The partnership agreement of Escano, Garcia and Sabater provided that profits are

to be divided as follows:

1 Escano is to receive a salary allowance of PIOO,OOO for managing the business.

2 Partners are to receive 10% interest on average capital balances.

3 Remaining profits are to be divided in the ratio of 30:30:40 to Escano, Garcia and

Sabater, respectively.

4 Escano had a capital balance of P600,OOO at Jan. 1, 2008 and had drawings (temporary) of

P80,OOO during the year.

5 Garcia's capital balance on Jan. 1, 2008 was P900,OOO and

invested an additional P300,OOO on Sept. 1, 2008.

6  Sabater's beginning capital

balance was P1,100,000, and she withdrew PIOO,OOO on July 1 but invested an

additional P200,OOO on Oct. 1, 2008.

7 The partnership had a loss of P120,OOO during the year. The bookkeeper allocated

the Joss as follows: P2,OOO to Escano; P(48,OOO) to Garcia and P(74,OOO) to

Sabater.

Required:

1. Prepare the schedule to allocate the P120,OOO loss correctly.

2. Prepare the statement of changes in partners' equity.

3. Prepare the correcting journal entry at Dec. 31, 2008 assuming that the books

have been closed.

1. Prepare the schedule to allocate the P120,OOO loss correctly.

Escano is to receive a salary allowance of PIOO,OOO for managing the business.

Escano Garcia Sabater

Salary Allowance PHP 100,000.00

Interest on ave capital PHP 60,000.00 100,000 110,000

Balance 30:30:40 PHP (147,000.00) (147,000) (196,000)

Share in loss PHP 13,000.00 PHP (47,000.00) PHP (86,000.00)

Computation of ave capital

Escano 1/1/08 600,000x12/12 600,000

Garcia 1/1/08 900,000x8/12 600,000

9/1/08 1,200,000x4/12 400,000

Sabater 1/1/08 1,100,000x6/12 550,000

7/1/08 1,000,000x3/12 250,000

10/1/08 1,200,000x3/12 300,000

2. Prepare the statement of changes in partners' equity.

Escano, Garcia and Sabater

Statement of Changes in Partner's Equity

for the year eneded December 31, 2008

Escano Garcia Sabater

Partner's Equity, Jan. 1 600,000 900,000 1,100,000

Add: Investments 300,000 200,000

Total 600,000 1,200,000 1,300,000

Less: Permanent Withdrawals 100,000

Balances 600,000 1,200,000 1,200,000

Add: Profit (Loss) 13,000 (47,000) (86,000)

Total 613,000 1,153,000 1,114,000

Less: Temporary Withdrawals 80,000

Partner's Equity, Dec.31 533,000 1,153,000 1,114,000

3. Prepare the correcting journal entry at Dec. 31, 2008 assuming that the books have been closed

Entry made:

Total Garcia, Capital 48,000

100,000 Sabater, Capital 74,000

270,000 Escano, Capital 2,000

(490,000) Income Summary 120,000

PHP (120,000.00) To record division of profits/loss

Should be:

Garcia, Capital 47,000

Sabater, Capital 86,000

Escano, Capital 13,000

Income Summary 120,000

To record division of profits/loss

Correcting entry:

Sabater, Capital 12,000

Garcia, Capital 1,000

Escano, Capital 11,000

To correct the entry made on the distribution of profits/loss

1:2
 1/3 2/3

Total 0.33 0.67

2,600,000

500,000

3,100,000

100,000

3,000,000

(120,000)

2,880,000

80,000

2,800,000

2. Prepare the statement of changes in partners' equity.

Escano

Statement of Owner's Equity

for the year ended December 31, 2008

Escano, Capital - beginning PHP 600,000.00

Add: Profit PHP 34,000.00

Less: Escano, Drawings 80,000

Escano, Capital - ending PHP 554,000.00

Garcia

Statement of Owner's Equity

for the year ended December 31, 2008

Garcia, Capital - beginning PHP 900,000.00

Add: Garcia Investment 300,000

Less: Share in Loss 66,000

Garcia, Capital - ending PHP 1,134,000.00

Sabater

Statement of Owner's Equity

for the year ended December 31, 2008

Sabater, Capital - beginning PHP 1,100,000.00

Add: Sabater Investment 200,000

Total PHP 1,300,000.00

Less: Sabater, Drawings 100,000

Share in Loss 88,000

Total Partnership Capital - ending PHP 1,112,000.00

 3. Prepare the correcting journal entry at Dec. 31, 2008 assuming that the books

have been closed.

2008

Escano, Capital PHP 80,000.00

Cash PHP 80,000.00

To record drawings

Sept 1 Cash PHP 300,000.00

Garcia, Capital PHP 300,000.00

To record investment

July 1 Sabater, Capital PHP 100,000.00

Cash PHP 100,000.00

To record drawings

Oct 1

Cash PHP 200,000.00

Sabater, Capital PHP 200,000.00

To record investment

Loss PHP 120,000.00

Income Summary PHP 120,000.00

To record the loss of the partnership

Income Summary PHP 120,000.00

Escano, Capital PHP 34,000.00

Garcia, Capital PHP 66,000.00

Sabater, Capital PHP 88,000.00

To record the loss allocated to all partners in the books