In January 2020, Nick Marasigan and Dems Asacta agreed to produce and sell chocolate candies. Marasigan contributed P 2, 400, 000 in cash to the business. Asacta contributed the building and equipment valued at P 2, 200, 000 and P 1, 400, 000, respectively. The partnership had profits of P 840, 000 during 2019 but was less successful during 2020, when profit was only P 400, 000.
REQUIRED:
1. Prepare the journal entry to record the investment of both partners in the partnership.
2. Determine the share of profit for each partner in 2019 and 2020 under each of the following conditions:
a. The partners agree to share profit equally.
b. The partners failed to agree on a profit- sharing agreement.
c. The partners agreed to share profit according to the ratio of their original investments.
d. The partners agreed to share profits by allowing interest of P 10% on their original capital
investments and dividing the remainder equally.
e. The partners agreed to share profits by allowing interest of P 400, 000 for Marasigan and P 280,
000 for Asacta, and dividing the remainder equally.
f. The partners agreed to share profits by paying salaries of P 400, 000 to Marasigan and P 280, 000
to Asacta, allowing interest of 9% on their original investments, and dividing the remainder equally.
Please help me
To answer your question, I will provide the necessary information on how to calculate the share of profit for each partner in the given scenarios. Please note that these calculations will require some basic accounting principles and formulas.
1. Prepare the journal entry to record the investment of both partners in the partnership:
To record the investment of both partners, you would need to create a journal entry. Here's how you can do it:
Partner A (Nick Marasigan)
Cash 2,400,000
Capital 2,400,000
Partner B (Dems Asacta)
Building 2,200,000
Equipment 1,400,000
Capital 3,600,000
This journal entry records the contribution of each partner in the business.
2. Determine the share of profit for each partner in 2019 and 2020 under each of the following conditions:
a. The partners agree to share profit equally:
In this case, the profit will be divided equally between the partners. So, to calculate their share:
- In 2019: Profit = P840,000
Nick's share = P840,000 / 2 = P420,000
Dems' share = P840,000 / 2 = P420,000
- In 2020: Profit = P400,000
Nick's share = P400,000 / 2 = P200,000
Dems' share = P400,000 / 2 = P200,000
b. The partners failed to agree on a profit-sharing agreement:
In this case, the profit will be divided equally among the partners unless there is a prior agreement. Therefore, the calculation will be the same as in Scenario a.
c. The partners agreed to share profit according to the ratio of their original investments:
To calculate the share of profit based on the ratio of their original investments, you need to determine the total capital and then calculate the share of each partner. Here's how you can do it:
Total capital = Nick's capital + Dems' capital
Total capital = P2,400,000 + P3,600,000 = P6,000,000
- In 2019: Profit = P840,000
Nick's share = (P2,400,000 / P6,000,000) * P840,000 = P336,000
Dems' share = (P3,600,000 / P6,000,000) * P840,000 = P504,000
- In 2020: Profit = P400,000
Nick's share = (P2,400,000 / P6,000,000) * P400,000 = P160,000
Dems' share = (P3,600,000 / P6,000,000) * P400,000 = P240,000
d. The partners agreed to share profits by allowing interest of P10% on their original capital investments and dividing the remainder equally:
To calculate the share of profit with interest on capital, you first need to calculate the interest for each partner and then divide the remaining profit equally. Here's how you can do it:
- In 2019: Profit = P840,000
Nick's interest = P2,400,000 * 10% = P240,000
Dems' interest = P3,600,000 * 10% = P360,000
Remaining profit = P840,000 - (P240,000 + P360,000) = P240,000
Nick's share = P240,000 / 2 + P240,000 = P360,000
Dems' share = P240,000 / 2 + P240,000 = P360,000
- In 2020: Profit = P400,000
Nick's interest = P2,400,000 * 10% = P240,000
Dems' interest = P3,600,000 * 10% = P360,000
Remaining profit = P400,000 - (P240,000 + P360,000) = P-200,000 (negative balance indicates a loss)
Nick's share = P-200,000 / 2 = P-100,000 (negative balance)
Dems' share = P-200,000 / 2 = P-100,000 (negative balance)
e. The partners agreed to share profits by allowing interest of P400,000 for Marasigan and P280,000 for Asacta, and dividing the remainder equally:
In this scenario, you need to first deduct the interest of each partner from the profit and then divide the remaining profit equally. Here's how it can be calculated:
- In 2019: Profit = P840,000
Nick's share = P840,000 - P400,000 = P440,000
Dems' share = P840,000 - P280,000 = P560,000
- In 2020: Profit = P400,000
Nick's share = P400,000 - P400,000 = P0
Dems' share = P400,000 - P280,000 = P120,000
f. The partners agreed to share profits by paying salaries of P400,000 to Marasigan and P280,000 to Asacta, allowing interest of 9% on their original investments, and dividing the remainder equally:
In this scenario, you need to calculate the interest on their original investments first, deduct the salaries of each partner, and then divide the remaining profit equally. Here's how you can calculate it:
- In 2019: Profit = P840,000
Nick's interest = P2,400,000 * 9% = P216,000
Dems' interest = P3,600,000 * 9% = P324,000
Remaining profit = P840,000 - P400,000 - P280,000 - (P216,000 + P324,000) = P-170,000 (negative balance indicates a loss)
Nick's share = P-170,000 / 2 = P-85,000 (negative balance)
Dems' share = P-170,000 / 2 = P-85,000 (negative balance)
- In 2020: Profit = P400,000
Nick's interest = P2,400,000 * 9% = P216,000
Dems' interest = P3,600,000 * 9% = P324,000
Remaining profit = P400,000 - P400,000 - P280,000 - (P216,000 + P324,000) = P-20,000 (negative balance indicates a loss)
Nick's share = P-20,000 / 2 = P-10,000 (negative balance)
Dems' share = P-20,000 / 2 = P-10,000 (negative balance)
Please note that in cases where there is a negative balance, it indicates a loss rather than a share of profit.