CLOSE NOMINAL ACCOUNTS

● Net sales (or service revenue), cost of sales, and operating expenses
Problem:

Entries:
Sales 2,498,140
Income summary 2,486,520
Sales Discount 11,620
To close net sales

Income summary 985,130

Merchandise inventory, dec. 31 125,800
Merchandise inventory, jan. 1 537,500
Purchases 545,890
Freight-in 27,540
To close the cost of sales

Income summary 913,050

Insurance expense 128,500
Rent expense 520,350
Bad debts expense 1,500
Depreciation expense 31,000
Loss on Sales of mark. sec. 30,000
Other operating expenses 201,700
To close operating expenses
RECOGNITION OF TAX LIABILITY
Same problem:
● Record 20% tax liability

Net Income before tax 588,340

20% tax provision 117,668
NET INCOME 470,672

Entry:
Income Summary 470,672
Income Taxes Payable 470,672
To record tax liability

Distribution of profits
Young, drawing 211,802.4
((450,000/1,000,000) x 470,672)
Go, drawing 258,869.6
((550,000/1,000,000) x 470,672)
TOTAL 470,672

ENTRIES:
Income Summary 470,672
Young, drawing 211,802.4
Go, drawing 258,869.6
To record the profit share of each partner

STATEMENT OF CHANGES IN PARTNER’S EQUITY

Hyper Mart
Statement of Changes in Partner’s Equity
For the year ended, Dec. 31, 2023

YOUNG GO TOTAL

Balances, Jan. 1 450,000 550,000 1,000,000

Add: Share in Net 211,802 258,870 470,672

Income

TOTAL 661,802 808,870 1,470,672

Less: Regular drawings 40,040 32,500 72,540

Balance, Dec. 31 621,762 776,370 1,398,132

DIVISION OF PROFIT OR LOSS BASED ON CAPITAL CONTRIBUTION

BEGINNING CAPITAL
Income Summary 120,000
David, drawing 96,000
Jose, drawing 24,000
To record profit distribution
David ((400,000/500,000) x 120,000) 96,000
Jose ((100,000/500,000) x 120,000) 24,000

ENDING CAPITAL
Income summary 120,000
David, drawing 56,000
Jose, drawing 64,000
To record profit distribution
David ((350,000/750,000) x 120,000) 56,000
Jose ((400,000/750,000) x 120,000) 64,000

AVERAGE CAPITAL
Income Summary 120,000
David, drawing 65,660
Jose, drawing 54,340
To record profit distribution
David ((362,500/662,500) x 120,000)
Jose ((300,000/662,500) x 120,000)

Computation:
Date Capital No. of Months Pesos Mos. Average capital
Balance used

DAVID 1/1 400,000 3 1,200,000

4/1 350,000 9 3,150,000

4,350,000 / 12 362,500

JOSE 1/1 100,000 4 400,000

4/30 400,000 8 3,200,000

3,600,000 / 12 300,000
PROFIT DISTRIBUTION TABLE WITH INTEREST, SALARY, AND REMAINDER

DAVID JOSE TOTAL

10% interest on ending 35,000 40,000 75,000

capital

Salary - 60,000 60,000

Remainder (7,500) (7,500) (15,000)

TOTAL 27,500 92,500 120,000

BONUS BASED ON NET INCOME AFTER OR BEFORE BONUS OF INTEREST OR

SALARY

● BONUS IS BASED ON THE NET INCOME ONLY

Formula: Bonus Percent x Net Income

● BONUS IS BASED ON NET INCOME BEFORE SALARY AND BONUS

Formula: B = Bonus Percent (Net Income + Salary + Bonus)

● BONUS IS BASED ON NET INCOME AFTER SALARY AND BONUS

Formula: B = Bonus Percent (Net Income - Salary - Bonus)

● BONUS IS BASED ON NET INCOME AFTER SALARY BUT BEFORE BONUS

Formula: B = Bonus Percent (Net Income - Salary + Bonus)

● BONUS IS BASED ON NET INCOME BEFORE SALARY BUT AFTER BONUS

Formula: B = Bonus Percent (Net Income + Salary - Bonus)