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
X’s share of net income: 360/864 of P345,600 Y’s 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
X’s share of net income: 432/972 of P345,600 Y’s 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.
Y’s interest on excess average capital: 6% of (P486,000 – P414,000)………………….. – 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
Y 4,320
Total P 4,320
227,520 P 231,840
341,280 P345,600
P P 113,760 P 113,760
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) 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……………… Salaries……………0 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
(10,560) P10,040
(17,600) P9,600
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)
Totals P17,200 48,000
(36,200) P30,000
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
28,000
1 Total Average
1.
28,000 358,000 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 I nvestments
(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 interests…………………P 92,080 Less: Operating expenses (including salaries)……………………….. 40,000 Net Income after partners’ salaries but before interests……………P 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 Addit’l. 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 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 ..........................................................................
59,000 31,000
31,000 11,000 20,000
(To close net income to partners' capital – see 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 4.
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 Smith — assigned 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
32,000 4,400 6,600
45,000 50,000 (96,000) 31,000 P 30,000
2. b Salaries
A 2,000
B 25,000
10M 45,000
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.
b
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 =
150,000
207,500 P 487,500 x 10% = P48,750
5. d - ASSIGNMENT OF INCOME Interest — 10% of beginning capital .......................... Salary .................................................. Allocation of remaining i ncome (P6,000 divided on a 3:3:4 basis) .......... 1,800 Totals ........................................
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
TOTAL
P24,000
P50,000
STATEMENT OF CAPITAL Beginning capital ................................. Net income (above) ............................. Drawings (given) ................................... Ending capital .......................................
CARTWRIGHT P100,000 12,400 (5,000) P107,400
TOTAL P240,000 50,000 (15,000) P275,000
6. a - ASSIGNMENT OF INCOME — YEAR ONE WINSTON
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)
WINSTON P110,000 (9,000) (10,000) P 91,000
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
WINSTON
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
Interest — 10% 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 CAPITAL — YEAR ONE Beginning capital ................................. Net loss (above) .................................... Drawings (given) ................................... Ending capital ................................ ASSIGNMENT OF INCOME — YEAR TWO Interest — 10% 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 CAPITAL — YEAR TWO Beginning capital (above) ................... Net income (above) ............................. Drawings (given) ................................... Ending capital ................................
WINSTON P 91,000 21,600 (10,000) P102,600
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
B
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 there’s 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 __3,000 P 43,000
B P 40,000 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 there’s 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/adjust ment 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 o f 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) - Partner’s 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
P
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
