Problem

1
The capital accounts of AA and BB show the following facts for the fiscal year ended December
31, 2019:

AA BB
Jan. 1 Balance P26,000 Jan. 1 Balance P16,500
Mar. 30 Investment 3,000 May 18 Investment 5,000
May 10 Investment 7,000 Aug. 24 Withdrawal 2,000
July 25 Withdrawal 4,000 Dec. 21 Balance 19,500
Dec. 31 Balance 32,000


The profit and loss account shows a credit balance of P23,800 on December 31.

Required: Distribute the net income of the partnership under each of the following
independent assumptions of division of profits and losses. After distributing the income,
compute for the ending capital of each partner at December 31, 2019.

Note: Your answer to each assumption must be four (4): (a) Profit share of AA, (2) Profit share
of BB, (3) Ending capital of AA, and (4) Ending capital of BB.

1. The partners did not have any agreement on how profits and losses must be distributed.

2. In the ratio of average capitals, investments and withdrawals are to be
considered as made at the beginning of the month if made before the middle of the
month, and are to be considered as made at the beginning of the following month if
made after the middle of the month.

3. Interest of 24% on average capitals, salaries to AA and BB of P36,000 and P24,000.,
respectively, and any balance equally. Investments and withdrawals are to be
considered as in (2).

4. Allowance to AA of a bonus of 25% of the net profit after bonus; interest of 10% to be
allowed on the excess of the average investment (simple average) of one partner over
that of the other, and any balance in the ratio of 3:2 to AA and BB, respectively.


5. Salaries of P3,000 and P2,000 a month to AA and BB, respectively provided annual
earnings are sufficient to cover the allowance; if earnings are insufficient, the profit shall
be distributed in the salary ratio; if operations result in a loss, it shall be distributed
equally.









Problem 2
Paolo, Vince, and Jimfred are manufacturers’ representative in the architecture business. Their
capital accounts in the ENW Partnership for 2016 were as follows:

Paolo Vince Jimfred
January 1, Balances P30,000 P40,000 P50,000
March 1, Withdrawal 9,000
April 1, Investment 7,000
May 1, Investment 6,000
June 1, Investment 3,000
July 1, Investment 5,000
August 1, Withdrawal 12,000
September 1, Withdrawal 8,000
September 1, Investment 4,000


Required: For each of the following independent income-sharing agreements, prepare an
income distribution schedule.
a) Salaries are P15,000 to Paolo, P20,000 to Vince and P18,000 to Jimfred. Paolo receives a
bonus of 5 percent of net income after deducting his bonus. Interest is 10 percent of
ending capital balances. Any remainder is divided by Paolo, Vince, and Jimfred in a
3:3:4 ratio. Net income was P78,960.
b) Interest is 10 percent of weighted average capital balances. Salaries are P24,000 to
Paolo, P21,000 to Vince, and P25,000 to Jimfred. Vince receives a bonus of 10 percent of
net income after deducting the bonus and his salary. Any remainder is divided equally.
Net income was P68,080.
c) Jimfred receives a bonus of 20 percent of net income after deducting the bonus and the
salaries. Salaries are P21,000 to Paolo, P18,000 to Vince, and P15,000 to Jimfred,
Interest is 10 percent of beginning capital balances.
Any remainder is divided by Paolo, Vince, and Jimfred in an 8:7:5 ratio. Net income was
P92,940.



Problem 3
Red, Gold and Maroon, who are accountants, agreed to combine their individual practices into a
partnership as of January 2, 2016. The partners reach agreement on the following matters.

1. Each partner’s capital contribution was the net amount of assets an liabilities taken
over by the partnership which were as follows:
Red P40,200
Gold 20,200
Maroon 40,600
Each partner guaranteed the collectability of their receivable form their clients:
2. The partners decided to occupy Maroon’s office space until the lease expired on June
30. The monthly rental was P1,200, but he partners agreed that this was an
excessive agreed that the excess rent would be charged to Maroon at the end of the
year. When the lease Expired on June 20, 2016, the partnership moved to new office
with a monthly rental of P1,000.
 3. No salaries are to be paid to the partners. The individual partners are to receive 20
percent of the gross fees billed to their respective clients during the firs year of the
partnership. After deducting operating expenses (excluding the excess rent), the
residual profit should be credited to partners’ Capital accounts in the following
ratios: Red, 40 percent; Gold, 40 percent; and Maroon 20 percent.
4. On April 1, 2016, Green was admitted to the partnership, Green is to receive 20
percent of the fees from new business. Expenses (excluding the excess rent) are to
be apportioned to the new business in the same ratio that total expenses for the
entire year, other than bad debt losses, bore to the total gross fees.

5. The following information pertains to the partnership’s activities in 2016

a) Fees were billed as follows:
Red’s clients P44,000
Gold’s clients 24,000
Maroon’s clients 22,000

New clients acquired after January 2, 2013
Before April 1 6,000
After April 1 24,000

b) Total expenses for 2016 were P38,700, excluding depreciation and
uncollectible accounts expenses but including the total amount paid for rent.
Depreciation was to be computed at the rate of 10 percent on original cost of
the following depreciable assets invested by the partners on January 2,2016.
Red P8,600
Gold 5,000
Maroon 12,400
Depreciable assets were purchased during 2016 for P10,000, on which one
half year’s depreciation was to be taken.

c) Cash withdrawals charge to the partners’ accounts during the year were:
Red P10,400
Gold 8,800
Maroon 11,600
Green 5,000

d) Of Red’s and Gold’s receivables, P2,400 and P900, respectively, proved to be
uncollectible. A new client billed in March for P3,000 had been adjudged
bankrupt, and a settlement of 40 cents on the peso was made.

Required: Prepare a Statement of Changes in Partners’ Equity for the year ended December 31,
2016. Show supporting computations.