.::~~:::::::;~~ See if you can do this!
THEORIES:
1. Explain the following terms and how to determine the amount of each type of capital.
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Original capital
Beginning capital
Ending capital
I
Average capital
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2. Pacis, Quezon and Roces share profits and losses based on their capital balances ofl>250,000,
PS00,000, and P750,000, respectively. Show how the profit of Pl00,000 be distributed in
terms of
(a) percentage;
(b) fraction;
(c) decimal ; and
(d) ratio.
PROBLEMS:
Problem 1: AB, QR and XY are manufacturers' representative in the wholesale business. Their
capital accounts in the AQX Partnership for 2015 were as follows: '
AB QR XY
January I , Balances P 135,000 Pl 80,000 P75 ,000
March I, withdrawal 36,000
April 1, investment 30,000
May 1, investment 72,000
46 I P ag e
June I. investment 27,000
9,000
August I. withdrawal
October 1, withdrawal 54,000
December 1, investment 18,000
Required: Prepare an income distribution schedule for each of the following independent cases:
I. Interest is I0% of weighted average capital balances. Annual salaries are P480,000 to
AB, P630,000 to QR and PS I 0,000 to XY. QR receives a bonus of 25% of net income
after deducting the bonus and his salary. Any remainder is divided in a 2:3:4 ratio by AB,
QR and XY, respectively. Net income was Pl ,050,000 before any allocations.
2. Monthly salaries are P30,000 to AB, PS0,000 to QR and P45,000 to XY. AB receives a
bonus of 5% of net income after deducting his bonus. Interest is 12% of ending capital
balances. Any remainder is divided by AB, QR and XY in a 25:40:35 ratio. The Income
Summary account has a credit balance of P2,835,000 before closing.
3. XY receives a bonus of 20% of net income after deducting the bonus and the salaries.
Annual salaries are P600,000 to AB, P540,000 to QR and P750,000 to XY. Interest is
I 5% of the ending capital in excess of PI 40,000. Any remainder is to be divided by AB,
QR and XY in the ratio of their beginning capital balances. Net income was PI ,740,000
before any allocations.
4. Monthly salaries are P32,000 to AB, P40,000 to QR and P42,000 to XY. QR receives a
bonus of 10% of net income after deducting his bonus. Interest is 25% on the excess of
the ending capital balances over the beginning capital balances. Any remainder is to be
divided by AB, QR and XY in a 3:2: I ratio. The Income Summary account has a debit
balance of P750,000 before closing.
5. Annual salaries of P450,000 to AB, P540,000 to QR and P8 l 0,000 to XY are allowed to
the extent of the earnings onl y. Any remainder is to be divided equally among the
partners. Net income before allocation is P960,000.
6. Annual salaries of P350,000, P400,000 and PS00,000 are given to AB, QR and XY,
respectively. Any remainder is divided among the partners using a 5:3 :2 ratio. Net
income before allocation is P850,000. Salaries given to partners were accounted as
operating expenses during 201 5.
Problem 2: CD partnership begins its first year of operations with the following capital balances:
C, Capital, P224,000 ; D, Capital, PI I 2,000. The partnership agreement regarding allocation of
profits and losses is as follows:
• C will be allowed a salary of P268,800 and Pl 34,400 to D.
• The partners will be allowed with interest equal to 10% of the beginning capital balance of the
year.
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• C will be allowed a bonus of I 0% of the net income after bonus.
• The remainder will be divided on the basis of the beginning capital for the first year and
equally for the second year.
• Each partner is allowed to withdraw up to P 11 ,200 per year.
Assume that the income summary has a debit balance of P16,800 on the first year and a credit
balance of P61,600 on the second year. Assume fm1her that each partner withdraws the
maximum amount from the business each period.
Problem 3: CC partnership began operations on June 1, 2014. On that date, CY and CR have
capital credits of P 175,000 and P240,000, respectively. The partnership has the following profit-
sharing plan:
- I 0% interest on partners' capital balances at the end of each year.
- P60,000 and P75 ,000 annual salaries for CY and CR, respectively.
- Remaining profit will be divided to CY and CR on a 3:2 ratio, respectively.
During the year, CY invested P 150,000 worth of merchandise and withdrew P40,000 cash, while
CR invested P120,000 cash. The partnership earned a profit of P266,375 during the year.
Problem 4: Hans, Lance, Arthur and Sidd own a publishing company that they operate as a
paiinership. Their agreement includes the following:
- Hans will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses.
- Lance will receive a salary of Pl0,000 and a bonus of2% of income after all the bonuses.
- All the partners are to receive the following: Hans - PS ,000, Lance - P4,500, Arthur - P2,000
and Sidd - P4, 700, representing I 0% interest on their average capital balances.
- Any remaining profits are to be divided equally among the partners.
- Partnership reports a profit of P40,000.
How much is Lance ' s share in the profit if profit is distributed in the following order of priority:
Interest on capital, then bonuses, then salary, and then according to P/L ratio?
Keep it up! You are half way through the module. Few more steps.
End of Lesson 4.
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