Reference no: EM133178707
Problem 1 - Sophia and Anna are partners operating a chain of retail stores. The partnership agreement provides for the following:
Annual salaries to Sophia of P40,000 and P30,000 to Anna.
12% interest on average capital balances.
Bonus to Sophia of 20% of net income before salaries and bonus but after interest on capital.
Residual income in the ratio 25% to Sophia and 75% to Anna.
The Income Summary account for year 2018 shows a credit balance of P244,000 before any allocations. Average capital balances for Sophia and Anna are P100,000 and P150,000, respectively.
1. How much must be the share of Sophia on the partnership net income?
2. How much must be the share of Sophia on the partnership net income?
Problem 2 - Rob contributed P30,000 cash, a tract of land, and delivery equipment. Joe contributed P60,000 cash. After giving special consideration to the tax bases of the assets contributed, the relative usefulness of the assets to the partnership versus the problems of finding buyers for the assets and contributing cash, and other such factors, the partners agreed that Joe's contribution was equal to 40 percent of the partnership's tangible assets, measured in terms of the fair value of the assets to the partnership. However, since the marketing idea originated with Joe, it was agreed that he should receive credit for 60 percent of the recorded capital. Recent sales of land similar to that contributed by Rob suggest a market value of P40,000. Likewise, recent sales of delivery equipment similar to that contributed by Rob suggest P40,000 as the market value of the equipment. These sales, of course, were not entirely representative of the particular assets contributed by Rob and therefore may be a better indicator of their relative values than their absolute values. In reflecting on their venture, the partners agree that it is a rather risky affair in respect to anticipated profits. Hopefully, however, they will be able to build good customer relations over the long run and establish a permanent business with an attractive long-term rate of return.
Under the most appropriate method, given the circumstances, the capital credit to Joe Con must be?
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