Activity 1.2.

Direction: Provide what is asked.

Test I. Long Problem

The capital accounts of Castro and Diaz show the following facts for the fiscal year ended December 31, 2016:

Castro Diaz
Jan. 1 Balance P 26,000 Jan. 1 Balance P 16,500
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 P 23,800 on December 31.

Required: Prepare a schedule of profit distribution under the following independent agreements on the division of profits:
1. In the ratio of investments at the beginning or the fiscal period.
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 Castro and Diaz of P 36,000 and P 24,000, respectively, and any balance
equally. Investments and withdrawals are to be considered as in (2).
4. Allowance to Castro 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 Castro and
Diaz, respectively.

Test II. Short Problems

1. Peter and Paul formed a partnership on January 2, 2016, and agreed to share net income and losses 90 percent and 10
percent, respectively. Peter invested cash of P 250,000. Paul invested no assets but had a specialized expertise and
managed the firm full time. The partnership contract provided the following:
 Partners’ capital accounts are to be credited annually with interest at 5 percent of beginning capital account
balances.
 Paul is to be paid a salary of P 10,000 a month.
 Paul is to receive a bonus of 20 percent of income before deduction of salary bonus and interest on partners’ capital
account balances.
 Bonus, interest, and Paul salary are considered expenses.

The statement of comprehensive income for the year ended 2016 for the partnership includes the following:
Revenue P 964,500
Expenses (including salary, interest, and bonus to Paul) 497,000
Net income P 467,500

What is Paul’s bonus for 2016? ___________________

2. LL, MM and PP are partners with capitals of P 40,000, P 25,000 and P 15,000 respectively. The partnership agreement
provides that each partner shall be allowed 5 percent interest on his capital, that LL shall be allowed an annual salary of P
8,500, and that MM shall be entitled to a minimum of P 14,000 per annum including amounts allowed as interest on capital
and as share of profit. Profit after interest and salary allowances is to be divided between LL, MM and PP 5:3:2 respectively.
What amount must be earned by the partnership during 2016 before charged for interest or salary if LL is to receive an
aggregate of P 20,000 to include interest, salary and share of profit? ________________

3. Mel and Jay are partners with capitals of P 200,000 and P 120,000, respectively. The partnership agreement provided the
following:
 10 percent interest on their capital investments
 Annual salary of P 36,000 to Mel
 Remainder in 60:40 ratio to Mel and Jay.

What is the profit to be earned by the partnership before charges for interest, salary and the balance, so that Jay will received
P 40,000 in the remainder of the profit after salary and interest? _______________