Solutions to chapter 3 selected problems

P 3-4

1. Basa Benito Beltran Bagnes Total

Salaries P400,000 P200,000 P 600,000

Bonus 60,000 40,000 100,000*

Interest 100,000 90,000 P 40,000 P 94,000 324,000

Balance 269,000 269,000 269,000 269,000 1,076,000

Total P829,000 P599,000 P309,000 P363,000 P2,100,000

*B = 5% (P2,100,000 – B) = P100,000 x 3/5 = P60,000

x 2/5 = 40,000

2. Basa Benito Beltran Bagnes Total

Salaries P 400,000 P 200,000 P 600,000

Interest 100,000 90,000 P 40,000 P 94,000 324,000

Balance (431,000) (431,000) (431,000) (431,000) (1,724,000)

Total P 69,000 P(141,000) P (391,000) (P337,000) (P800,000)

3. Basa Benito Beltran Bagnes Total

Interest P 100,000 P 90,000 P 40,000 P 94,000 P 324,000

Bonus 22,857 15,238 38,095

Salaries 291,937 145,968 437,905*

Total P 414,794 P 251,206 P 40,000 P 94,000 P 800,000

B = 5% (P800,000 – B) = P38,095 x 3/5 = P22,857; P38,095 x 2/5 = P15,238

*P437,905 x 4/6 = P291,937; P437,905 x 2/6 = P145,968

P 3-5

1. Balte Bala Total

8% interest on capital P40,000 P 24,000 P 64,000

Salaries 120,000 80,000 200,000

20% bonus on net income 238,000 238,000

 Balance – capital ratio 430,000 258,000 688,000

Total P828,000 P 362,000 P1,190,000

2. Sales 4,800,000

Cost of Goods Sold 2,100,000

Operating Expenses 1,000,000

Income Taxes 510,000

Income Summary 1,190,000

Income Summary 1,190,000

Balte, Capital 828,000

Bala, Capital 362,000

Balte, Capital 60,000

Bala, Capital 100,000

Balte, Drawing 60,000

Bala, Drawing 100,000

Balte and Bala Partnership

Statement of Changes in Partners’ Equity

For the Year Ended December 31, 2014

Balte Bala Total

Capital balances, January 1, 2014 P 500,000 P300,000 P 800,000

Add Distribution of net income for 2014:

Interests P 40,000 P 24,000 P 64,000

Salaries 120,000 80,000 200,000

Bonus 238,000 238,000

Balance - capital ratio 430,000 258,000 688,000

Total share in net income P 828,000 P 362,000 P1,190,000

Total P1,328,000 P 662,000 P1,990,000

Less Drawings 60,000 100,000 160,000

Capital balances, December 31, 2014 P1,268,000 P 562,000 P1,830,000

P 3-6

1. Net sales (P1,525,000 – P25,000) P1,500,000

Cost of goods sold:

 Purchases P980,000

Less Merchandise inventory, end 305,000 675,000

Gross profit P 825,000

Operating expenses (300,000 – 12,500 – 5,000 + 17,500 + 30,000) 330,000

Income before income tax P 495,000

Income tax 148,500

Net income P 346,500

2. Brenda Brosas Total

Salaries (P150,000 x 8/12) P100,000 P100,000

Additional 10% of NI after salaries 24,650 24,650

Balance – original capital 138,656 P83,194 221,850

Total P263,306 P83,194 P346,500

3. Brenda Brosas Total

Beginning capital P625,000 P375,000 P1,000,000

Add Share in net income 263,306 83,194 346,500

Total P888,306 P458,194 P1,346,500

Less Drawings 100,000 150,000 250,000

Ending capital P788,306 P308,194 P1,096,500

P 3-7

Be on Top Company

Income Statement

For the Year Ended December 31, 2014

Sales P5,100,000

Cost of goods sold:

Purchases P4,920,000

Less: Purchase returns and allowances P 99,000

Purchase discounts 138,000 237,000

Cost of goods available for sale P4,683,000

Less Merchandise inventory, December 31 1,406,000 3,277,000

Gross profit P1,823,000

Other operating income – interest 27,000

Selling expenses (schedule 1) ( 530,300)

Administrative and general expenses (schedule 2) ( 801,800)

Operating income P 517,900

Interest expense ( 30,000)

Net income before Income Tax P487,900

Income Taxes 146,370

Net Income after Income Tax P 341,530

Division of net income:

Bathan Buenas Total

Interest P 60,000 P 48,900 P108,900

Salaries 100,000 100,000

Balance – divided equally 66,315 66,315 132,630

Total P226,3150 P115,215 P341,530

Schedule 1 – Selling expenses Schedule 2 – General and administrative expenses

Sales salaries P480,000 Taxes P 36,500

Store supplies 19,500 Doubtful accounts 9,300

Depreciation 21,300 Others 756,000

Advertising 9,500 Total P801,800

P530,300

Be on Top Company

Statement of Changes in Partners’ Equity

For the Year Ended December 31, 2014

Bathan Buenas Total

Original capital P600,000 P489,000 P1,089,000

Add Share in net income 226,315 115,215 341,530

Total P826,315 P604,215 P1,430,530

Less Drawing 144,000 54,000 198,000

Capital, December 31, 2010 P682,315 P550,215 P1,232,530

Be on Top Company

Statement of Financial Position

December 31, 2014

Assets

Current assets:

Cash P582,750

Notes receivable 120,000

Accounts receivable P186,000

 Less Allowance for doubtful accounts 9,300 176,700

Interest receivable 6,000

Merchandise inventory 1,406,000

Prepaid taxes 10,000

Store supplies 16,500 P2,317,950

Noncurrent assets

Store furniture P222,000

Less Accumulated depreciation 21,300 200,700

Total assets P2,518,650

Liabilities and Capital

Current liabilities;

Notes payable P 360,000

Accounts payable 756,000

Advertising payable 9,500

Taxes payable 10,500

Interest payable 3,750

Income tax payable 146,370

Total liabilities P1,286,120

Bathan, capital P 682,315

Buenas, capital 550,215

Total partners’ capital 1,232,530

Total liabilities and capital P2,518,650

3. Adjusting entries

Adjustment for inventories is included in the closing entries

a. Store Supplies Expense 19,500

Store Supplies 19,500

b. Depreciation Expense 21,300

Accumulated Depreciation 21,300

c. Advertising Expense 9,500

Advertising Payable 9,500

d. Prepaid Taxes 10,000

Taxes 10,000

e. Taxes 10,500
 Taxes Payable 10,500

f. Interest Expense 3,750

Interest Payable 3,750

g. Interest Receivable 6,000

Interest Revenue 6,000

h. Doubtful Accounts Expense 9,300

Allowance for Doubtful Accounts 9,300

i. Income Tax 146,370

Income Tax Payable 146,370

Closing entries

a. Merchandise Inventory 1,406,000

Interest Revenue 27,000

Purchase Returns and Allowances 99,000

Purchase Discounts 138,000

Sales 5,100,000

Income Summary 6,770,000

b. Income Summary 6,428,470

General Expenses – Others 756,000

Interest Expense 30,000

Purchases 4,920,000

Sales Salaries 480,000

Taxes 36,500

Store Supplies Expense 19,500

Depreciation Expense 21,300

Advertising Expense 9,500

Doubtful Accounts Expense 9,300

Income Taxes 146,370

c. Income Summary 341,530

Bathan, Capital 226,3150

Buenas, Capital 115,215

d. Bathan, Capital 144,000

 Buenas, Capital 54,000

Bathan, Drawing 144,000

Buenas, Drawing 54,000

P 3-8

Bacani, Badeo and Barte

Statement of Changes in Partners’ Equity

For the Three Years Ending December 31, 2014

Bacani Badeo Barte Total

Original capital P1,000,000 P500,000 P 400,000 P1,900,000

Less: Share in net loss – 2012 (sch. 1) ( 8,000) ( 14,000) ( 20,000) ( 42,000)

Drawing (72,000) (86,800) ( 96,000) (254,800)

Capital, January 1, 2013 P 920,000 P 399,200 P 284,000 P1,603,200

Add Share in net income – 2013 (sch. 2) 107,200 99,952 93,040 300,192

Total P1,027,200 P 499,152 P 377,040 P1,903,392

Less Drawing 139,600 163,200 177,200 480,000

Capital, January 1, 2014 P 887,600 P 335,952 P 199,840 P1,423,392

Add Share in net income – 2014 (sch. 3) 170,855 153,656 145,489 470,000

Total P1,058,455 P 489,608 P 345,329 P1,893,392

Less Drawing 163,200 195,200 169,600 528,000

Capital, December 31, 2014 P 895,255 P 294,408 P 175,729 P1,365,392

Schedule 1 – Distribution of 2012 net loss

Bacani Badeo Barte Total

Salaries P 96,000 P 120,000 P 120,000 P336,000

Interest on beginning capital 60,000 30,000 24,000 114,000

Balance – equally ( 164,000) ( 164,000) ( 164,000) ( 492,000)

Total P( 8,000) P( 14,000) P(20,000) P( 42,000)

Schedule 2 – Distribution of 2013 net income

Bacani Badeo Barte Total

Salaries P 96,000 P 120,000 P 120,000 P336,000

Interest on beginning capital 55,200 23,952 17,040 96,192

Balance – equally ( 44,000) ( 44,000) ( 44,000) ( 132,000)

Total P 107,200 P 99,952 P 93,040 P300,192

Schedule 3 – Distribution of 2014 net income

 Bacani Badeo Barte Total

Salaries P 96,000 P 120,000 P 120,000 P336,000

Interest on beginning capital 53,256 20,157 11,990 85,403

Bonus 8,100 8,100

Balance – equally 13,499 13,499 13,499 40,497

Total P 170,855 P 153,656 P 145,489 P470,000

Bonus = P470,000 – (P336,000 + P85,403) x 20/120 = P8,100

P 3-9
1. Balmes = 5/10 x 80% = 40%
Bamban = 3/10 x 80% = 24%
Buela = 2/10 x 80% = 16%
Bagnes 20%

2. Corrected net income = P400,000 – ( P24,000 - P62,000 - P40,000 + P30,000 + P18,000

x 70%) = P379,000

Balmes = P379,000 x 40% = P151,600 Buela = P379,000 x 16% = P60,640

Bamban = P379,000 x 24% = P 90,960 Bagnes = P379,000 x 20% = P75