Jose Company

Statement of Financial Condition

July 1, 2018

Asset
Cash 60,000
Accounts Receivable 50,000
Inventory 70,000
Equipment 40,000
Less: Accum. Depreciation 4,000 36,000
Total Assets 216,000

Liabilities and Equity

Accounts Payable 86,000
Jose, Capital 130,000
Total Liabilities and Equity 216,000

The audit and appraisal shows the following:

• Allowance for bad debts of P 5,000 is to be provided
• Inventory is to be recorded at its market value of P80,000
• The equipment has a fair value of P 35,000
• P 2,000 of accounts payable has not been recorded

Jose and Pedro prepare and sign articles of copartnership that

include all significant operating policies. On July 1, 2018 Pedro
contribute P 100,000 cash for a one-third capital interest. JP
Partnership is to acquire all of Jose’s business and assume its
liabilities.

Adjustments
1 Jose, Capital 5000 Inventory
Allowance for Bad Depts 5000 Accumulated Depreciation

Inventory 10000
Jose, Capital 10000

Jose, Capital 1000

Accumulated Depreciation 4000
Equipment 5000

Jose, Capital 2000

Accounts Payable 2000

2 Cash 100000
 Predro, Capital 100000

JP Partnership
Statement of Financial Condition
July 1, 2018

Asset Unadjusted Adjusted

Cash 60,000 160,000
Accounts Receivable 50,000 45,000
Inventory 70,000 80,000
Equipment 40,000
Less: Accum. Depreciation 4,000 36,000 35,000
Total Assets 216,000 320,000

Liabilities and Equity

Accounts Payable 86,000 88,000
Jose, Capital 130,000 132,000
Pedro, Capital 100000
Total Liabilities and Equity 216,000 320,000
 10000
Accumulated Depreciation 4000
Allowance for Bad Depts 5000
Equipment 5000
Accounts Payable 2000
Jose, Capital 2000
Assets Lagman Magno
Cash 8,000.00 5,000.00
Accounts Receivable 21,000.00 13,000.00
Inventory 9,000.00 15,000.00
Equipment 5,000.00 3,000.00
Other Assets 37,000.00 9,000.00
Total Assets 80,000.00 45,000.00

Liabilities & Equity

Accounts Payable 12,000.00 6,000.00
Notes Payable 5,000.00 10,000.00
Lagman, Capital 63,000.00
Magno, Capital 29,000.00
Total Liabilities & Equity 80,000.00 45,000.00

In December 31, 2017, Lagman agrees to admit Magno as partner in the firm. The
financial position of both parties are presented in the next slide.

The following agreements were agreed upon:

1 Magno’s merchandise is to valued at P 12,000
2 Magno’s notes payable have unrecorded P 300 accrued interest
3 Lagman is to set up allowance for bad debts equal to 2% of its receivable
4 Lagman’s other assets will be reduce by P 5,000

Required:
Journal entries to record the formation of the partnership assuming the books of
Lagman will be retained by the partnership.

ADJUSTMENT DR. CR.

Magno, Capital 3,000.00
Inventory 3,000.00

Magno, Capital 300.00

Accrued Interest Payable 300.00

Lagman, Capital 420.00

Allowance for Bad Depts 420.00

Lagman, Capital 5,000.00

Other Assets 5,000.00

BOOK OF MAGNO:
Accounts Payable 6,000.00
Notes Payable 10,000.00
 Accrued Interest Payable 300.00
Magno, Capital 25,700.00
Cash 5,000.00
Accounts Receivable 13,000.00
Inventory 12,000.00
Equipment 3,000.00
Other Assets 9,000.00

BOOK OF LAGMAN (Now the boks of Partnership):

Cash 5,000.00
Accounts Receivable 13,000.00
Inventory 12,000.00
Equipment 3,000.00
Other Assets 9,000.00
Accounts Payable 6,000.00
Notes Payable 10,000.00
Accrued Interest Payable 300.00
Magno, Capital 25,700.00

LM Partnership
Statement of Financial Postiion
December 31, 2017

Assets
Cash 13,000.00
Accounts Receivable 34,000.00
Less: Allowancs for Bad Depts 420.00 33,580.00
Inventory 21,000.00
Equipment 8,000.00
Other Assets 41,000.00
Total Assets 116,580.00

Liabilities & Equity

Accounts Payable 18,000.00
Notes Payable 15,000.00
Accrued Interest Payable 300.00
Lagman, Capital 57,580.00
Magno, Capital 25,700.00
Total Liabilities & Equity 116,580.00
Robin and Hood are partners with capital accounts that had the following transactions during 2017:

Robin Hood
Debit Credit Debit Credit
Balance, January 1, 2018 135000 140000
28-Feb 40000
31-Mar 60000
30-Apr 80000
30-Jun 50000
31-Aug 70000
30-Sep 20000
31-Oct 20000
end 195000 200000

The income summary account has a credit balance of P 510,000

Required: Prepare a statement of profit distribution for each of the following independent profit-
sharing agreements:
1) In the average capital ratio

2) Interest on average capital at 9%; Salaries of P 60,000 to Robin and Hood, respectively; a
bonus to Robin of 25% of net income; and the balance equally.

3) Interest of 10% on the ending capital balances, salaries of P 200,000 each to Robin and Hood;
and the balance equally.

4) Salaries of P 80,000 and P 120,000 to Robin and Hood, respectively; a bonus to Robin of 25%
of net income after salaries and the bonus; and the balance equally.

REQUIREMENT 1:
Peso-Month/Peso-Day Method
PARTNER DATE INVESTMENT/ CAPITAL ACCOUNT Fraction of
WITHDRAWAL BALANCES the year
ROBIN 1-Jan 135000 135000 2 12
28-Feb -40000 95000 2 12
30-Apr 80000 175000 5 12
30-Sep 20000 195000 3 12

HOOD 1-Jan 140000 140000 3 12

31-Mar 60000 200000 3 12
30-Jun -50000 150000 2 12
31-Aug 70000 220000 2 12
31-Oct -20000 200000 2 12

Total average capital accounts

Robin (160000/340000*510000) 240000.00
 Hood (180000/340000*510000) 270000.00
510000.00

REQUIREMENT 2:
ROBIN HOOD TOTAL
INT @ Ave. Capital, 9%
Robin (160000*.09) 14400 14400
Hood (180000*.09) 16200 16200
Salary to both, 60000 60000 60000 120000
Bonus to Robin of NI 127500 127500
Remainder 1:1 115950 115950 231900
TOTALS 317850 192150 510000

REQUIREMENT 3:
ROBIN HOOD TOTAL
INT @ Ending Capital, 10%
Robin (195000*10%) 19500 19500
Hood (200000*10%) 20000 20000
Salary to both, 200000 200000 200000 400000
Remainder 1:1 35250 35250 70500
TOTALS 254750 255250 510000

REQUIREMENT 4:
ROBIN HOOD TOTAL
Salary 80000 120000 200000
Bonus 62000 62000
Remainder 124000 124000 248000
TOTALS 266000 244000 510000

Computation of Bonus:
Net Income 510000
Less: Salaries 200000
Net Income before Bonus 310000
Net Income After Bonus (310000/125%) 248000
Bonus 62000

Other Computation:
B = 25% (NI - SAL - BONUS)
B = 25% (510000 - 200000 - B)
B = 25% (310000 - B)
B = 77500 -B
1.25 B = 77500
1.25 1.25
B = 62000
Ave. Capital Accnt
Balances
22500.00
15833.33
72916.67
48750.00
160000.00

35000.00
50000.00
25000.00
36666.67
33333.33
180000.00
340000.00