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CHAPTER 1

SUGGESTED ANSWERS

EXERCISES
Exercise 1 –1

1a. Accounts Receivable 60,000


Inventory 100,000
Furniture (P20,000 x 3/8) 7,500
Goodwill 30,000
Allowance for Bad Debts 24,000
Accounts Payable 90,000
D. Campos, Capital 83,500
To record the contribution of D. Campos.

1b. Cash (P83,500 x 1/2) 41,750


J. Tomas, Capital 41,750
To record contributions of J. Tomas

Req. 2.
Campos and Tomas Co.
Balance Sheet
July 1, 2001

Assets Liabilities & Owners’ Equity


Cash P41,750 Accounts Payable P90,000
Accounts Rec’l P60,000 D. Campos, Capital 83,500
Less Allowance for J. Tomas, Capital 41,750
Doubtful Accts. 24,000 36,000
Inventory 100,000
Furniture 7,500
Goodwill 30,000 ________
TOTAL LIABILITIES &
TOTAL ASSETS P215.250 OWNERS’ EQUITY P215,250

Exercise 1 - 2

1. Computation of average capital


a. R. Garcia
Jan. 1 - Feb 28 P30,000 x 2 P 60,000
Mar. 1 - June 30 25,000 x 4 100,000
July 1 - Sept. 30 35,000 x 3 105,000
Oct. 1 - Oct. 31 45,000 x 1 45,000
Nov. 1 - Dec. 31 37,500 x 2 75,000
P385,000/12 P32,083
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 2

b. G. Fortes
Jan. 1 - Mar. 31 P33,000 x 3 P 99,000
Apr. 1 - Aug. 31 48,000 x 5 240,000
Sept 1. - Dec. 31 44,000 x 4 176,000
P515,000/12 42,917

Total average capital (P32,083 + P42,917) P75,000

2. Division of Profit

R. Garcia 32,083/75,000 x P13,500 P 5,775


G. Fortes 42,917/75,000 x P13,500 7,725
P13,500

Exercise 1 - 3

1. Income Summary 238,000


A. Santos, Capital (P23,800 x 260/425) 145,600
S. Abad, Capital (P23,800 x 165/425) 92,400

2. Income Summary 238,000


A. Santos, Capital 148,750
S. Abad, Capital 89,250
A. Santos:
Jan. 1 - mar. 31 P260,000 x 3 P780,000
Apr. 1 - Apr. 30 290,000 x 1 290,000
May 1 - July 31 360,000 x 3 1,080,000
Aug. 1 - Dec. 31 320,000 x 5 1,600,000
P3,750,000/12 P312,500

S. Abad:
Jan. 1 - May 31 P165,000 x 5 P825,000
June 1 - Aug. 31 215,000 x 3 645,000
Sept.1 - Dec. 31 195,000 x 4 780,000
P2,250,000/12 P187,500

3. Income Summary 238,000


A. Santos, Capital 147,750
S. Abad, Capital 90,250
A. Santos S. Abad Total
Interest on ave. capital P ,,18,750 P 11,250 P 30,000
Salaries to partners ,150,000 100,000 150,000
Balance - equally ( ,,21,000) ( 21,000) (42,000)
TOTAL P 147,750 P 90,250 P238 000

4. Income Summary 238,000


A. Santos, Capital 164,840
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 3

S. Abad, Capital 73,160


A. Santos S. Abad Total
Bonus to A. Santos
25% (P238,000 - B) P 47,600 P 47,600
Interest of 6% on excess
average investment
6% (P312,500 - P187,500) 7,500 7,500
Balance - 3:2 109,740 73,160 182,900
TOTAL P 164,840 P73,160 P238,000

5. Income Summary 238,000


A. Santos, Capital (P23,800 x 15/25) 142,800
S. Abad, Capital (P23,800 x 10/25) 95,200

Exercise 1 – 4

Sanchez and Gomez


Schedule of Distribution of Net Income
December 31, 2001

Sanchez Gomez Total


6% interest on average capital P 6,246 P 14.440 P 20,686
10% bonus on net income after interest 13,931 13,931
Salaries 50,000 60,000 110,000
Balance – 70%, 30% 10,768 4,615 15,383
Total P80,945 P79,055 P160,000

Computation of average capital:


Sanchez, Capital Gomez, Capital
Jan. 1 P81,600 x 3 P 244,800 Jan. 1 P224,000 x 7 P1,568,000
Apr. 1 P111,600 x 9 1,004,400 Aug. 1 P264,000 x 5 1,320,000
P1,249,200 P2,888,000
Ave. capital (P1,249,200/12) P104,100 Ave. capital (P2,888,000/12) P240,667

Computation of bonus: P160,000 – P20,686 = P139,314 x 10% = P13,931

2.
Sanchez and Gomez
Statement of Partners’ Capital
For the Year Ended December 31, 2001

Sanchez Gomez Total


Capital, January 1 P 81,600 P224,000 P305,600
Additional investment 30,000 40,000 70,000
Net income 80,945 79,055 160,000
Drawings ( 41,600) ( 41,600) ( 83,200)
Capital, December 31 P150,945 P301,455 P452,400

3 Sanchez Gomez Total


.
6% interest on average capital P 6,246.00 P14.440.00 P 20,686.00
10% bonus on net income after interest 13,931.00 13,931.00
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 4

Salaries 60,000.00 70,000.00 130,000.00


Balance – 50%, 50% ( 2,268.50) ( 2,268.50) ( 4,537.00)
Total P77,908.50 P 82,171.50 P160,000.00

Exercise 1 – 5

1. B = .25 x P50,000 = P12,500

2. B = .25 x P50,000 = P10,000


1.25

3. B = .25 (P50,000 - Tax)


T = .32 x P50,000 = P16,000
B = .25 (P50,000 – P16,000)
B = P 8,500

4. B = .25 (P50,000 - B - Tax)


B = .25 (P50,000 - B - P16,000)
B = P8,500 - .25B
B = P8,500/1.25
B = P6,800

Exercise 1 - 6

Net increase (decrease) in capital P(120,000)


Add Withdrawals 260,000
Total P 140,000
Deduct Additional investments 50,000
Share in net income P 90,000
Profit share ÷ 30%
Total income of the partnership P 300,000

Exercise 1 –7

1.
Benito Cabral Duenas Total
Capital balances before payment
of cash P120,000 P100,000 P100,000 P320,000
Required capital balances based on
on profit and loss ratio 128,000 112,000 80,000 320,000
Cash received (paid) (P 8,000) (P 12,000) P 20,000 -

Journal entry on the partnership books

D. Duenas, Capital 20,000


B. Benito, Capital 8,000
C. Cabral, Capital 12,000

2.
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 5

Benito Cabral Duenas Total


Capital balances before payment
of cash P120,000 P100,000 P100,000 P320,000
Required capital balances based on
lowest possible cash investment* 160,000 140,000 100,000 400,000
Required additional cash investment P 40,000 P 40,000 - P 80,000
* P120,000/40% = P300,000; P100,000/35% = P285,174; P100,000/25% = P400,000

Exercise 1 – 8

Enriquez and Flores


Schedule Showing Adjustments in Capital
For the Year Ending December 31, 200

Reported net income P40,000


Adjustments:
Equipment purchased charged to expense 20,000
Depreciation on equipment ( 2,000)
Overstatement of 2000 ending inventory (24,000)
Corrected net income P34,000

Distribution of 2000 net income


Enriquez Flores Total
Salaries P12,000 P12,000 P24,000
Interest 3,000 4,500 7,500
Balance 5,100 3,400 8,500
P20,100 P19,900 P40,000

Distribution of 2000 corrected net income


Salaries P12,000 P12,000 P24,000
Interest 3,000 4,500 7,500
Balance 1,500 1,000 2,500
P16,500 P17,500 P34,000
Adjustments P 3,600 P 2,400 P 6,000

2. Equipment 20,000
Enriquez, Capital 3,600
Flores, Capital 2,400
Accumulated Depreciation 2,000
Inventory 24,000

PROBLEMS
Problem 1 – 1

1. Cash 90,000
Inventories 150,000
Equipment 300,000
Notes Payable 105,000
Serrano, Capital 435,000
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 6

Cash 60,000
Land 600,000
Mortgage Payable 195,000
Torres, Capital 465,000

Torres, Capital 15,000


Serrano, Capital 15,000

Purchases 90,000
Accounts Payable 90,000

Accounts Payable 72,000


Cash 72,000

Mortgage Payable 30,000


Interest Expense 12,000
Cash 42,000

Notes Payable 22,500


Interest Expense 7,500
Cash 30,000

Accounts Receivable 345,000


Sales 345,000

Cash 315,000
Accounts Receivable 315,000

Selling and General Expenses 87,000


Cash 63,000
Accumulated Depreciation 15,000
Accrued expenses 9,000

Serrano, Drawing 35,100


Torres, Drawing 35,100
Cash 70,200

Inventories, end 60,000


Sales 345,000
Inventories, beginning 150,000
Purchases 90,000
Selling and General Expenses 87,000
Interest Expense 19,500
Income Summary 58,500

Income Summary 58,500


Serrano, Capital 31,500
Torres, Capital 27,000
Serrano Torres Total
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 7

Interest on beginning capital P18,000 P18,000 P36,000


Salaries 45,000 30,000 75,000
Remainder – 60%, 40% ( 31,500) ( 21,000) ( 52,500)
Total P31,500 P27,000 P58,500

Serrano, Capital 35,100


Torres, Capital 35,100
Serrano, Drawing 35,100
Torres, Drawing 35,100

Serrano and Torres Partnership


Income Statement
For the Year Ended December 31, 2001

Sales P345,000
Cost of goods sold:
Inventories, beginning P150,000
Purchases 90,000
Cost of goods available for sale P240,000
Less Inventories, end 60,000 180,000
Gross profit P165,000
Selling and general expenses 87,000
Operating income P 78,000
Interest expense 19,500
Net income P 58,500

Serrano and Torres Partnership


Balance Sheet
December 31, 2001

Assets
Current assets:
Cash P187,800
Accounts receivable (P345,000 – P315,000) 30,000
Inventories 60,000 P
277,800
Property, plant and equipment:
Land P600,000
Equipment P300,000
Less Accumulated depreciation 15,000 285,000 885,00
0
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 8

Total assets P1,162,80

Liabilities
Current liabilities:
Accounts payable (P90,000 – P72,000) P18,000
Accrued expenses 9,000 P
27,000
Long-term liabilities:
Notes payable (P105,000 – P22,500) P 82,500
Mortgage payable (P195,000 – P30,000) 165,000 247,500
Total liabilities P
274,500

Partners’ Capital
Serrano, capital P446,400
Torres, capital 441,900
Total capital 888,30
0
Total liabilities and capital P1,162,80

Problem 1 - 2

Ramos, Gonzales and Martinez


Statement of Changes in Partners’ Capital
For Three Years Ended December 31, 2001

Ramos Gonzales Martinez Total


Capital, January 1, 1999 P 80,000 P 48,000 P 40,000 P 168,000
Distribution of net loss (Sch. 1) ( 2,000) ( 1,520) ( 2,000) ( 5,520)
Withdrawals (12,000) (14,480) (16,000) (42,480)
Capital, December 31, 1999 P 66,000 P 32,000 P 22,000 P120,000
Distribution of net profit (Sch. 2) 7,960 8,320 7,720 24,000
Withdrawals (13,960) (16,320) (17,720) (48,000)
Capital, December 31, 2000 P 60,000 P 24,000 P12,000 P 96,000
Distribution of net profit (Sch. 3) 21,840 18,840 18,120 58,800
Withdrawals (20,400) (24,000) (21,200) (65,600)
Capital, December 31, 2001 P 61,440 P 18,840 P 8,920 P 89,200

Schedule 1 - Distribution of 1999 net loss

Ramos Gonzales Martinez Total


Salaries to partners P 9,600 P 12,000 P 12,000 P 33,600
Interest of 6% on beg. capital 4,800 2,880 2,400 10,080
Balance - equally (16,400) (16,400) (16,400) P 49,200
Net income P( 2,000) P( 1,520) P( 2,000) P( 5,520)

Schedule 2 - Distribution of 2000 net profit

Ramos Gonzales Martinez Total


Chapter 1 – Partnership Formation and Operations
Suggested Answers page 9

Salaries to partners P 9,600 P 12,000 P 12,000 P 33,600


Interest of 6% on beg. capital 3,960 1,920 1,320 7,200
Balance - equally ( 5,600) ( 5,600) ( 5,600) (16,800)
Net income P 7,960 P 8,320 P 7,720 P 24,000

Schedule 3 - Distribution of 2001 net profit

Ramos Gonzales Martinez Total


Salaries to partners P 9,600 P 12,000 P 12,000 P 33,600
Interest of 6% on beg. capital 3,600 1,440 720 5,760
Bonus - 20% (P58,800 - P39,360 - B) 3,240 3,240
Balance - equally 5,400 5,400 5,400 16,200
Net income 21,840 18,840 18,120 58,800

Problem 1 - 3

Sheila, Banal and Reyes


Statement of Partners’ Capital
For the Year Ended December 31, 2001

Sheila Banal Reyes Total


Capital balances before closing
the nominal accounts P120,000 P ( 2,000) P20,000 P138,000
Add Distribution of net profit:
Drawing allowance 20,000 14,000 10,000 44,000
Interest on average capital 7,200 240 560 8,000
Balance - 60%, 30%, 10% 58,800 29,400 9,800 98,000
Total P206,000 P41,640 P40,360 P288,000
Deduct Cash distribution 122,720 26,480 149,200
Capital, December 31, 2001 P 83,280 P41,640 P13,880 P138,800

Problem 1 - 4

Canlas, David, Estrella and Fajardo


Statement of Changes in Partners’ Capital Accounts
For the Year Ended December 31, 2001

Canlas David Estrella Fajardo Total


Investment P309,000 P159,000 P327,000 ------- P
795,000
Net income 237,700 186,230 140,310 P 24,010 588,250
Total P546,700 P345,230 P467,310 P 24,010 P1,383,25
0
Less: Excess rent (P225 x 6) P 13,500 P
13,500
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 10

Withdrawals P 78,000 P 66,000 87,000 P 37,500 268,500


Uncollectible accounts 18,000 6,750 24,750
P 96,000 P 72,750 P100,500 P 37,500 P
306,750
Capital, December 31 P450,700 P272,480 P366,810 P(13,490) P1,076,50
0

Supporting computations:

Revenue from fees P 900,000


Expenses:
Total expenses, net of depreciation and uncollectible
accounts (P29,000 - P1,350) P 276,500
Depreciation [(P19,500 x 10%) + (P7,500 x 5%) 23,250
Doubtful accounts (P2,400 x .50) 12,000 311,750
Net income P588,250

Distribution of net income

Canlas David Estrella Fajardo Total


20% of gross fees from respective
clients P 66,000 P 36,000 P 33,000 P135,000
20% of fees after April 1 after
expenses but before bad debts P24,010* 24,010
Balance -Canlas-40%, David-35%,
Estrella-25% 171,700 150,230 107,310 429,240
Total P237,700 P186,230 P140,310 P24,010 P588,250

Total After April 1


Revenues P 900,000 P 180,000
Expenses before uncollectible accounts 299,750 59,950
P120,050
20%
Share of Fajardo P 24,010

MULTIPLE CHOICE
A. 1. D
B. 1. C
C. 1. C
D 1. C Roxas = P59,625 - P555 = P59,070
Solomon = P33,500 - P405 - P900 = P32,195

E. 1. B Bruno = P150,000 - P90,000 = P60,000


2. A Total assets = Total liab. + Total capital
= P25,000 + P300,000
= P325,000
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 11

F. 1. A Cash contribution = (P248,850 x 1/3) – P50,000 = P32,950

2. D Total capital = (P158,400 + P17,500 – P5,000 – P5,000) ÷ 2/3 = P248,850

G. 1. D Total partnership capital ( P115,000/40% ) P287,500


Capital credit of Estipona (P287,500 x 60%) 172,500
Cash contribution P 77,500

2. B Contribution of Diaz P115,000


Contribution of Estipona (P125,000 – P30,000 + P50,000) 145,000
Total partnership capital P260,000

3. C P115,000 + P95,000 = P210,000/2 P105,000

H. 1. C
2. B

I. 1. C Net income (exclusive of salary, interest and bonus) P 93,500


Salary (P2,000 x 12) 24,000
Interest (P50,000 x 5%) 2,500
Net income after deduction of bonus P120,000

Bonus = .20 (P120,000 + Bonus) = P24,000 + .20 Bonus


= P24,000/.80 = P30,000

J. 1. D

K. 1. C Alberto Bustamante Cancio Total


10% x P1,000,000 P 100,000 P 100,000
20% x P1,500,000 300,000 300,000
5% (P1M – P400,000) P30,000 P30,000 60,000
Balance – equally 680,000 680,000 680,000 2,040,000
Net income P1,080,000

L. 1. A Rante Dela Cruz Ocampo Total


Interest P24,000 P12,000 P 8,000 P 44,000
Salaries 60,000 40,000 100,000
Balance – equally ( 70,000) (70,000) ( 70,000) ( 210,000)
P14,000

M 1. B
Romero Quinto Total
Salaries to partners P12,000 P 6,000 P18,000
Bonus - 10% (P33,000 - B) 3,000 3,000
Balance - equally 6,000 6,000 12,000
Net income P18,000 P15,000 P33,000

N 1. C Singson Torralba Verrano Total


Bonus - 10%(P44,000 - B) P 4,000 P 4,000
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 12

Interest on capital
in excess of P100,000 P 1,000 1,000
Salaries to partners P10,000 12,000 22,000
Balance - 4:4:2 6,800 6,800 3,400 17,000
TOTAL P16,800 P 7,800 P19,400 P44,000

O. 1. C Average capital of Victor Average capital of Villar


P40,000 x 3 = P120,000 P25,000 x 5 = P125,000
35,000 x 4 = 140,000 35,000 x 3 = 105,000
45,000 x 2 = 90,000 32,000 x 1 = 32,000
50,000 x 2 = 100,000 31,000 x 2 = 62,000
54,000 x 1 = 54,000 36,000 x 1 = 36,000
P504,000/12 P360,000/12
P42,000 P30,000

Victor - P120,000 x 42/72 = P70,000


Villar - P120,000 x 30/72 = P50,000

2. B Victor Villar Total


20% Interest on ave. capital P 8,400 P 6,000 P 14,400
Balance - equally 52,800 52,800 105,600
TOTAL P61,200 P58,800 P120,000

P 1. A Average capital of Tayag Average capital of Vidal


P100,000 x 6 = P 600,000 P225,000 x 9 = P2,025,000
160,000 x 6 = 960,000 155,000 x 3 = 465,000
P1,560,000/12 P2,490,000/12
P130,000 P207,500

Average capital of Unso - P150,000

Total int. on ave. capital= (P130,000 + P207,500 + P150,000) 10%


= P48,750

2. D Interest on ave. capital P 48,750


Salaries to partners 144,000
Balance - divided equally 9,000
TOTAL P 201,750

3. B Total capital before net income P475,000


Add Net income 201,750
Total capital, Dec. 31, 2001 P676,750

Q 1. D Anton Briones Camba Total


Int. on average capital P 47,250 P 23,865 P 16,235 P 87,350
Salaries to partners 122,325 82,625 204,950
Balance - equally (139,308) (139,308) (139,308) (417,924)
Net increase (decrease) P 30,267 P(115,443) P( 40,448) P(125,624)

R. 1. C Net income = Net sales - CGS - Depr. - Oper. exp. Others)


= P228,000 - P123,000 - P7,500 - P58,100 = P39,400
Chapter 1 – Partnership Formation and Operations
Suggested Answers page 13

Mariano Lucas total


Salary to partner for 10 mos. P25,000 P 25,000
Bonus to managing partner 1,440 1,440
Balance – based on orig. cap. 8,100 P 4,860 12,960
TOTAL share in profit P 34,540 P 4,860 P 39,400

2. A TOTAL share in profit P 34,540 P 4,860 P 39,400


Add Capital, beginning 125,000 75,000 200,000
TOTAL P159,540 P 79,860 P 239,400
Less Withdrawals 20,000 30,000 50,000
Capital, end P139,540 P 49,860 P 189,400

S. 1. D Gomez Mana Lapid Nuguid Total


2. A Interest P 5,000.00 P 2,500.00 P 2,500.00 P2,000.00 P12,000.00
3. A Salaries 10,000.00 6,000.00 16,000.00
Balance 10,000.00 10,000.00 6,666.67 6,666.67 33,333.34
Add’l profit
for Nuguid ________ ________ _________ 3,333.33 3,333.33
Net income P25,000.00 P18,500.00 P9,166.67 P12,000.00 P64,666.67

T. 1. D Jimeno- 5/10 x 80% = 40% Soriano - 2/10 x 80% = 16%


Madrid- 3/10 x 80% = 24% Matias - 20%

2. A Share of Jimeno = P25,000 + P1,200 - P3,100 - P2,000 + P1,500 + P 900


= P23,500 x 40% = P9,400