Reference no: EM133170610
Question - Cruz and Santos are partners whose capital balances on December 31, 2019 before the books are closed are P19,250 and P10,750, respectively. The partnership agreement provides that net income is to be divided as follows: monthly salaries of P200 to Cruz and P400 to Santos are to be allowed, any balance is to be divided equally. If net income is insufficient to cover the salary allowance, the same is to be divided in the salary ratio; in the event of a loss, division thereof is to be made equally.
The partnership recorded a net income of P9,000 for 2019 and was transferred to the capital accounts. Machinery with book value of P9,450, was destroyed by fire on December 15. The book value of the equipment was charged to insurance claims receivable.
On March 1, 2020, the firm recovers P6,000 in full settlement of the fire loss and the corresponding correction to prior year's net income is made.
On April 30, 2020, Julian is admitted as a partner upon the investment of P20,000. Income and losses are divided in the ratio of 4:3:3 between Cruz, Santos and Julian, respectively. The partners agree on not closing the books until the end of the year and income is considered to have been earned pro rata during the year. Upon closing the books as of December 31, 2020, net income of P18,000 is arrived at and is transferred to the partners' accounts.
Required - Prepare the statement of changes in partners' capital showing all the changes that took place therein in 2019 and 2020. Explain. Show computations/solutions.