Brief Exercises – Operation (Answer)

2. The West and East Partnership earned a net income of P90,000 for the current
year. Beginning capital balances were P70,000 for Tom West and P140,000 for
Susan East. Prepare the closing entries to transfer net income to the partners’
capital accounts based on the following independent net income agreements.

a) No mention of net income agreement.

Income summary 90,000

West, Capital 30,000 (70,000/90,000=)
East, Capital 60,000 (3/4 x 90,000)
To close income summary.

b) Interest on beginning capital balances of 12%, balance divided in a ratio of 3:2,

respectively.

Income summary 90,000

West, Capital 47,280 (8,400 + 38,880)
East, Capital 42,720 (16,800 + 25,920)
To close income summary.

c) Interest on beginning capital balances of 10%, salary of P45,000 to Watson and

P50,000 to Sink, balance divided equally.

Income summary 90,000

West, Capital 39,000 (7,000+45,000-13,000)
East, Capital 51,000 (14,000+50,000-13,000)
To close income summary.

3. The Roten and Welborn Partnership incurred a net loss of P30,000 for the
current year. The beginning capital balances of the partners were respectively,
P45,000 and P55,000. Prepare journal entries to transfer the net loss to the
partners’ capital accounts based on the following agreements.

a) No mention of net income/loss agreement.

Roten, Capital 13,500

Welborn, Capital 16,500
Income Summary 30,000
To transfer the net loss to the partner’s capital accounts.
b) Salary of P40,000 to Roten and P20,000 to Welborn, balance divided in the
ratio of 3:2.

Roten, Capital 14,000

Welborn, Capital 16,000
Income Summary 30,000
To transfer the net loss to the partner’s capital accounts.

ROTEN WELBORN TOTAL

40,000 20,000 60,000
Net loss -30,000
Balance -90,000
(3/5) -54,000
(2/5) -36,000
-14,000 -16,000 -30,000

c) Interest of 12% on beginning capital balances, balance divided in the ratio of

2:3.

Roten, Capital 11,400

Welborn, Capital 18,600
Income Summary 30,000
To transfer the net loss to the partner’s capital accounts.

ROTEN WELBORN TOTAL

5,400 6,600 12,000
Net loss -30,000
Balance -42,000
(2/5) -16,800
(3/5) -25,200
-11,400 -18,600 -30,000

Roten beg. capital 45,000

Welborn beg. capital 55,00
4. Carl and David have capital balances of $100,000 and $300,000 respectively.
Carl devotes full time and David one-half time to the business. Determine the
division of $90,000 of net income under each of the following assumptions:

(a) No agreement as to division of net income.

Carl, Capital 22,500

David, Capital 67,500

(b) In ratio of capital balances.

Carl, Capital 22,500 (1/4)

David, Capital 67,500 (3/4)

(c) In ratio of time devoted to business.

Carl, Capital 60,000

David, Capital 30,000

(d) Interest of 10% on capital balances and remainder equally.

Carl, Capital 35,000 (10,000+25,000)

David, Capital 55,000 (30,000+25,000)

(e) Interest of 10% on capital balances, salaries of $40,000 to Carl and $20,000 to
David, and the remainder equally.

Carl, Capital 45,000 (10,000+40,000-5,000)

David, Capital 45,000 (30,000+20,000-5,000)
Simple ave. capital

Razote
80k + 90k/2= 85k

Ragasa
80k + 65k/2= 72,500

Dumbrique
90k + 60k/2= 75k

Weighted ave. capital

names capital months Ave. capital

Razote
Beg. capital Jan. 1 80,000 3 240,000
Add. Investment 100,000 3 300,000
( 20,000) Apr. 1
Withdraw (10,000) 90,000 6 540,000
Ending capital 90,000 1,080,000/12
90,000

Ragasa
Beg. capital Jan. 1 80,000 4 320,000
Withdraw (15,000) 65,000 8 520,000
May 1
Ending capital 65,000 840,000/12
70,000

Dumbrique
Beg. capital Jan. 1 90,000 8 720,000
Withdraw (30,000) 60,000 4 240,000
sep. 1
Ending capital 60,000 960,000/12
80,000

9+7+8=24

Ratio:
Razote 9/24
Ragasa 7/24
Dumbrique 8/24

Profit 48,000
1. Allocation:
Razote 18,000

Ragasa 14,000

Dumbrique 16,000
-------------
48,000php

2. Profit 50,000
Bonus 5,000 (10% of profit)(for razote only)

Balance profit 45,000

Ratio 8+8+9=25
Razote 8/25
Ragasa 8/25
Dumrique 9/25

Allocation:
Razote 14,400+5,000=19,400
Ragasa 14,400
Dumbrique 16,200
-----------
50,000

3.
Net loss 35,000

10% beg. capital balances

Razote 8,000
Ragasa 8,000
Dumbrique 9,000
----------
25,000

-25,000+(-35,000)= - 60,000 ( balance)

-60,000/3 = -20,000

Razote 8,000-20,000= -12,000

Ragasa 8,000-20,000= -12,000
Dumbrique 9,000-20,000= -11,000
------------
-35,000