CHAPTER 2

EXERCISES

1. 1) Sales 772,160
Sales Discount 12,160
Income & Expense Summary 760,000
2) Merchandise Inventory, End 290,000
Income & Expense Summary 324,180
Merchandise Inventory, Beg. 137,900
Purchases 463,430
Freight In 12,850
3) Income & Expense Summary 134,120
Selling Expenses 71,080
General Expenses 63,040
Income & Expense Summary
2) 324,180 1) 760,000
3) 134,120
Balance - 301,700
4) Income & Expense Salary (301,700 x 30%) 90,510
Income Taxes Payable 90,510
Blanca Bola Total
a) 10% interest credit in excess of P300,000 10,000 10,000
b) 15% interest charge on deficient contribution (15,000) ( 15,000)
c) Annual salaries 60,000 60,000 120,000
d) remaining 2:1 64,127 32,063 96,1910
134,127 77,063 211,190
Blanca, Drawings Bola, Drawings
57,500 5) 134,127 50,000 5) 77,063
76,627 27,063
5) Income & Expense Summary 211,190
Blanca, Personal 134,127
Bola, Personal 77,063

2. Blanca, Personal 27,063

Bola, Capital 27,063
Statement of Partners Equity
Blanca Bola Total
Capital, Unadjusted 400,000 200,000 600,000
Add: Profit Share 134,127 77,063 211,190
Less: Drawings 57,500 50,000 107,500
Capital, Dec. 31 476,627 227,063 703,690

3.Case A Quizon (156,000 /435,000x 50,000) 17,931

Eron (279,000 / 435,000 x 50,000) 32,069
Quizon Eron Total
Capital account balance 270,000 210,000 480,000
Drawing account balance 33,000 9,000 42,000
Share in the net loss ( 17,931) ( 32,069) ( 50,000)
Partners equity 285,069 186,931 472,000
Case B Quizon, Average capital
1/1 153000 x 9 1,377,000
10/8 303,000 x3 909,000
2,286,000/12 = 190,500
Eron, Average Capital
1/1 279,000 x 3 837,000
3/18 219,000 x 9 1,971,000
2,808,000/12 = 234,000
Quizon Eron Total
10% interest on average capital 19,050 23,400 42,450
Balance equally 3,775 3,775 7,550
22,825 27,175 50,000
Capital account balance 270,000 210,000 480,000
Drawing account balance 52,825 36,175 89,000
Partners equity 322,825 246,175 569,000

5
 Case C Quizon Eron Total
Salaries 60,000 x 3/12 @ 15,000.00 15,000.00 30,000.00
Balance 270 / 480 x 22,500 12,656.00 - 12,656.00
210 / 480 x 22,500 - 9,844.00 9,844.00
Profit share 27,656.00 24,844.00 52,500.00
Capital balance 270,000.00 210,000.00 480,000.00
Drawing balance (33,000.00) ( 9,000.00) (42,000.00)
264,656.00 225,844.00 490,500.00
Salaries ( 15,000.00) ( 15,000.00) ( 30,000.00)
Partners Equity 249,656.00 210,844.00 460,500.00

4. a. X Y Z Total
10% interest on capital in excess of 3,000,000 10,000.00 10,000.00
Annual salaries 150,000.00 200,000.00 250,000.00 600,000.00
10% Bonus 80,909.00 80,909.00
Residual 4:4:2 323,636.00 323,636.00 161,818.00 809,090.00
Total 473,636.00 523,636.00 502,727.00 1,500,000.00

Let B = Bonus
= 10% (1500,000 10,000 600,000 B)
= 89,000 - .1B
= 89,000 / 1.1
= 80,909
b. X Y Z Total
T 10% Interest 10,000 10,000
Annual Salaries 150,000 200,000 250,000 600,000
10% Bonus 150,000 150,000
Residual 4:4:2 600,000 600,000 300,000 1,500,000
Total 750,000 800,000 710,000 2,260,000

5. a. Profit Share Eva Imelda Total

Salaries 12,000 18,000 30,000
6% Interest 3,000 3,600 6,600
20% Bonus 2,233 2,233
Remainder 6,700 4,467 11,167
21,700 28,300 50,000
B= 20% (NI S B)
= 20% (50,000 30,000 6,600 B)
= 20% (13,400 B)
1.2 B = 2,680
= 2,233
Partners Equity: Eva Imelda Total
Capital Balances 50,000 60,000 110,000
Profit Share 21,7000 28,300 50,000
Drawings ( 12,000) (18,000) ( 30,000)
59,700 70,300 130,000

b. Profit Share Eva Imelda Total

Salaries 24,000 36,000 60,000
12% Interest 12,000 6,000 18,000
20% Bonus 6,000 6,000
Remainder 14,400 9,600 24,000
50,400 57,600 108,000
Residual value (after bonus of 20%) 24,000
Divide by 80%
Net Income before Bonus 30,000
20% Bonus based on 30,000 6,000
Partners Equity Eva Imelda Total
Capital Balances 100,000 50,000 150,000
Profit Share 50,400 57,600 108,000
Drawings (22,000) (33,000) ( 55,000)
128,400 74,600 203,000

c. Profit Share Eva Imelda Total

Salaries 24,000.00 36,000.00 60,000
12% Interest 48,000.00 36,000.00 84,000
20% Bonus 20,067.00 20,067
Balance 60%, 40% (38,240.00) (25,494.00) (63,734)
33,760.00 66,573.00 100,333

*5,000/.12 = 41,667 is the revenue expenditure 5,000

= 36,667 addtle expenditure to be charged against revenue
Net Income after tax is 180,000-36,667 x 60%= P100,333
6
 Bonus is 100,333 x 20%= P20,067

Eva Imelda Total

Capital 400,000 300,000 700,000
Profit share 33,760 66,573 100,333
Drawings ( 24,000) ( 36,00) ( 60,000.)
409,760 330,573 740,333
6. a) 1. Interest Expense 1,750
Accrued Interest (17,500 x 12% x10/12) 1,750
2. Income Summary 1,750
Interest Expense 1,750
3. Income Summary (1200,750 30% 360,225
Income Tax Payable 360,226
4. Income Summary 600,000
Paul, Salary 230,000
Peter, Salary 240,000
Paul, Drawing 130,000
Paul, Drawing 120,262.50
Peter, Drawing 120,262.50
Income Summary 240,525.00
Paul Peter Total
Salaries 360,000.00 240,000.00 600,000.00
Balance 120,262.50 120,26250) 240,525.00
480,262.50 360,262.50 840,525.00
Statement of Partners Equity Peter Paul Total
Capital Balances 300,000.00 175,000.00 475,000.00
Share in Net Profit 480,262.50 120,262.50 840,525.00
Drawings (312,000.00) ( 23,000.00) ( 54,200.00)
668,262.50 605,262.50 1,273,525.00
273
7. a) Dormer Total
3% interest 3,600 12,000
Semi-annual salaries 100,000 300,000
10% bonus (after) - c) 48,200
4:4:2 a) 96,400 b) 482,000
200,000 842,200
a) Dormers Share in remainder
= 200,000 3,600 100,000
= 96,400
b)Total remainder = 96,400/20%
= 482,000
c) Bonus is based on remainder = 482,000 x 10%= 48,200

b) 3% interest 3,600 12,000

Semi-annual salaries 100,000 300,000
10% bonus (before) - b) 88,222
Remainder 96,400 482,000
200,000 a) 882,222
a) x 12,000 300,000 - .1x = 482,000
.9x = 774,000
x = 88,222
b)10% x 882,222 = 8,222
8. a. Net income after tax 156,000 x 70%= 109,200 x 10%= Bonus P21,840

b. Net income after tax= 156,000 x 70%= 109,200

Net Income after salaries= 109,200 33,000 = 76,200
Net income after bonus= 76,200/1.2= 63,500
Bonus is 63,500 x 20%= 12,700.
c. Tax= 30% (156,000-33,000-B)
= 36,900 -.3B
Bonus= 20% (156,000- 33,000- B- (36,900-.3B) Tax= 36,900- .3(15.105)
= 31,200 6,600 - .2B 7,380+ .06B = 32,368.42
1.14 = 17,220
1.13B=15,990
=15,105

To Prove: Net Income before Tax 156,000.00

Less Salaries and Bonus 48,105.00
Taxable Net Income 107,895.00
30% Tax 32,368.00
Net Income After Tax 75,527.00 x 20%= P15,105 Bonus

7
9. 2010 Fe, Drawing (3/5 x 99,000) 59,400
Al , Drawing (2/5 x 99,000) 39,400
Income Summary 99,000
2011 Income Summary 55,000
Fe, Drawing (55,000 x 6/11) 30,000
Al, Drawing (55,000 x 5/11) 25,000

10. a) Fe Al Total
Salary 72,000 60,000 132,000
Remaining Divided Equally 1,500 1,500 3,000
Recorded share in net income 73,500 61,500 135,000
Should be 70,909 59,091 130,000
Overstated Distribution 2,591 2,409 5,000

b) Fe, Drawing 2,591

Al, Drawing 2,409
Income Summary 5,000
c) Fe Al Total
Salary 72,000 60,000 132,000
Remaining equally 2,500 2,500 5,000
Profit Distribution 74,500 62,500 137,000

Income & Expense Summary 137,000

Fe, Drawing 74,500
Al, Drawing 62,500

11. Fe Al Total
Profit share at net income reported 72,000 60,000 132,000
Should be:
Salary 72,000 60,000 132,000
Remainder equally 2,500 2,500 5,000
Total 74,500 62,500 137,000
Understated Distribution in 2011 2,500 2,500 5,000
Overstated Distribution in 2010 2,591 2,409 5,000
Net Over (Under) 91 (91)
Correcting entry in 2012:
Fe, Drawing 91
Al, Drawing 91

12. a. Flora Cora Myrna Total

Salary - - 60,000 60,000
15% interest 22,500 19,500 - 42,000
Bonus - - 6,818 163,600
Balance 15,000 15,000 - 16,364
37,500 19,500 63,000 120,000

B = 10% (120,000 60,000 42,000 B)

= 18,000 / 1.10 = 16,364 x 10% = 1,636
b. Flora Cora Myrna Total
Salary - - 60,000 60,000
Interest 22,500 19,500 - 42,000
Balance (26,000) (26,000) - (52,000)
( 3,500) ( 6,500) 60,000 50,000
c. Flora Cora Myrna Total
Salary - - 30,000 30,000
Interest 22,500 19,500 - 42,000
Balance (23,500) (23,500) - (47,000)
( 1,000) ( 4,000) 30,000 (25,000)
13. Net Income reported in 2011 P4,200,000
Less Gain on sale (240,000 x =120,000-180,000) 60,000
Net Income without gain and based on a 2:1 profit ratio P4,140,000

Allan Kasey Total

Net income of 2011 without the gain P2,760,000 P1,380,000 P4,140,000
Gain on sale of property 30,000 30,000 60,000
Total profit share P2,790,000 P1,410,000 P4,200,000

MULTIPLE CHOICE
1. P240,000 X 25 / 125 48,000 Answer: B
8
2. Withdrawal 104,000 OR Capital
Less: Asset contribution 20,000 Withdrawal 104,000 20,000 Asset
84,000 36,000 NI Share
Less: Net decrease 48,000 Net 48,000
36,000
0 Net Income Share of 36,000/30%
Net Income for 2010 (B) 120,000 = Total Net Income of P120,000
3. Answer: D William Aboitiz Total
Salary 7,200 16,000 23,200
10% 2,000 1,600 3,600
Remainder, equally (8,600) (8,600) (17,200)
600 9,000 9,600
4. Answer: D Ellen Greg William Total
a) salary 30,000 20,000 50,000
b) 10% interest on average capital balance 12,000 6,000 4,000 22,000
c) remainder to be divided equally (11,000) (11,000) (11,000) (33,000)
1,000 25,000 13,000 39,000

5. Axel Berg Cobb

10% of 100,000 10,000
20% of excess over 100,000 30,000
5% of 60,000 3,000 3,000
Remainder, equally 68,000 68,000 68,000
c) 108,000

1/1 140,000 x 6 840,000

7/1 180,000 x 1 180,000
8/1 166,000 x 5 830,000
12 1,850,000 = 154,167 x 10%

6. Average Capital 153,750 = 15,417

Simms interest is 10% or 15,375 Answer: B

7. G H Total
Salary 12,000 12,000 Let x = NI before S, I, B
5% interest on beginning capital 1,250 1,250 x = 12,000+1,250+.2x+46,750
20% bonus 15,000 15,000 .8x = 60,000
Balance 90%, 10% 42,075 4,675 46,750 = 75,000
42,075 19,675 75,000
Revenues 96,450
Expenses ( 49,700)
Net Income after salaries, 46,750 Answer: A (75,000 x 20% = 15,000
Interest, bonus
8. a) Bueno Perez Total
Salary 60,000 60,000
5% interest on starting capital 8,750 1,250 10,000
Bonus of 15% 19,800 19,800
Remaining 80%, 20% 33,760 8,440 42,200
42,510 89,490 132,000
9. Hermie 130,000 x 6 780,000
160,000 x 3 480,000
150,000 x 3 450,000
1,710,000 /12 = 142,500
Mar 190,000 x 7 1,330,000
210,000 x 2 420,000
200,000 x 3 600,000
2,350,000 /12 = 195,833
Amy 270,000 x 10 2,700,000
250,000 x 2 500,000
3,200,000 /12 = 266,667
Profit share: Hermie Mar Amy Total
Salaries 24,000 18,000 12,000 54,000
12% interest 17,100 23,500 32,000 72,600
9,880 19,760 19,760 49,400
Answer: E 50,980 61,260 63,760 176,000

10. 50,980 + 150,000= P200,980 Answer B

11. Partners Equity

Drawings 8,000 Beg. 60,000

9
 8,000 Additional 8,000
Ending 100,000 Net Income 48,000

Net Income / year = 48,000 / 2 = 24,000

Henry Ida Jerry
Capital 1/1/02 20,000 20,000 20,000
Additional 8,000
Drawing ( 4,000)
Profit Share 4,000 4,000 16,000
Capital 12/31/02 20,000 32,000 36,000
Drawings ( 4,000) ( 8,000)
Profit Share 2,727 4,364 16,909
Capital 12/31/03 18,727 28,364 52,909

12.
A B C Total
Interest 36,000 18,000 12,000 66,000
Salariawingses 90,000 60,000 150,000
Remainder (105,000) (105,000) (105,000) (315,000)
21,000 ( 99,000)
Answer A

13.
A B C D Total
5% interest 2,500 1,250 1,250 1,000 6,000
Salaries 5,000 3,000 8,000
3:3:2:2 5,000 16,667
12,500 30,667

Answer C

14. Net decrease in capital P1,200,000

Add Contribution made 500,000
1,700,000
Less Drawings 2,600,000
Profit share P 900,000 divide by 30%= Total profit of P3,000,000

Answer A

10