending capital .......................................

150,000
207,500
P 487,500 x 10% = P48,750

ARTHUR

BAXTER

CARTWRIGHT

P 6,000
20,000

P 8,000

P10,000
20,000

1,800
P 7,800

2,400
P29,800

6,000
P12,400

ARTHUR
P60,000
7,800
(5,000)
P62,800

BAXTER
P80,000
29,800
(5,000)
P104,800

CARTWRIGHT
P100,000
12,400
(5,000)
P107,400

TOTAL
P24,000

P50,000
TOTAL
P240,000
50,000
(15,000)
P275,000

6. a - ASSIGNMENT OF INCOMEYEAR ONE

WINSTON
Interest10% of
beginning capital ..........................
P11,000
Salary .................................................. 20,000
-0Allocation of remaining loss
(P80,000 divided on a 5:2:3 basis) ......... (40,000) (16,000)
Totals ........................................
P(9,000)
STATEMENT OF CAPITALYEAR ONE
Beginning capital .................................
Net loss (above) ....................................
Drawings (given) ...................................
Ending capital ................................

WINSTON
P110,000
(9,000)
(10,000)
P 91,000

DURHAM

SALEM

TOTAL

P 8,000
10,000

P11,000
30,000

P30,000

(24,000)
P (8,000)

(80,000)
P (3,000)

P (20,000)

DURHAM
P80,000
(8,000)
(10,000)
P62,000

SALEM
P110,000
(3,000)
(10,000)
P 97,000

TOTAL
P300,000
(20,000)
(30,000)
P250,000

ASSIGNMENT OF INCOMEYEAR TWO

WINSTON
Interest10% of
beginning capital ..........................
P 9,100
Salary .................................................. 20,000
-0Allocation of remaining loss
(P15,000 divided on a 5:2:3 basis) ........ (7,500) (3,000)
Totals ........................................
P21,600
STATEMENT OF CAPITALYEAR TWO
Beginning capital (above) ...................
Net income (above) .............................
Drawings (given) ...................................
Ending capital ................................

WINSTON
P 91,000
21,600
(10,000)
P102,600

DURHAM

SALEM

TOTAL

P 6,200
10,000

P 9,700
30,000

P25,000

(4,500)
P3,200

(15,000)
P15,200

P40,000

DURHAM
P62,000
3,200
(10,000)
P55,200

SALEM
P 97,000
15,200
(10,000)
P102,200

TOTAL
P250,000
40,000
(30,000)
P260,000

7. d - Retirement of a Partner (refer to Chapter 3) Craig receives an additional P10,000. Since


Craig is assigned 20 percent of all profits and losses, this allocation indicates total goodwill of
P50,000.
20% of Goodwill = P10,000
.20 G = P10,000
G = P10,000/.20
G = P50,000
Montana is assigned 30% of all profits and losses and would, therefore, record P15,000 of this
goodwill, an entry that raises this partner's capital balance from P130,000 to P145,000.
8. a
Capital, Beginning
Additional investment
Withdrawals
Net income
Net Decrease

25,000
(130,000)
45,000 / 30% = P 150,000
(60,000)

9. a

________

H
4,000
20,000
_________

Total
22,000
50,000
(105,000)
(33,000)

E
20,000

F
25,000

14,100
34,100

_4,700
29,700

Total
70,000
13,000
47,000
130,000

C
100,000
29,000
(12,000)
117,000

W
150,000
63,000
(12,000)
20,100

N
200,000
58,000
(12,000)
24,600

Total
450,000
150,000
(36,000)
564,000

C
10,000
19,000
29,000

W
15,000
10,000
38,000
63,000

N
20,000
38,000
58,000

Total
45,000
10,000
95,000
150,000

Capital, 1/1/x5
Net income
Withdrawals personal
Capital, 12/31/x5

117,000
34,420
(12,000)
139,420

201,000
75,540
(12,000)
264,540

246,000
70,040
(12,000)
304,040

564,000
180,000
(36,000)
708,000

Net income 20x5


10% interest a beginning capital
Salary
20% : 40% : 40%

117,000
34,420
(12,000)
139,420

201,000
75,540
(12,000)
264,540

246,000
70,040
(12,000)
304,040

564,000
180,000
(36,000)
708,000

10% interest a Average capital


Salaries
Equally

F
12,000
30,000
(35,000)
7,000

10. No answer available D, P66,200; E, P34,100; F, P29,700


D
Salaries
25,000
Bonus on income (10% x P130,000)
13,000
Remainder (6:3:1)
28,200
66,200

G
6,000

11. a
Capital, 1/1/x4
Net Income 20x4
Withdrawal personal
Capital, 12/31/x4

Net income 20x4


10% interest on beginning capital
Salary
20% : 40% : 40%

12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.

c - refer to No.11
d - refer to No.11
d - refer to No.11
e - refer to No.11
b - refer to No.11
b - refer to No.11
d - refer to No.11
a - refer to No.11
e - refer to No.11
c - refer to No.11
c - refer to No.11

23. b
Capital, 1/1/YearI
Net income (loss)
Withdrawals personal
Capital, 12/31/ Year I

Y
143,000
(11,700)
(13,000)
118,300

E
104,000
(10,400)
(13,000)
80,600

I
143,000
(3,900)
(13,000)
126,100

Total
390,000
(26,000)
(39,000)
325,000

Year I Net loss


Salary
Interest 10% x beginning capital
5:2:3
Total

26,000
14,300
(52,000)
(11,700)

10,400
(20,800)
(10,400)

13,000
14,300
(31,200)
(3,900)

3,900
3,900
(10,400)
(2,600)

Capital, 1/1/Year2
Net income (loss)
Withdrawals personal
Capital, 12/31/ Year 2

118,300
28,080
(13,000)
133,380

80,600
76,700
(13,000)
144,300

126,100
19,760
(13,000)
132,860

325,000
52,000
(3,900)
338,000

8,060
(3,900)
76,700

13,000
12,610
(5,850)
19,750

3,900
32,500
(19,500)
52,000

Year 2 Net loss


Salary
Interest 10% x beginning capital
5:2:3

26,000
11,830
(9,750)
28,080

24. b - refer to No.23


25. a - refer to No.23
26. b - refer to No.23
27. d - refer to No.23
28. c - refer to No.23
29. e - refer to No.23
30. b - refer to No.23
31. c - refer to No.23
32. a - refer to No.23
33. e - refer to No.23
34. d - refer to No.23
35. a
Salaries
Bonus*
Interest: 10% x Ave. capital
1:3
Total

A
30,000
3,600
5,000
4,625
P 43,225

B
P 45,000
6,500

Total
P 75,000
3,600
11,500
18,500
P 108,600

*Bonus = 12% (NI S B)


B = .12 (108,600 75,000 B)
B = .12 (33,600 B)
B = 4,032 - .12B
1.12B = 4,032
B = 3,600
36. a
A

Total

Salaries
Bonus (refer to Note)
Interest on average capital (15%)
Balance (2:1)
Total

P 40,000

P 45,000

6,000
(32,000)
P 14,000

9,000
(16,000)
P 38,000

P 85,000
0
15,000
(48,000)
P 52,000

Note:
1. The basis of the bonus is negative, so theres no bonus at all.
2. It should be noted that the order of priority is of no significance when it comes to
allocation of net income. When there is a resulting residual loss, wherein the residual
loss should be allocated based on their agreement. In this case, there is no such
agreement, so the allocation would still be to satisfy completely all provisions of the
profit and loss agreement and use the profit and loss ratios to absorb any deficiency
or additional loss caused by such action.
37. d
Salaries
Bonus*
3:4:3
Total

A
P 40,000

B
P 40,000

__3,000
P 43,000

4,000

C
P 1,000
_3,000
P 4,000

Total
P 80,000
1,000
10,000
P 91,000

*Bonus = 10% (NI S B)


B = .10 (91,000 80,000 B)
B = .10 (11,000 B)
B = 1,100 - .10B
1.10B = 1,100
B = 1,000
38. No answer available
Salaries
Bonus (refer to Note)
Interest on average capital (10%)
Balance (1:2)
Total

A
P 41,600

B
P 38,400

2,000
(16,500)
P 27,100

3,500

Total
P 80,000
0
5,500
(49,500)
P 52,000

Note:
1. The basis of the bonus is negative, so theres no bonus at all.
2. It should be noted that the order of priority is of no significance when it comes to
allocation of net income. When there is a resulting residual loss, wherein the residual
loss should be allocated based on their agreement. In this case, there is no such
agreement, so the allocation would still be to satisfy completely all provisions of the
profit and loss agreement and use the profit and loss ratios to absorb any deficiency
or additional loss caused by such action.
39. b
2/1/20x4: P20,000 x 4 = P 80,000
6/1/20x4: P40,000 x 3 = 120,000
9/1/20x4: P30,000 x 4 = 120,000
P 320,000 / 12 months = P26,667
Note: Annual is 12 months.
40. a

Salaries
Interest on average capital (10%)
Remainder (equally)
Total

Tuba
P 25,000
6,000
(5,000)
P 26,000

Drum
P 20,000
9,000
(5,000)
P 24,000

Total
P 45,000
15,000
(10,000)
P 50,000

Salaries
Interest on average capital (10%)
Remainder (equally)
Total

Tuba
P 25,000
6,000
(5,000)
P 26,000

Drum
P 20,000
9,000
(5,000)
P 24,000

Total
P 45,000
15,000
(10,000)
P 50,000

41. a

Note: It should be noted that the order of priority is of no significance when it comes to
allocation of net income. When there is a resulting residual loss, wherein the residual loss
should be allocated based on their agreement. In this case, there is no such agreement, so
the allocation would still be to satisfy completely all provisions of the profit and loss
agreement and use the profit and loss ratios to absorb any deficiency or additional loss
caused by such action.
42. c
Salaries
Bonus*
Remainder (3:4:3)
Total

J
P 50,000
16,000
(6,000)
P 60,000

P
P 60,000
8,000
(8,000)
P 60,000

B
P 30,000
16,000
(6,000)
P 40,000

Total
P140,000
40,000
(20,000)
P160,000

*since problem is silent it should be based on net income before any deductions.

43. c
Salaries
Bonus (10% of average capital)
Remainder (4:4:2)
Total

A
P 30,000
5,000
_ 24,000
P 59,000

P
P 10,000
3,000
__24,000
P 37,000

B
P 40,000
2,000
_12,000
P 54,000

Total
P 80,000
10,000
60,000
P150,000

Salaries
Bonus (10% of average capital)
Remainder (4:4:2)
Total

A
P 30,000
5,000
(16,000)
P 19,000

P
P 10,000
3,000
(16,000)
(P3,000)

B
P 40,000
2,000
( 8,000)
P 34,000

Total
P 80,000
10,000
(40,000)
P 50,000

44. c

45. b refer to No. 46


Total agreed capital = total contributed capital*
(P200,000 + P100,000 + P100,000)
Multiplied by: Capital interests of May

P 400,000
_____35%
P 140,000

*No goodwill or asset adjustment.

46. d refer to No. 45


Total agreed capital = total contributed capital*
(P200,000 + P100,000 + P100,000)
Multiplied by: Capital interests of May
Capital to be credited to May
Contribution of May
Bonus to May

P 400,000
_____35%
P 140,000
_100,000
P 40,000

*since no goodwill/adjustment is required.

The bonus is given to the new partner, therefore, the capital of Donald would be
reduced by P24,000(P40,000 x 3/5), Thus, the capital of Donald after admission is P176,000
(P200,000 P24,000)
47. a refer to No. 45.
Hanes = P84,000 (P100,000 - P40,000 x 2/5)
48. e refer to No. 45
49. d
P60,000, salary = P25,000, salary + [.20 (NI B)]
P60,000 = P25,000 + P35,000, bonus
Therefore, bonus would be P35,000
B = .20 (NI B)
P35,000 = . 20 (NI P35,000)
P35,000 = .20NI P7,000
P35,000 + P7,000 = .20NI
P42,000 = .20NI
NI = P210,000
50. d
Using bonus formula to solve for income:
Bonus = .20 (NI Bonus Salary)
35,000 = .20 NI [.20 x P35,000] [.20 x P100,000*]
62,000 = .2Income
P310,000 = income
*salaries 25,000 + 75,000
51. c
P30,000 + P40,000 = P70,000, annual salary to allocate net income.
52. b
[P70,000 (P40,000 + P10,000 +P2,000)]
- Salary to partners is an allocation of net income (they are not expenses)
- Partners withdrawals are deduction to capital accounts.
53. c
Bonus = 20% (NI before deduction on salaries, interests and bonus)
B = 20% (NI after deduction of salaries, interests and bonus + salaries + interests + bonus)
B = 20% [P46,750 + (P1,000 x 12 months) + (.05 x P25,000) + B]
B = .20 [P60,000 + B]
B = P12,000 + .20B
1.20 B = P12,000
B = P15,000
54. b
Abe
Bert
Carl

Old P & L
70%
20%
10%

Interests Acquired
85%

New P & L
59.50%
17.00%
8.50%

Dave
Total

15%
100%

100%

15.00%
100%

55. b
Unadjusted net income, 20x5
Add (deduct): adjustments Accrued expense 20x5
Accrued income 20x5
Prepaid expense 20x4
Deferred or unearned income 20x4
Adjusted net income, 20x5
Multiplied by: P& L of Dave
Share in net income 20x5

Theories
1. True
2. False
3. True
4. False
5. False

6.
7.
8.
9.
10,

d
d
c
d
d

11.
12.
13.
14.
15,

c
a
b
d
c

15,000

(1,050)
875
(1,400)
__1,225
P 14,650
_____17%
P2,490.50

16.
17.
18.
19.
20.

e
c
c
d
b

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