CHAPTER 3

Ex. 1
a) Cash 250,000
Diaz, Capital 250,000

Equipment 150,000
Cash 100,000
Bravo, Capital 250,000

b) Service Revenue 4,970,000

Depreciation Expense 500,000
Rent Expense 1200,000
Representation Expense 480,000
Salaries Expense 850,000
Supplies Expense 250,000
Transportation Expense 675,500
Utilities Expense 475,000
Income & Expense Summary 539,500

Income & Expense Summary 539,500

Bravo, Drawing 269,750
Diaz, Drawing 269,750

Diaz Bravo Total

Capital Jan 1 P 250,000 P 250,000 P 500,000
Profit share 269,750 269,750 539,500
Drawings (40,000) (50,000) (90,000)
P 479,750 P469,750 P 949,500
Ex. 2

Entries:

1) Gain 30,000
Sales 2,498,140 3) Income Summary 883,050
Sales Discount 11,620 Rent 520,350
IncomeSummary 2,516,520 Insurance 128,500
Other Oper Exp. 201,700
Depreciation 31,000
Bad Debts 1,500

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 2) Inventory, end 125,800
Income Summary 985,130 4) Income Summary 194,502
Inventory, beg. 537,500 Taxes Payable 194,502
Purchases 545,890
Freight In 27,540

5)Income Summary 453,838

Young, Drawings (450/1,000) 204,227
Go, Drawings (550/1,000) 249,611

d.
HYPER SUPER MART
STATEMENT OF CHANGES IN PARTNERS’ EQUITY
For the year ended, Dec. 31, 2018

YOUNG GO TOTAL
Balances, Jan. 1 450,000 550,000 1,000,000
Add Share in Net Income 204,227 239,611 453,838
Total 654,227 789,611 1,453,838
Less: Regular Drawings (40,040 ) (32,500 ) (72,540)
Balances, Dec. 31 P614,187 P757,111 P1,371,298

e. ROS (453,838 / 2,486,520) = 18.25%

ROE (453,838 / 1,371,298) = 33.095% or if you use average capital of P1,185,649= 38.28%

ROE of each partner: 204,227/(614,187+450,000) = 204,227/532,093.50= 38.38%

2
239,611/ 653,555.5 = 36.66%
Ex. 3

1. Barbie, Drawing (40,000 – 103,333) 63,333

Hannah, Drawing (60,000- 206,667) 146,667
Income & Expense Summary 210,000

2. Income & Expense Summary 720,000

Barbie, Drawing(80 + 1/3 of P520) 253,333
Hannah, Drawing(120 + 2/3 of P520) 466,667

Equity as at Dec 31, 2015 and 2016:

Barbie 450,000 – 63,333 -40,000 = 346,667 + 253,333 – 80,000 = P 520,000

25
 Hannah 900,000 – 146,667 -60,000= 693,333 + 466,667 – 120,000 = P1,040,000

Ex. 4:a) Income Summary 45,000

Valera, Drawings 20,000
Rivera, Drawings 15,000
Chan, Drawings 10,000

b) Income Summary 29,250

Valera, Drawings 16,500
Riviera, Drawings 12,750

Income Summary 24,750

Valera, Drawings 12,375
Rivera, Drawings 8,250
Chan, Drawings 4,125
c)
Valera Rivera Chan Total
Total 75,000
Tax liability (22,500)
For distribution 52,500
Salary for Valera 27,000 (27,000)
10% interest on capital 4,500 3,000 1,500 ( 9,000)
Remainder equally 5,500 5,500 5,500 (16,500)
37,000 8,500 7,000 -
Income Summary 52,500
Valera, Drawings 37,000
Rivera, Drawings 8,500
Chan, Drawings 7,000
D
d. Statement of partners’ equity:

Valera Rivera Chan Total

Capital investment 45,000 30,000 15,000 90,000
Profit share 37,000 8,500 7,000 52,500
Drawings (18,000) (13,500) (6,000) (37,500)
Capital, Dec 31 64,000 25,000 16,000 105,000

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Ex. 5
a. Revenue & Expense Summary 170,000
Max, Drawing 127,000
Kenneth, Drawing 43,000

Max Kenneth Total

12% Interest 30,000 18,000 48,000
6,000 salary x 12 months 72,000 72,000
Remainder 25,000 25,000 50,000
127,000 43,000 170,000

b. Kenneth, Drawing 78,000

Max, Drawing 162,000
Revenue & Expense Summary 240,000

Max Kenneth Total

12% Interest 30,000 18,000 48,000
Salary 6,000 x 12 72,000 72,000
Remainder (180,000) (180,000) (360,000)
(78,000) (162,000) ( 240,000)

c.
Revenue & Expense Summary 84,000
Mac, Drawing 84,000

Net Income before tax P120,000

30% tax 36,000
Net Income after tax P 84,000

Max Kenneth Total

12% Interest 30,000 18,000 48,000
6,000 salary x 12 months 72,000 72,000
Remainder (18,000) (18,000) (36,000)
84,000 0 84,000

d. * Revenue & Expense Summary 77,175

Kenneth, Drawing 59,587.50
Max, Drawing 17,587.50

110,250 x .7= P77,175 after tax.

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 Max Kenneth Total
6% Interest 15,000.00 9,000.00 24,000.00
6,000 salary x 6 months 36,000.00 36,000.00
Remainder (8,587.5) (8,587.5) ( 17,175.00)
59,587.5 (17,587.5) 77,175.00

e. Kenneth, Drawing 48,000

Max, Drawing 27,000
Revenue & Expense Summary 75,000

Max Kenneth Total

3% Interest 7,500 4,500 12,000
6,000 salary x 3 months 18,000 - 18,000
Remainder (52,500) (52,500) ( 105,000)
(27,000) (48,000) ( 75,000)

6. a) Beg Capital ratio: 1,800/3,000 x 140,000= 84,000 1,200/3,000 x 140,000= 56,000

*Income & Expense Summary 140,000

Reina, Drawing 84,000
Ador, Drawing 56,000

b) Ending Capital ratio: 1,500/3,500 x 140,000= 60,000 2,000/3,050 x 140,000=80,000

*Income & Expense Summary 140,000

Reina, Drawing 60,000
Ador, Drawing 80,000

c) Average Capital: Reina (1,800,000 x 5) 9,000,000

(1,500,000 x 7) 10,500,000
19,500,000/12 = 1,625,000

Ador (1,200,000 x 9) 10,800,000

(2,000,000 x 3) 6,000,000
16,800,000/12 = 1,400,000

*Income & Expense Summary 140,000

Reina, Drawing (1,625/3,025) 75,207
Ador, Drawing (1,400/3,025) 64,793

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The ending capital ratio will give Ador a higher share because of his additional investment of P80,000
resulting in a higher ending balance compared to that of Reina.

Ex. 7
Option 1 Joffre Ric Total
20% bonus 90,000 90,000
Remainder 2:1 240,000 120,000 360,000
240,000 210,000 450,000

Option 2 Joffre Ric Total

10% interest P 80,000 40,000 120,000
Salary 100,000 100,000
Remainder 1:1 115,000 115,000 230,000
P195,000 P255,000 450,000

Considering contribution of Joffre is twice that of Ric, although Ric is a managing partner, profit should
be more or less the same, Option 1 would be better.

Ex 8. 240,000/.4= 600,000 x .6= 360,000 required capital for Bruce - P194,000 non cash investment=
Addtl cash investment required for Bruce P166,000.

a. Cash 166,000
Accounts Receivable 30,000
Inventory 138,000
Equipment 240,000
Accounts Payable 200,000
Notes Payable 14,000
Bruce, Capital 360,000

Inventory 146,500
Cash 93.500
Rachel, Capital 240,000

240/.4= 600,000 x .6= 360,000 for Bruce.

b. Statement of Financial Position:

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 Cash P259,500
Accounts Receivable 30,000
Inventory 284,500
Equipment 240,000
Total Assets P814,000

Accounts Payable P 200,000

Notes Payable 14,000
Bruce, Capital 360,000
Rachel, Capital 240,000
Total Liabilities & Partners’ Equity P814,000

c. Table to distribute profit:

Bruce Rachel Total
6% Interest 21,600 14,400 36,000
Salary allowance 30,000 30,000 60,000
10% charge on excess drawings (1,000) (1,000)
Remainder 12,750 12,750 25,500
64,350 56,150 120,500

d. Income Summary 120,500

Bruce, Drawings 64,250
Rachel, Drawings 56,150

e. Statement of Partners’ Equity

Bruce Rachel Total
Beg Capital 360,000 240,000 600,000
Profit Share 64,350 56,150 120,500
Drawings (30,000) (40,000 (70,000)
Partners’ Equity P394,350 P256,150 P650,500

Ex 9.

c. Table to distribute profit:

Bruce Rachel Total
12% Interest 43,200 28,800 72,000
Salary allowance 60,000 60,000 120,000
Remainder 29,000 29,000 58,000
132,200 117,800 P250,000

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 d.
Income Summary 250,000
Bruce, Drawings 132,200
Rachel, Drawings 117,800

e. Statement of Partners’ Equity

Bruce Rachel Total
Beg Capital 394,350 256,150 650,500
Profit Share 132,200 117,800 250,000
Drawings (50,000) (60,000 (110,000)
Partners’ Equity P476,550 P313,950 P790,500

Ex. 10
Net income (6,750-4,050-1,012.5) = 1,687.5 x 30% = P506,250

Income & Expense Summary 506,250

Taxes Payable 506,250

*Income & Expense Summary 1,181,250

Betty, Drawing (120,000 + 439,250) 559,250
Jane, Drawing (120,000 + 502,000) 622,000

Betty Jane Total

Jan. 1, Capital 560,000 640,000 1,200,000
Jan. 1 Drawings 179,200 120,800 300,000
Profit Share 559,250 622,000 1,181,250
Drawings (140,000) (110,000) ( 250,000)
Dec. 31, Capital 1,158,450 1,272,800 2,431,250

11. b. Amber: Jan. 1 105,000 x 12 1,260,000

Mar 30 20,000 x 9 180,000
Oct 30 50,000 x 2 (100,000)
1,340,000 / 12 = 111,667

Berta Jan. 1 140,000 x 12 1,680,000

Apr 30 15,000 x 8 (120,000)
Oct 30 40,000 x 2 ( 80,000)
1,480,000 /12 123,333

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 Income & Expense Summary 120,000
Aubrey, Drawing 59,417
Billy, Drawing 60,583

Aubrey Billy Total

10% Interest 11,167 12,333 23,500
Remainder 48,250 48,250 96,500
59,417 60,583 120,000

a. Amber: Jan. 1 105,000 x 12 1,260,000

Mar 30 20,000 x 9 180,00 0
1,440,000/ 12= 120,000

Berta Jan. 1 140,000 x 12 1,680,000

Apr 30 15,000 x 8 (120,000)
1,560,000/ 12= 130,000

Amber Berta Total

10% Interest 12,000 13,000 25,000
Remainder 47,500 47,500 95,000
59,500 60,500 120,000

Revenue & Expense Summary 120,000

Amber, Drawing 59,500
Berta, Drawing 60,500

Ex 12. Bert Ben Bello Total

a) Salary 10,000 x 12 120,000 120,000
b) 12% interest 24,000 78,000
b) 2:1:2 (56,000/20%) 56,000 280,000
200,000 478,000
You don’t have to fill up completely the table.Required anyway is only to determine profit to be earned.

Ex 13.
Glas Poe Co Total
1) Salaries 120,000 120,000
Remainder 240000 240,000 ______ 480,000
240000 240,000 120,000 600,000

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 2) Income Summary 600,000
Glas Drawings 240,000
Poe Drawings 240,000
Co Drawings 120,000

Glas Poe Co Total

Initial Investments P200,000 P200,000 400,000
Drawings ( 30,000) ( 30,000) (60,000) (120,000)
Share in net profit 240,000 240,000 120,000 600,000
Balances Dec 31 P 410,000 P410,000 60,000 880,000

Ex 14.
b) Glas Poe Co Total
Salaries 240,000 240,000
Remainder 326,600 326,600 56,800 710,000
326,600 326,600 296,800 950,000

Income Summary 950,000

Glas Drawings 326,600
Poe Drawings 326,600
Co Drawings 56,800

Glas Poe Co Total

Jan 1, 2012 P410,000 P410,000 60,000 880,000
Drawings (120,000) (120,000) (240,000) (480,000)
Share in net profit 326,600 326,600 296,800 950,000
Balances Dec 31,2012 P 616,600 P616,600 P116,800 P1,350,000

15. a) Net Income before tax 225,000

Tax of 30% 67,500
Net Income after tax 157,500

Dela Cruz Quizon Ocampo Total

Salary 120,000 120,000
Interest 45,000 27,000 - 72,000
Balance (17,250) (17, 250) - (34,500)
P27,750 P 9,750 P120,000 P157,500

* Income Summary 157,500

Dela Cruz, Drawing 27,750
Quizon, Drawing 9,750
Ocampo, Drawing 120,000
b)

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 Dela Cruz Quizon Ocampo Total
Salary 60,000 60,000
Interest 45,000 27,000 - 72,000
Remainder (103,500) (103,500) - (207,000)
,(58,500) (76,500) 60,000 ( 75,000)

Dela Cruz, Drawing 58,500

Quizon, drawing 76,500
Ocampo, Drawing 60,000
Income Summary 75,000
Ex 16
A B C Total
Salary or bonus 60,000 60,000
Profit share 60,000 60,000 60,000 180,000
120,000 60,000 60,000 240,000

a) A B C Total
Salary 60,000 60,000
Remainder 40,000 25,000 25,000 90,000
Total 100,000 25.000 25,000 150,000

17.
a. Revenue & Expense Summary 480,000
Beth, Drawing 228,000
Luz, Drawing 126,000
Ana, Drawing 126,000

Beth Luz Ana Total

a) Salaries 120,000 120,000 120,000 380,000
b) Bonus 20% of 180,000 96,000 96,000
c) 2:1:1 12,000 6,000 6,000 24,000
228,000 126,000 126,000 480,000

b. Let B = 20% (480,000 – 360,000 - B)

= 24,000 - 0.20 B
B + 0.20B = 24,000
B = 20,000

Beth Luz Ana Total

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 Salaries 120,000 120,000 120,000 360,000
20% Bonus 20,000 20,000
Rem 2:1:1 50,000 25,000 25,000 100,000
190,000 145,000 145,000 480,000

* Income Summary 480,000

Beth, Drawing 190,000
Luz, Drawing 145,000
Ana, Drawing 145,000

c. Beth, Drawing 90,000

Luz, Drawing 45,000
Ana, Drawing 45,000
Income Summary 180,000

18.
Luz Total
a) Salaries 60,000 180,000
a) Bonus 20% of 425,000 85,000
b) 2:1:1 40,000 160,000
100,000 425,000
B = 20% of (180,000 +160,000 + B)
= 68,000 + .2B
= 68,000 / .8 = 85,000
NI = 85,000 / .2 = 425,000

Luz Ana Total

a) Salaries 160,000 360,000
b) 2:1:1 20,000 ______ (80,000)
100,000 0 280,000

No Bonus. There is no income based on remainder.

19. P222,000-111,000= net income of P111,000

a)
Appropriation Table Zed Wye Total
10% interest 15,000 14,000 29,000
Salary 12,000 12,000
Balance 40,000 30,000 70,000
Profit Share 55,000 56,000 111,000

35
 b)
Current Account: Zed Wye Total
Beg Balance 32,000 29,000 61,000
Profit share 55,000 56,000 111,000
Drawings (42,000) (37,000) ( 79,000)
Current, End Bal 45,000 48,000 93,000

c)
Zed Wye Total
Capital accounts 150,000 140,000 290,000
Current accounts 45,000 48,000 93,000
Ending equity 195,000 188,000 383,000

20.
260000 – 180,000 = 8,000 profit
Quinlan Alves Total
15% interest 7,500 4,500 12,000
Salary 70,000 80,000 150,000
Balance (41,000) (41,000) (82,000)
Profit Share 36,500 43,500 80,000

Quinlan Alves Total

Beg Balance 20,000 (40,000) ( 20,000)
Profit share 36,500 43,500 80,000
Drawings (15,000) (15,000) ( 30,000)
Current, End Bal 41,500 (11,500) 30,000

Quinlan Alves Total

Capital accounts 50,000 30,000 80,000
Current accounts 41,500 (11,500) 30,000
Ending equity 91,500 18,500 110,000

21. Profit Sharing Table

Mel Jay Total

Salaries 60,000.00 90,000.00 150,000.00

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 12% interest 7,200.00 4,800.00 12,000.00
Rem Equally 121,631.50 53,157.75 243,263.00

Total 188,831.50 216,431.50 405,263.00

Worksheet is on the next page

LEGAL AND ETHICAL ISSUES

1. As a rule the industrial partner should not engage in business for himself. It is his obligation to devote
his time to the partnership where his contribution is only in the form of service. He cannot use the same
talent, or his time specially in the same line of business to the detriment of the partnership.Art 1789.

2. Yes professional ethics will be violated since there will be a conflict of interest, independence in mental attitude is
also violated.

3. The answer is the same because of the time involved and his attention which will be divided in case
he engages in another business. He needs the permission of the capitalist partners.

ACCOUNTING ISSUES
1. C gets P70,000 and the balance is divided by A and B based on capital contribution.
2. Unless stipulated, C does not share in the loss. The P350,000 is divided by A and B
Based on their P and L ratio. Art 1797.

37
 MJ THAI SPA
WORKSHEET
FOR THE YEAR ENDED DEC. 31, 2018
TRIAL BALANCE ADJUSTING ENTRIES ADJ. TRIAL BAL. INCOME STATEMENT JAY, PERSONAL MEL, PERSONAL FINANCIAL POSITION
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash P58,850 58,850 58,850.0
Accounts Receivable 32,400 32,400 32,400.0
Allow. for Bad Debts 2,500 1) 740 3,240 3,240.0
Notes Receivable 19,000 19,000 19,000.0
Unexpired Insurance 2,575 4) 1287.5 1,287.5 1,287.5
Furniture & Fixtures 238,000 238,000 238,000.0
Accum. Depn. – Furn. 5,950 2)11,900 17,850 17,850.0

Equipment 432,000 432,000 432,000.0

Accum. Depn. Equipt 21,600 2) 21,600 43,200 43,200.0
Accounts Payable 15,000 15,000 15,000.0
Notes Payable 50,000 50,000 50,000.0
Unearned Service 600 3) 300.0 300 300.0
Jay, Capital 60,000 60,000 60,000.0
Jay, Personal 3,600 3,600 3,600
Mel, Capital 40,000 40,000 40,000.0
Membership Fee 945,900 945,900 945,900
Service Fees 1530,50 3) 300 1530,80 1530,800
Advertising Expense 300,160 300,160 300,160
Taxes & Licenses 108,970 108,970 108,970
Rent 644,000 644,000 644,000
Sales Salaries 346,000 346,000 346,000
Office Salaries 150,000 150,000 150,000
Store Supplies 3,400 3,400 3,400
Office Supplies 2,090 2,090 2,090
Utilities 310,850 310,850 310,850
Interest Expense 10,610 6) 8,250 2,360 2,360
Interest Income 5,455 5) 150 5,605 5,605
Loss on Cash Flow Hedge 15,000 7,500 7,500
TOTAL 2,677,505 2,677,505
Bad Debts Expense 1) 740 740 740
Depn. Exp. -Furn&Fix 2)11,900 11,900 11,900
-Equipt. 21,600 21,600 21,600
Insurance Expense 1,287.5 1,287.5 1,287.5
Accrued Int. 5) 150.0 150 150
Prepaid Interest 8,250.0 _______ 8,250 _______ _______ _______ 8,250
_

38
 44,227.5 44,227.5 2,711,895 2,711,89 1903357.5 2,482,305
5
Net inc. before tax 578,947.5 _______
2,482,305
2,482,305
30% tax 578,947.5
1,736,845 173,684.5
Net Income after tax 405,263 183,831.50 216,431.50
Drawing Balances _______ _______ 177,731.5 _____ 208,931.5 ________ _______ 386,663.0
578,947.5 578,947.5 120357,75 120357.75 147957.75 147957.75 789,937.5 789,937.5

39