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1. The partnership agreement outlines how profits and losses are to be allocated among the three partners - Escano, Garcia, and Sabater. 2. To correctly allocate the $120,000 loss for the year, schedules were prepared to calculate each partner's average capital balance and share of interest. Garcia's capital balance was adjusted upwards to reflect an additional investment. 3. A statement of changes in partners' equity was prepared for each partner, showing movements in their capital accounts from the beginning to the end of the year. 4. A correcting journal entry was made to properly allocate the loss amounts that were incorrectly recorded by the bookkeeper at year-end.

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April Naida
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645 views

Le 1 Answer Key

1. The partnership agreement outlines how profits and losses are to be allocated among the three partners - Escano, Garcia, and Sabater. 2. To correctly allocate the $120,000 loss for the year, schedules were prepared to calculate each partner's average capital balance and share of interest. Garcia's capital balance was adjusted upwards to reflect an additional investment. 3. A statement of changes in partners' equity was prepared for each partner, showing movements in their capital accounts from the beginning to the end of the year. 4. A correcting journal entry was made to properly allocate the loss amounts that were incorrectly recorded by the bookkeeper at year-end.

Uploaded by

April Naida
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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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.
business.

wings (temporary) of

vested an

per allocated
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

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
suming that the books have been closed
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
ing that the books

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