Solution Manual and Test Bank Advanced Accounting by Guerrero & Peralta CHAPTER 02

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(1)20 Chapter 2 CHAPTER 2 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 2-1: d Jordan P120,000 ( 10,000) P110,000 Annual salary Balance, equally Total Pippen Total P80,000 P200,000 ( 10,000) ( 20,000) P 70,000 P180,000 2-2: a Bonus (.20 X P90,000) Interest JJ (.15 X P100,000) KK (.15 X P200,000) LL (.15 X P300,000) Balance, equally Total profit share JJ P18,000 KK – P15,000 – P 30,000 ( 6,000) P27,000 ( 6,000) P 24,000 LL – Total P 18,000 –) –) P45,000) 90,000 ( 6,000) ( 18,000) P39,000 P 90,000 2-3: a 2-4: a Allan Interest Allan - .10 X (P40,000 + 60,000 /2) Michael - .10 X (P60,000 + 70,000/2) Balance, equally Total P 5,000 _14,000 P 19,000 Michael Total ) P 6,500) P 11,500 _14,000 __28,000 P20,500 P 28,000 2-5: a Fred P12,000 30,000 ( 35,000) P 7,000 Interest (.10 of average capital) Salaries Balance, equally Total Greg P 6,000 ( 35,000) ( P29,000) 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%) Henry Total P 4,000 P 22,000 20,000 50,000 ( 35,000) (105,000) (P11,000) (P 33,000)

(2) 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 AM P 3,600 7,500 ( 7,720) P 3,380 Total P 6,800 22,500 ( 19,300) P 10,000 Net income after salary, interest and bonus Add back: Salary (P10,000 X 12) P120,000 Interest (P250,000 X .05) __12,500 Net income after bonus (80%) Net income before bonus (P600,000/80%) Paul's bonus P467,500 Interest Salaries Balance, 3:2 Total LT P3,200 15,000 (11,580) P 6,620 2-10: b _132,500 P600,000 _750,000 P150,000 2-11: b CC Salary Balance Additional profit to DD Total P14,000 ( 1,500) P12,500 Net income Fees Earned Expenses Net Income P90,000 _48,000 P42,000 DD P 8,400 __2,100 P10,500 EE Total P 14,000 P 14,000 5,600 28,000 ( 600) ______– P 19,000 P 42,000

(3) 22 Chapter 2 2-12: c Interest Annual Salary Additional profit to give LL, P20,000 Additional profit to give MM, P14,000 Total *(P9,500/50%) = P19,000 LL P 2,000 8,500 9,500 _____– P20,000 MM P 1,250 – 5,700 __7,050 P14,000 NN P 750 – 3,800 _____– P 4,550 Total P 4,000 8,500 19,000* __7,050 P 38,550 RR SS TT Total P15,000 – _47,500 P62,500 – (P10,000) _35,625 P25,625 –) –) _11,875 P11,875 P 5,000 __95,000 P100,000 BB CC Total 2-13: a Excess (Deficiency) RR (P80,000 - P95,000) SS (P50,000 - P40,000) Balance 4:3:1 Total Net Income (200,000 - 100,000) = 2-14: b AA - 100,000 X 10% 150,000 X 20% Remainder, 210,000 BB (60,000 X .05) CC (60,000 X .05) Balance, equally Total P100,000 AA P 10,000 30,000 ) ) P 40,000 ) P 3,000 _68,000 P71,000 6,000 _204,000 P250,000 BJ CJ Total P1,000 – _6,800 P7,800 P4,000 – 12,000 __3,400 P19,400 P4,000 1,000 22,000 _17,000 P44,000 P 3,000 __68,000 P108,000 _68,000 P71,000 2-15: a AJ Bonus to CJ Net profit before bonus P44,000 Net profit after bonus (P44,000/110%)P40,000 – – Interest to BJ – Salaries P 10,000 Balance, 4:4:2 __6,800 Total P 16,800 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

(4) Partnership Operations 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 Bonus Balance, equally Net profit before extraordinary gain Extraordinary gain Total – P 24,000 P 24,000 __4,800 P 28,800 RR P 9,600 24,000 P 33,600 __7,200 P 40,800 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 Interest on excess (Deficiency) Remainder 5:3:2 Total DV P 15,000 ( 36,875) (P 21,875) Total P 9,600 48,000 P 57,600 _12,000 P 69,600 Total P 32,000 36,000 _100,000 P168,000 2-18: a 2-19: a JE FR Total P 3,750 (P 7,500) P 11,250 ( 22,125) ( 14,750) ( 73,750) (P 18,375) (P 22,250) (P 62,500) 2-20: c Correction of 1998 profit: Net income per books Understatement of depreciation Overstatement of inventory, December 31 Adjusted net income Distribution of net income per book: Equally Distribution of adjusted net income Equally Required Decrease P 19,500 ( 2,100) ( 11,400) P 6,000 Pete Rico Total P 9,750 P 9,750 P 19,500 ( 3,000) P 6,750 ( 3,000) ( 6,000) P 6,750 P 13,500 2-21: a Salaries Interest Bonus (P360,000-P54,000)X.25 Remainder, 30:70 Total Tiger P 64,000 24,000 76,500 __19,650 P184,150 Woods P100,000 30,000 – __45,850 P175,850 Total P164,000 54,000 76,500 __65,500 P360,000

(5) 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 Field – P 25,000 33,600 – _23,760 P 82,360 Schedule 1 Net income before salary, commission, interest and bonus Less: salaries Net income before bonus Net income after bonus (P180,000/120%) Bonus Total P 20,000 25,000 65,600 30,000 __59,400 P200,000 P200,000 __20,000 P180,000 _150,000 P 30,000 2-23: a Capital balance, beginning Additional investment Capital withdrawal Capital balance before profit and loss distribution Mike P600,000 100,000 -200,000 P500,000 Tyson Total P400,000 P1,000,000 200,000 300,000 ( 100,000) _-300,000 P500,000 P1,000,000 Net income: Salary Balance, 3:2 Total Total Drawings Capital balance, end P200,000 __60,000 P260,000 P760,000 ( 200,000) P560,000 P300,000 P 500,000 __40,000 __100,000 P340,000 P 600,000 P840,000 P1,600,000 ( 300,000) ( 500,000) P540,000 P1,100,000 Average Capital - King: Date January 1 April 1 Capital Balance P40,000 55,000 Average capital – P615,000/12 = P51,250 Months Unchanged 3 9 12 Peso Months P120,000 _495,000 P615,000 Months Unchanged 7 5 12 Peso Months P700,000 __650,000 P1,350,000 Average Capital - Queen: Date January 1 April 1 Capital Balance P100,000 130,000 Average capital - P1,350,000 / 12 =P112,500

(6) Partnership Operations 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 Additional investment 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 Distribution to Partners Red – P1,500,000/P3,125,000 X P2,045,000 = Blue – P1,625,000/P3,125,000 X P2,045,000 = Capital balance of Blue Dec. 31 Capital Balance, Jan. 1 Additional investment Capital balance before profit and loss distribution Profit share Drawings Capital balance, Dec. 31 P3,125,000 ( 1,080,000) P2,045,000 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)

(7) 26 Chapter 2 2-26: a Ray P150,000 _______ Sam P180,000 __60,000 Total P330,000 __60,000 150,000 240,000 390,000 15,000 51,000 20,000 34,000 35,000 85,000 66,000 54,000 120,000 Total Salaries 216,000 _18,000 294,000 _24,000 510,000 _42,000 Total Drawings 234,000 (18,000) 318,000 (24,000) 552,000 (42,000) Capital balances, March 1 Additional investment, Nov. 1 Capital balances before salaries, profit and Drawings Profit share: Interest Balance, 60:40 Total Capital balances, Feb. 28 P216,000 P294,000 P510,000 Capital balances, 1/1 Additional investment, 4/1 Capital withdrawals, 7/1 Susan P150,000 8,000 _______ Tanny P30,000 158,000 24,000 23,400 (1,725) 4,050 6,000 (1,725) 27,450 6,000 (3,450) 21,675 _8,325 30,000 179,675 (12,000) 32,325 (12,000) 212,000 (24,000) 2-27: a Balances before profit distribution Profit distribution: Interest Bonus (20% x P30,000) Balance, equally Total Total Drawings Capital balances, 12/31 P167,675 Total P180,000 8,000 (6,000) _(6,000) P20,325 182,000 P188,000

(8) Partnership Operations 27 2-28: a Capital balances, beg. 1st year Loss distribution, 1st year: Salaries Interest Balance, 5:3:2 Total Total Drawings Capital balances, beg. 2nd year Profit distribution, 2nd year: Salaries Interest Balance, 5:3:2 Total Total Drawings Capital balances, end of 2nd year Sin P110,000 Tan P80,000 Uy P110,000 Total P300,000 20,000 11,000 (40,000) ( 9,000) 101,000 (10,000) 91,000 8,000 (16,000) ( 8,000) 72,000 (10,000) 62,000 10,000 11,000 (24,000) ( 3,000) 107,000 (10,000) 97,000 30,000 30,000 (80,000) (20,000) 280,000 (30,000) 250,000 20,000 9,100 ( 7,500) 21,600 112,600 _(10,000) P102,600 6,200 ( 4,500) _1,700 63,700 (10,000) P53,700 10,000 9,700 ( 3,000) 16,700 113,700 _(10,000) P103,700 30,000 25,000 (15,000) 40,000 290,000 _(30,000) P260,000 Jay P30,000 Kay P30,000 _(5,000) 25,000 _(4,000) 26,000 Loi P30,000 5,000 ______ 35,000 Total P90,000 5,000 _(9,000) 86,000 3,000 7,000 _1,000 36,000 5,000 ______ 41,000 3,000 3,000 _1,000 30,000 _1,000 39,000 _(3,000) 27,000 _(8,000) 31,000 9,000 7,000 __3,000 105,000 5,000 (11,000) 99,000 2-29: c Capital balances, 1/1/06 Additional investment, 2006 Capital withdrawal, 2006 Capital balances Profit distribution, 2006: Interest Salary Balance, equally Capital balances, 1/1/07 Additional investment, 2007 Capital withdrawal, 2002 Capital balances Profit distribution, 2007: Interest Salary Balance, equally Capital balances, 1/1/08 Additional investment, 2008 Capital withdrawal, 2008 Capital balances Profit distribution, 2008: Interest Salary Balance, equally Capital balances, 12/31/08 per books Understatement of depreciation Adjusted capital balances, 12/31/08 3,600 7,000 _1,500 53,100 3,000 3,900 _1,500 31,500 ______ 53,100 _(4,000) 27,500 _1,500 36,400 6,000 _(2,000) 40,400 5,310 7,000 __3,300 P68,710 (2,000) P66,710 3,150 3,640 __3,300 P33,950 (2,000) P31,950 __3,300 P47,340 (2,000) P45,340 10,500 7,000 __4,500 121,000 6,000 _(6,000) 121,000 12,100 7,000 ___9,900 P150,000 (6,000) P144,000

(9) 28 Chapter 2 2-30: a Ken Capital balances, 1/1/07 Additional investment, 2007 Capital withdrawal, 2007 Balances Profit distribution, 2007 (Schedule 1) Salary Balance, beg. Capital ratio Capital balances, 1/1/08 Capital withdrawal, 2008 P100,000 Len Mon Total P100,000 ( 20,000) P100,000 40,000 _______ _______ P300,000 40,000 ( 20,000) 80,000 140,000 100,000 320,000 20,000 20,000 60,000 20,000 60,000 60,000 100,000 ( 20,000) 160,000 ( 40,000) 180,000 _______ 440,000 ( 60,000) Balances Profit distribution, 2008: Salary Balance, beg. capital ratio 80,000 120,000 180,000 380,000 __13,636 __21,818 60,000 __24,546 60,000 __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) Total capital, 2007 (P300,000 + P40,000 – P80,000) Total profit for 2 years Net profit per year (P240,000 / 2) P500,000 _260,000 P240,000 P120,000 2-31: d _Nardo_ Capital balance, 1/1/08 P280,000 Additional investment 96,000 Withdrawals Cap. bal. before P/L dist. 376,000 NP: Salary (16,500 x 12) Interest on EC (15%) 42,000 Balance 25:30:45 ( 19,875 ) Total 22,125 Capital balance 12/31/08 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 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 _Total_ P750,000 156,000 (162,000) 744,000 198,000 112,500 (79,500 ) 231,000 P975,000

(10) Partnership Operations 29 2-33: a __Joe__ P 80,000 Capital balance, 1/2/07 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) Capital balance, 12/31/07 72,000 Net profit- 2008: Annual salary 96,000 10% interest on BC 7,200 Bonus to Joe–NPBB – P 22000 NPAB (22000/110%)20000 2,000 Balance equally ( 67,300) Total 37,900 Total 109,900 Drawings ( 4,000) Capital balance, 12/31/08 105,900 __Tom__ P 40,000 __Total__ P120,000 48,000 4,000 ( 54,000) ( 2,000) 38,000 ( 4,000) 34,000 144,000 12,000 ( 162,000) ( 6,000) 114,000 ( 8,000) 106,000 48,000 3,400 144,000 10,600 ( 67,300) ( 15,900) 18,100 ( 4,000) 2,000 ( 134,600) 22,000 128,000 ( 8,000) 14,100 120,000 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

(11) 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: Date 1/1 ..................................... 4/10 ................................... 5/1 ..................................... 8/1 ..................................... Capital Balances P26,000 29,000 36,000 32,000 Average capital = P375,000  12 months = Diaz: Date 1/1 ..................................... 6/1 ..................................... 9/1 ..................................... Capital Balances P16,500 21,500 19,500 Average capital = P225,000 – 12 months = 3. Months Unchanged 3 1 3 5 12 Peso Months P 78,000 29,000 108,000 _160,000 P375,000 P31,250 Months Unchanged 5 3 4 12 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.

(12) Partnership Operations 31 Computations: a. Net profit before bonus................................................. Net profit after bonus (P23,800  125%) ..................... Bonus............................................................................ b. 5. 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 P135,000 95,000 175,000 195,000 Months Unchanged 2 2 5 3 12 Peso Months P270,000 190,000 875,000 __585,000 P1,920,000 Months Unchanged 3 3 2 2 2 12 Peso Months P420,000 600,000 300,000 440,000 __400,000 P2,160,000 Ave. Capital (P1,920,000  12) = P160,000 Hood: Date Balances Jan. 1 Mar. 31 June 30 Aug. 31 Oct. 31 P140,000 200,000 150,000 220,000 200,000 Ave. Capital (P2,160,000  12) = P180,000 Profit Distribution: Robin : P160,000  P340,000 x P510,000 = Hood : P180,000  P340,000 x P510,000 = P240,000 _270,000 P510,000

(13) 32 Chapter 2 b. Robin P 14,400 60,000 78,850 _119,775 P274,025 Hood P 16,200 100,000 – _119,775 P235,975 Total P 30,600 160,000 79,850 _239,550 P510,000 Robin Hood Totals P 6,000 249,000 255,000 P 12,000 498,000 510,000 Robin Hood 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 .......................................................... ..................... ....................... Total P200,000 62,000 _248,000 P510,000 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. P 6,000 249,000 255,000 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

(14) Partnership Operations 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)................. .................... ..................... ..................... 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 Balances P30,000 36,000 28,000 East P 3,133 24,000 ( 6,056) P 21,077 North P 3,633 21,000 4,280 ( 6,055) P 22,858 West P 5,200 25,000 ( 6,055) P 24,145 Months Unchanged 4 4 4 12 Total P53,000 3,760 11,600 _10,600 P78,960 P78,960 _75,200 P 3,760 P 2,800 4,000 __4,800 P11,600 Total P11,966 70,000 4,280 ( 18,166) P 68,080 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) ........................................... P 36,333

(15) 34 Chapter 2 West: Date 1/1 4/1 6/1 8/1 Months Unchanged 3 2 2 5 12 Balances P50,000 57,000 60,000 48,000 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 Total P30,000 30,600 __9,410 P70,000

(16) Partnership Operations 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. P 3,200 __4,000 P 7,200 9,600 P10,800 __3,000 _13,800 P30,600 Statement of Partners Capital: Balances, Jan. 1................................... Additional Investment ........................ Capital Withdrawal ............................. Net Income.......................................... Drawings ........................................... Balance, Dec. 31 ................................. Maria P 80,000 20,000 – 22,333 ( 10,000) P112,333 Clara P120,000 – – 22,733 ( 10,000) P132,733 Rita P180,000 – ( 30,000) 24,934 ( 10,000) P164,934 Total P380,000 20,000 ( 30,000) 70,000 ( 30,000) P410,000 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

(17) 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 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 Nelson 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 Oscar 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 Total 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 P48,000 – 3,600 _* 4,765 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 Capital balances, 1/2/06............................... Additional investment, 2006 ....................... Balances....................................................... Net income (Loss) - 2006, equally .............. Withdrawals, 2006....................................... Capital balances, 12/31/06........................... Additional investment, 2007 ....................... Balances....................................................... Net income - 2007, 40: 30: 30 ..................... Withdrawals, 2007....................................... Capital Balances, 12/31/07 .......................... Additional investment, 2008 ....................... Balances....................................................... Net income, 2008 (schedule 1) .................... Withdrawals, 2008....................................... Capital balances, 12/31/08........................... Schedule 1: Annual salaries.................................... Bonus (see computations below) ........ Interest ................................................ Balance, equally.................................. Totals .................................................. * To Total

(18) Partnership Operations 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 P 5,000 P (1,800) 3,300 1,800 P 40,900 P138,300 Red, White & Blue Partnership Exhibit A – Computation and Division of Net income For Year Ended December 31, 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 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 P120,000 P38,700 __1,800 36,900 2,600 ____500 P40,000 __1,800 41,800 P 8,800 48,000 4,400 ________ P 78,200 P18,000 24,000 __8,000 P16,000 P 3,200 __21,200 P 57,000 P22,800 22,800 _11,400 P57,000

(19) 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 Commission (P16,120 – P5,000) x 10% Balance, equally P 4,000 – __5,926 P 750 1,112 _5,925 P 250 1,112 _5,925 P 5,000 2,224 _17,776 Total Adjustments (50% of P25,000 to Allan) P 9,926 __2,574 P7,787 (1,287) P7,287 (1,287) P25,000 _____– Total P12,500 P6,500 P6,000 P25,000 Sonny Letty Total Problem 2 – 10 Gary, Sonny, and Letty Partnership Statement of Partners' Capital Accounts Year Ended December 31, 2008 Gary Capital balances, 1/1/08 Additional investments P210,000 ___9,100 P180,000 _______ P 90,000 _______ P480,000 __9,100 Total Profit distribution: Salaries Interest Bonus to Gary and Sonny (Schedule 1) Balance, equally _219,100 _180,000 _90,000 489,100 10,640 10,800 13,680 25,920 – __(9,720) 11,520 21,600 – _(9,720) _(9,720) 35,840 58,320 – (29,160) __29,880 _23,400 _11,720 _65,000 Total Drawings 248,980 _(21,000) 203,400 101,720 554,100 (18,000) __(9,000) _(48,000) Capital balances, 12/31/08 P227,980 Total P185,400 Schedule 1: Computation of the bonus. Net profit before interest, salaries and bonus Less: Salaries Interest Net profit (loss) before bonus Therefore no bonus is to be given to Gary and Sonny. P 65,000 P35,840 _58,320 __94,160 P(29,160) P 92,720 P506,100

(20) Partnership Operations 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) (2) (3) (4) (5) (6) (7) (8) Inventory Cash Accounts payable 1,100,000 800,000 1,300,000 1,000,000 500,000 200,000 2,200,000 1,300,000 300,000 240,000 60,000 Mortgage payable Interest expense Cash 50,000 20,000 Installment note payable 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

(21) 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 Kobe, drawing Lebron, drawing 104,000 104,000 105,000 105,000 104,000 104,000 Schedule to allocate partnership net income for 2008: Kobe Profit percentage 60% Beginning capital balance P2,200,000 Net income (P1,550,000 revenue - P 1,340,000 expenses) Interest on beginning capital balances (3%) 66,000 Salaries Residual deficit Total b. Lebron 40% P1,300,000 Total 100% P3,500,000 210,000 39,000 120,000 120,000 (81,000) P105,000 (54,000) P105,000 (105,000) P105,000 (240,000) P(135,000) (135,000) -0- Kobe-Lebron Partnership Income Statement For the Year Ended December 31, 2008 Sales Less: Cost of goods sold: Inventory, January 1 Purchases Goods available for sale Less: Inventory, December 31 Gross profit Less: Selling and general expenses Depreciation expenses Operating income Nonoperating expense- interest Net income P1,550,000 P800,000 300,000 P1,100,000 (200,000) 340,000 60,000 (900,000) P650,000 400,000 P250,000 (40,000) P210,000

(22) Partnership Operations c. 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 Installment note payable Mortgage payable Total liabilities Capital: Kobe, capital Lebron, capital Total capital Total liabilities and capital P60,000 62,000 165,000 450,000 P737,000 P2,201,000 1,301,000 3,502,000 P4239,000

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