Reference no: EM132809897

Serrano and Toledo organized a partnership to own and operate a health-food store. The partnership agreement provided that Serrano receive a salary of P20,000 and Toledo at a salary of 10,000 to recognize their relative time spent in operating the store. The remaining profits and losses were divided 60:40 to Serrano and Toledo, respectively. Profit for 2015, the first year of operations, of P26,600, was allocated P17,600 to Serrano and P8,400 to Toledo.

• On January 01, 2016, the partnership agreement was changed to reflect the fact that Toledo could no longer devote any time to the store's operations. The new agreement allows Serrano a salary of P36,000, and the remaining profits and losses are divided equally. In, 2016, an error was discovered such that the 2015 reported profit was understated by P8,000. The partnership profit of P50,000 for 2016 included this P8,000 related to 2015.

Problem 1: How should the 2016 partnership profit of P50,000 be allocated to Toledo?

a. 6,800

b. 43,200

c. 6,200

d. 43,800