ILLUSTRATION:

A and B are partners whose original investments on the date of formation of the partnership were
20,000 and 30,000 respectively. Their capital accounts at the end of the following year showed
the following:

A, Capital B, Capital
Mar 1 8,000 Jan 1 30,000 Jul 1 18,000 Jan 1 70,000
Aug 1 28,000 Dec 1 48,000
End 50,000 End 100,000

The partnership earned a profit of 24,000.

a. Divided EQUALLY
Formula: Net income divided by two
24,0000 ÷ 2 = 12,000
A: 12,000 B: 12,000
JE: Income and Expense Summary 24,000
A, Drawing (24,000 / 2) 12,000
B. Drawing (24,000 / 2) 12,000

b. Divided by using an arbitrary ratio expressed as a percentage

A: 20% B: 80%
JE: Income and Expense Summary 24,000
A, Drawing (24,000 x 20%) 4,800
B. Drawing (24,000 x 80%) 19,200

c. Divided by using an arbitrary ratio expressed as a fraction

A: 1/4 B: 3/4
JE: Income and Expense Summary 24,000
A, Drawing (24,000 x 1/4) 6,000
B. Drawing (24,000 x 3/4) 18,000

d. Divided by using an arbitrary ratio expressed as a ratio

Divided 3:5 for A and B, respectively
JE: Income and Expense Summary 24,000
A, Drawing (24,000 x 3/8) 9,000
B. Drawing (24,000 x 5/8) 15,000

e. Divided by using the capital ratio: Original Capital

JE: Income and Expense Summary 24,000
A, Drawing (24,000 x 20,000/50,000) 9,600
B. Drawing (24,000 x 30,000/50,000) 14,400

f. Divided by using the capital ratio: Beginning Capital

JE: Income and Expense Summary 24,000
A, Drawing (24,000 x 30,000/100,000) 7,200
B. Drawing (24,000 x 70,000/100,000) 16,800
g. Divided by using the capital ratio: Ending Capital
JE: Income and Expense Summary 24,000
A, Drawing (24,000 x 50,000/150,000) 8,000
B. Drawing (24,000 x 100,000/150,000) 16,000

h. Divided by using the capital ratio: Weighted Average Capital

A
Date Capital Balance Months Total
Jan 1 Beg 30,000 x 12/12 30,000.00
Mar 1 Withdraw 8,000 x 10/12 ( 6,666.67)
Aug 1 Additonal 28,000 x 5/12 11,666.67
Total 35,000.00
B
Date Capital Balance Months Total
Jan 1 Beg 70,000 x 12/12 70,000.00
Jul 1 Withdraw 18,000 x 10/12 ( 15,000.00)
Dec 1 Additonal 48,000 x 5/12 20,000.00
Total 75,000.00

JE: Income and Expense Summary 24,000

A, Drawing (24,000 x 35,000/110,000) 8,400
B. Drawing (24,000 x 75,000/110,000) 15,600

i. Interest is to be allowed on the partners' capital and the balance will be divided using an agreed ratio
Interest 6% on the beginning capital will be allowed and the balance is to be divided equally.
A B Total
Interest
A: (30,000 x 6%) 1,800 1,800
B: (70,000 x 6%) 4,200 4,200
Remainder (Balance) 9,000 9,000 18,000 (24,000 - 1,800 - 4,200)
10,800 13,200 24,000

JE: Income and Expense Summary 24,000

A, Drawing 10,800
B. Drawing 13,200

j. Salaries are to be allowed and the balance will be divided using an agreed ratio
A and B are allowed salaries of 6,000 and 8,000, respectively, and the balance is to be divided by 40% for A and 60% for B.
A B Total
Salaries 6,000 8,000 14,000
Remainder (Balance)
(24,000 - 14,000 = 10,000)
A: 10,000 x 40% 4,000 4,000
B: 10,000 x 60% 6,000 6,000
10,000 14,000 24,000
JE: Income and Expense Summary 24,000
A, Drawing 10,000
B. Drawing 14,000

k. Bonus is to be allowed and the balance will be divided using an agreed ratio: The bonus is computed on the net profit before
B, the managing partner is allowed a bonus of 20% of the net profit before bonus, and the balance is to be divided equally.
A B Total
Bonus (24,000 x 20%) 4,800 4,800
Remainder (Balance)
(24,000 - 4,800 = 19,200)
A: 19,200 x 50% 9,600 9,600
B: 19,200 x 50% 9,600 9,600
9,600 14,400 24,000

JE: Income and Expense Summary 24,000

A, Drawing 9,600
B. Drawing 14,400

l. Bonus is to be allowed and the balance will be divided using an agreed ratio: The bonus is computed on the net profit after b
B, the managing partner is allowed a bonus of 20% of the net profit after bonus, and the balance is to be divided equally.
Let X is equal to Bonus of Partner B.
X = 20% x (Net Income - X)
X = 20% x (24,000 - X)
X = 4,800 - 0.20X
1X + 0.20X = 4,800
1.20X = 4,800
X = 4,800 ÷ 1.20
X = 4,000
A B Total
Bonus 4,000 4,000
Remainder (Balance)
(24,000 - 4,000 = 20,000)
A: 20,000 x 50% 10,000 10,000
B: 20,000 x 50% 10,000 10,000
10,000 14,000 24,000

JE: Income and Expense Summary 24,000

A, Drawing 10,000
B. Drawing 14,000

m. Bonus is to be allowed and the balance will be divided using an agreed ratio: The bonus is computed before income tax
B, the managing partner is allowed a bonus of 20% of the net profit before income tax, and the balance is to be divided equa
Assuming the net income provided in the problem is income before income tax.
A B Total
Bonus (24,000 x 20%) 4,800 4,800
Remainder (Balance)
(24,000 - 4,800 = 19,200)
A: 19,200 x 50% 9,600 9,600
B: 19,200 x 50% 9,600 9,600
9,600 14,400 24,000

JE: Income and Expense Summary 24,000

A, Drawing 9,600
B. Drawing 14,400

n. Bonus is to be allowed and the balance will be divided using an agreed ratio: The bonus is computed after income tax
B, the managing partner is allowed a bonus of 20% of the net profit after income tax, and the balance is to be divided equall
The income tax rate is 30%. Assuming the net income provided in the problem is income before income tax.
Income tax expense = Income before income tax x 30%
Income tax expense = 24,000 x 30%
Income tax expense = 7,200
Let X is equal to Bonus of Partner B.
X = 20% x (Net Income - Income tax expense)
X = 20% x (24,000 - 7,200)
X = 20% x 16,800
X = 3,360
A B Total
Bonus 3,360 3,360
Remainder (Balance)
(16,800 - 3,360 = 13,440)
A: 13,440 x 50% 6,720 6,720
B: 13,440 x 50% 6,720 6,720
6,720 10,080 16,800

JE: Income and Expense Summary 16,800

A, Drawing 6,720
B. Drawing 10,080

o. Interest on partners' capital, salary allowances and bonus will be allowed and the balance will be divided using an agreed rat
10% interest is allowed on the beginning capital; each partner is allowed a salary of 5,000;
B - A bonus of 10% of the net profit before interest, salaries and bonus. The remainder will be divided equally.
A B Total
Interest
A: 30,000 x 10% 3,000 3,000
B: 70,000 x 10% 7,000 7,000
Salaries 5,000 5,000 10,000
Bonus (24,000 x 10%) 2,400 2,400
Remainder (Balance)
(24,000 - 10,000 - 10,000 - 2,400 = 1,600)
A: 1,600 x 50% 800 800
B: 1,600 x 50% 800 800
8,800 15,200 24,000

JE: Income and Expense Summary 24,000

 A, Drawing 8,800
B. Drawing 15,200

o. Interest on partners' capital, salary allowances and bonus will be allowed and the balance will be divided using an agreed rat
10% interest is allowed on the beginning capital; each partner is allowed a salary of 5,000;
A bonus of 10% of the net profit after interest, salaries and bonus. The remainder will be divided equally.
Let X is equal to Bonus of Partner B.
X = 20% x (Net Income - Interest - Salary - X)
X = 20% x (24,000 - 10,000 - 10,000 - X)
X = 20% x (4,000 - X)
X = 800 - 0.20X
1X + 0.20X = 800
1.20X = 800
X = 800 ÷ 1.20
X = 666.67
A B Total
Interest
A: 30,000 x 10% 3,000.00 3,000.00
B: 70,000 x 10% 7,000.00 7,000.00
Salaries 5,000.00 5,000.00 10,000.00
Bonus 666.67 666.67
Remainder (Balance)
(24,000 - 10,000 - 10,000 - 666.67 = 3,333.33)
A: 3,333.33 x 50% 1,666.67 1,666.67
B: 3,333.33 x 50% 1,666.66 1,666.66
9,666.67 14,333.33 24,000.00

JE: Income and Expense Summary 24,000.00

A, Drawing 9,666.67
B. Drawing 14,333.33
% for A and 60% for B.
d on the net profit before bonus.
s to be divided equally.

on the net profit after bonus.

o be divided equally.

d before income tax

nce is to be divided equally.
d after income tax
ce is to be divided equally.

vided using an agreed ratio

vided using an agreed ratio
ILLUSTRATION
CASE A
The partnership profit is 10,000. A and B agreed to provide 10% interest on ending capital balances and any remainder
divided equally.

A, Capital B, Capital
Mar 1 8,000 Jan 1 30,000 Jul 1 18,000 Jan 1 70,000
Aug 1 28,000 Dec 1 48,000
End 50,000 End 100,000

A B Total
Interest
A: (50,000 x 10%) 5,000 5,000
B: (100,000 x 10%) 10,000 10,000
Remainder (Balance) ( 2,500) ( 2,500) ( 5,000) (10,000 - 15,000)
2,500 7,500 10,000

JE: Income and Expense Summary 10,000

A, Drawing 2,500
B. Drawing 7,500

CASE B
The partnership loss is 20,000. A and B agreed to provide 10% interest on ending capital balances and any remainder i
divided equally.

A, Capital B, Capital
Mar 1 8,000 Jan 1 30,000 Jul 1 18,000 Jan 1 70,000
Aug 1 28,000 Dec 1 48,000
End 50,000 End 100,000

A B Total
Interest
A: (50,000 x 10%) 5,000 5,000
B: (100,000 x 10%) 10,000 10,000
Remainder (Balance) ( 17,500) ( 17,500) ( 35,000) (20,000 + 15,000)
( 12,500) ( 7,500) ( 20,000)

JE: A, Drawing 12,500

B. Drawing 7,500
Income and Expense Summary 20,000
l balances and any remainder is

balances and any remainder is

ILLUSTRATION

A and B Company
Adjusted Trial Balance
December 31, 2021

Debit Credit
Cash 280,000
Accounts Receivable 870,000
Inventory, January 1, 2021 80,000
Office Equipment 1,800,000
Accounts Payable 400,000
A, Capital 1,100,000
A, Drawing 130,000
B, Capital 1,200,000
B, Drawing 170,000
Sales 1,500,000
Purchases 570,000
Selling Expenses 200,000
General Expenses 100,000
4,200,000 4,200,000

The inventory as of December 31, 2021 is 50,000.

Assume that profit is divided as follows:
1) 10% interest is allowed on beginning capital balances.
2) Annual salaries of 200,000 and 150,000 are allowed to A and B, respectively.
3) Any remainder is divided equally.
Income tax rate is 30%.
 A and B Company
Worksheet
For The Year Ended December 31, 2021

Adjusted Statement of Income

Trial Balance
Account Title Debit Credit Debit Credit
Cash 280,000
Accounts Receivable 870,000
Inventory, January 1, 2021 80,000 80,000 50,000
Office Equipment 1,800,000
Accounts Payable 400,000
A, Capital 1,100,000
A, Drawing 130,000
B, Capital 1,200,000
B, Drawing 170,000
Sales 1,500,000 1,500,000
Purchases 570,000 570,000
Selling Expenses 200,000 200,000
General Expenses 100,000 100,000
TOTAL 4,200,000 4,200,000 950,000 1,550,000
Profit before tax 600,000
TOTAL 1,550,000 1,550,000

Profit before tax 600,000

Income tax expense 180,000
Profit after tax 420,000
600,000 600,000

Partners' Equtiy

Profit before tax 600,000

Income tax expense (600,000 x 30%) 180,000
Profit after tax 420,000

The profit is divided as follows:

A B Total
Interest allowance 110,000 120,000 230,000
Salary allowance 200,000 150,000 350,000
Remainder ( 80,000) ( 80,000) ( 160,000) (420,000 - 230,000 - 350,000)
Total 230,000 190,000 420,000

ADJUSTING ENTRY
Income tax expense 180,000
Income tax payable 180,000
To record income tax expense
CLOSING ENTRIES
Sales 1,500,000
Inventory, December 31, 2021 50,000
Income and Expense Summary 420,000
Purchases 570,000
Inventory, January 1, 2021 80,000
Selling Expenses 200,000
General Expenses 100,000
Income Tax Expense 180,000
To bring all revenue and expense accounts to zero balances

Income and Expense Summary 420,000

A, Drawing 230,000
B, Drawing 190,000
To divide profit between A and B

A, Drawing (230,000 - 130,000) 100,000 Share in profits

B, Drawing (190,000 - 170,000) 20,000 Withdrawals
A, Capital 100,000 Adjusted Drawing Balances
B, Capital 20,000
To transfer the net changes in equtiy to capital accounts
pany A and B
t Statemen
cember 31, 2021 For The Year End

Statement of Changes Statement of Sales

in Partners' Equity Financial Position
Debit Credit Debit Credit Less: Cost of Goods Sold
280,000 Inventory, January 1
870,000 Purchases
50,000 Cost of goods available for sale
1,800,000 Less: Inventory, December 31
400,000 Cost of Goods Sold
1,100,000
130,000 Gross Profit
1,200,000
170,000 Less: Operating Expenses
Selling Expenses
General Expenses
Total operating expenses

Profit before Income Tax

Less: Income Tax Expense
Profit after Income Tax

A and B
180,000 Statement of Chan
420,000 For The Year End
300,000 2,720,000

2,420,000 2,420,000 Partners' Equity, January 1

2,720,000 2,720,000 3,000,000 3,000,000 Add: Share in Profit
Total
Less: Drawings
Partners' Equity, December 31

00 - 230,000 - 350,000)
 A B
230,000 190,000
130,000 170,000
ed Drawing Balances 100,000 20,000
 A and B Company A and B Company
Statement of Income Statement of Financial Position
For The Year Ended December 31, 2021 December 31, 2021

₱ 1,500,000 ASSETS

Current Assets
80,000 Cash
570,000 Accounts receivable
ods available for sale 650,000 Inventory
ntory, December 31 50,000 Total current assets
600,000
Non-current Assets
900,000 Office equipment

Total Assets
200,000
100,000 LIABILITIES AND PARTNERS' EQU
ating expenses 300,000
Current Liabilities
600,000 Accounts payable
180,000 Income tax payable
₱ 420,000 Total current liabilities

A and B Company Partners' Equity

Statement of Changes in Partners' Equity A, Capital
For The Year Ended December 31, 2021 B, Capital
Total partners' equity
A B Total
₱ 1,100,000 ₱ 1,200,000 ₱ 2,300,000 Total Liabilities and Partners' Equity
230,000 190,000 420,000
1,330,000 1,390,000 2,720,000
130,000 170,000 300,000
December 31 ₱ 1,200,000 ₱ 1,220,000 ₱ 2,420,000
 A and B Company
ement of Financial Position
December 31, 2021

ASSETS

₱ 280,000
870,000
50,000
1,200,000

1,800,000

₱ 3,000,000

IES AND PARTNERS' EQUTIY

₱ 400,000
180,000
580,000

1,200,000
1,220,000
2,420,000

ners' Equity ₱ 3,000,000