Question 3 (Total 18 marks)

Part A

Peter, Paul and Mary are partners in providing Wedding Ceremony services. In 2019, the beginningyear

capital balances are $240,000, $120,000, and $120,000, respectively. Partnership net income for

the year is $168,000. Make the necessary journal entry to close Income Summary to the capital

accounts if:

Required:

(a) Partners agree to divide income based on their beginning-year capital balances.

(2 marks)

(b) Partners agree to divide income based on the ratio of 5:3:2 (Peter:Paul:Mary), respectively.

(2 marks)

(c) Partnership agreement is silent as to division of income and loss.

(2 marks)

Part B

Thomas Lee is a branch accountant in a multinational company HKCP Group ("the Group")

responsible for purchasing supplies from a developing country. Thomas is authorized to enter into

contracts up to HK$10,000,000 for any single transaction. Demand in the home market is growing

and Head Office is pressing for an increase in supplies. However, the supplies must be sourced at

below-market prices. If not, the Group will be losing out in competition and his year-end bonus will

be gone.

A new government official in the developing country says that Thomas needs an export permit from

his department and that he needs a payment to be made to his sister-in-law for consulting services if

the permit is to be granted. Thomas quickly checks alternative sources and finds that the normal price

combined with the extra "facilitation fee" is still much cheaper than the alternative sources of supply.

Thomas faces two problems, namely, whether to pay the facilitation fee and, if so, how to record it in

the accounts so it is not obvious what it is.

Required:

Discuss the problems and suggestions. Please limit your answers to 250 words.