1.1 Partnership Operations
Problem 1
Left and Right are partners. Their capital accounts during 2019 were as follows:
Left, Capital
8/23
P 3,000
1/1
P15,000
4/3
4,000
10/31
3,000
Right, Capital
3/5
P4,500
1/1
7/6
10/7
P 25,000
3,500
2,500
Partnership net income is P25,000 for the year. The partnership agreement provides for
the division of net income as follows:
•
•
•
Each partner is credited 10 percent interest on his or her average capital
(rounded to the nearest month)
Because of prior work experience of, Left is entitled to an annual salary of P6,000
and Right is credited with P4,000
Any remainder income or loss is to be allocated based on the beginning capital
How much of the partnership net income for 2019 should be assigned to Left and Right?
a. Left, P11,833.33; Right, P13,166.50
b. Left, P9,375; Right, P15,625
c. Left, P13,194; Right, P11,806
d. Left, P12,500; Right, P12,500
Problem 2
Hunt, Rob, Turman and Kelly own a publishing company that they operate as a
partnership. The partnership agreement includes the following:
•
•
•
Hunt receives a salary of P10,000 and a bonus of 3% of income after all bonuses.
Rob receives a salary of P5,000 and a bonus of 2% of income after all bonuses.
All partners are to receive 10% interest on their average capital balances.
The average capital balances are Hunt, P25,000; Rob, P22,500; Turman, P10,000 and
Kelly, P23,500. Any remaining profit and losses are to be allocated among the partners.
a.
b.
c.
d.
Hunt, P20,725; Rob, P14,975; Turman, P7,725; Kelly, P9,075
Hunt, P14,000; Rob, P8,250; Turman, P1,000; Kelly, P2,350
Hunt, P19,850; Rob, P14,600; Turman, P8,350; Kelly, P9,700
Cannot be determined.
Problem 3
PP and QQ are partners operating a chain of retail stores. The partnership agreement
provides for the following:
PP
QQ
Salaries …………………………………………………
Interest on capital balances …………………
Bonus ……………………………………………………
P5,000
P2,500
10%
10%
20% of net income
before interest but
after bonus & salaries
Remainder …………………………………………….
30%
70%
The income summary account for year 2019 shows a credit balance of P25,000 before
any deductions. Average capital balances for PP and QQ are P25,000 and P37,500,
respectively. The share of PP and QQ in the P25,500 net income would be:
a. PP, P12,031.25; QQ, P13,468.75
b. PP, P13,275.75; QQ, P12,229.25
c. PP, P11,750; QQ, P13,750
d. PP, P13,125; QQ, P12,375
Problem 4
XX and YY formed a partnership on January 2, 2019 and agreed to share profits and loss
in the ratio of 90% and 10%, respectively. XX contributed capital of P6,250. YY
contributed no capital but has a specialized expertise and manages the firm full time.
There were no withdrawals during the year. The partnership agreement provides for the
following:
•
•
•
•
Capital accounts are to be credited annually with interest at 5% of the beginning
capital
YY is to be paid a salary of P250 a month
YY is to receive a bonus of 20% of net income calculated before deducting his
salary and interest on both capital accounts
Bonus, interest, and YY’s salary are to be considered as partnership expenses
The partnership’s income statement for 2019 follows:
Revenues ……………………………………………………………………………
P24,112.50
Less: Expenses (including salary, interest, and bonus)……
12,425.00
Net Income …………………………………………………………………………
11,687.50
1. What is YY’s 2019 bonus?
a. P2,922.00
c. P3,750.00
b. P3,000.00
d. P3,934.50
2. How much is the total share of YY on the 2019 partnership net income?
a. P7,084.50
b. P7,162.50
c.
d.
P7,918.75
P8,097.00
Problem 5
The Trading Company, a partnership, was formed on January 1, 2019, with four
partners, DD, EE, FF, and GG. Capital contributions were as follows: DD, P25,000; EE,
P12,500; FF, P12,500; GG, P10,000. The partnership agreement provides that partners
shall receive 5% interest in the amounts of their capital contributions. In addition, DD is
to receive a salary of P2,500 and EE a salary of P1,500. The agreement further provides
that FF shall receive a minimum of P1,250 per annum from the partnership and GG a
minimum of P3,000 per annum, both including amounts allowed as interest on capital
and their respective shares of profits. The balance of the profits is to be shared in the
following proportions: DD, 30%; EE, 30%; FF, 20%; and GG, 20%. Calculate the
amount that must be earned by the partnership during 2019, before any charges for
interest on capital or partners’ salaries, in order that DD may receive an aggregate of
P6,250 including interest, salaries and share of profits.
a. P 8,333.33
b. P 15,000.00
c. P15,333.33
d. P16,166.67
Problem 6
David and Ruby organized the DR Partnership on January 1, 2018. the following entries
were made in their capital accounts during 2018:
Debit
David, capital:
Credit
January 1
April 1
October 1
180,000.00
50,000.00
10,000.00
Ruby, capital
January 1
March 1
60,000.00
10,000.00
September
November 1
20,000.00
10,000.00
Required:
If the partnership net income, computed before salaries, interest and bonus is P56,000
for 2018, indicate its division between the partners under each of the following
independent profit-sharing agreements:
a. Interest at 4% is allowed on average capital investments, and the balance is
divided equally.
b. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each
partner on their ending capital balance, and the balance in the ratio of beginning
capital balances.
c. Salaries allowed to David and Ruby in the amounts of P34,000 and P38,000.
respectively, and remaining profits ad losses are divided in the ratio of average
capital balances.
d. A bonus of 10% of partnership net income is credited to David, a salary of
P16,000 is allowed to Ruby, and remaining profits and losses are shared equally.
(The bonus is regarded as an expense for purposes of calculating the bonus
amount).
Problem 7
X,Y and Z, doctors, agree to form a partnership and to share profits in the ratio 5:3:2.
they also agreed that Z is to be allowed a salary of P140,000 and that Y is to be
guaranteed P105,000 higher as his share of the profits. During the first year of
operations, income from fees are P900,000, while expenses total P480,000.
How much of the profits should be credited to X?, to Y? to Z?
Problem 8
Partners L and M share profits 3:1 after annual salary allowances of P400,000 and
P60,000, respectively; however, if profits are not adequate to meet the salary
allowances, the entire profit is to be divided in the salary ratio. Profits of P90,000 were
reported for the year 2018. in 2019 it is ascertained that in calculating net income for
the year ended December 31, 2018, depreciation was overstated by P36,000 and ending
inventory was understated by P80,000.
What adjustments should be made on the capital of L and M?
Adjusting entry needed to correct the partner’s capital balances.
Problem 9
NEGOSYO TO Company a partnership was formed on January 1, 2018, with four
partners, C, P, A and S. Capital contributions were as follows: C- P1,000,000; PP500,000; A- P500,000; and S- P400,000. the partnership agreement provides that
each partner shall receive 5%interest on the amount of his capital contribution. In
addition, C is to receive a salary of P100,000 and P a salary of P60,000 which are to be
charged as expenses of the business. The agreement provides that A shall receive a
minimum of P50,000 per annum from the partnership and S a minimum of P120,000 per
annum, both including amounts allowed as interest on capital and their respective
shares of profits. The balance of the profits to be shared in the following proportions: C30%; P- 30% A- 20% and S-20%.
Calculate the amount that must be earned by the partnership during 2018, before any
charge for interest on capital or partners ‘ salaries, in order that C may receive an
aggregate of P250,000, including interest, salary and share of profits.
Problem 10
The following account balances appear in the ledger for the firm of X and Y at the end of
2018 before the profit for the year has been transferred to the partner’s accounts:
X, drawing
72,000.00
Y, drawing
125,000.00
X, loan
175,000.00
X, capital
500,000.00
Y, capital
500,000.00
Profit and loss
302,250.00
The following information is to be considered in closing the profit and loss account and
the drawing accounts:
• The cost of installing equipment at the beginning of 2018, P27,000, was charged
to expense. The installation relates to equipment with a 10-year life.
• The loan to the firm was made by X on March 1, 2018. No entry has been made
for interest on the loan, which is 6% and is to be paid to X at the time the loan is
prepaid.
The partnership agreement permits X and Y to withdraw weekly sums of P1,500 and
P2,250, respectively, these amounts to be regarded as salaries. Actual withdrawals by
partners differed from allowed amounts and are summarized in the drawing accounts.
Y, the managing partner, is entitled to special bonus of 25% of the net profit after
deduction of all special allowances to partners (including the bonus), and any remaining
profit is to be distributed equally.
1. How much should be the Dec. 31 ending capital balance of each partner?
Problem 11
Linda and Mario created a partnership to own and operate a health-food store. The
partnership agreement provided that Linda receives an annual salary of P10,000 and
Mario a salary of P5,000 to recognize their relative time spent in operating the store.
Remaining profits and losses were divided 60:40 to Linda and Mario, respectively.
Income of P13,000 for 2017, the first year of operations, was allocated P8,800 to Linda
and P4,200 to Mario. On January 1, 2018, the partnership agreement was changed to
reflect the fact that Mario could no longer devote any time to the store’s operations. The
new agreement allows Linda a salary of P18,000, and the remaining profits and losses
are divided equally. In 2018, an error was discovered such that 2017 reported income
was understated by P4,000. The partnership income of P25,000 for 2018 included this
P4,000 related to 2017.
In the reported new income of P25,000 for the year 2018, Linda would have
A. P21,900
B. P17,100
B. P0
D. P12,500
Problem 12
Derha, a senior partner in a law firm, has a 30% participation in the firm’s profit and
losses. During 2018, Derha withdrew P130,000 against her capital but contributed
property with a fair value of P25,000. Derha’s capital increased by P15,000 during 2018.
The net income of the partnership for 2018 is
A. P150,000
C. P.350,000
B. P400,000
D. P550,000
Problem 13
Elmo, Fred and Greg invest P40,000, P30,000 and P25,000 respectively, in a partnership
on June 30, 2017. They agree to divide net income or loss as follows:
A. Interest at 10% on beginning capital account balances
B. Salaries of P10,000, P8,000 and P6,000, respectively to Elmo, Fred and Greg,
respectively.
C. Remaining net income or loss is divided equally
D. A minimum of P18,000 of income is guaranteed to Greg regardless of the result of
operations.
If the net income for the year ended June 30, 2018 before interest and salaries
allowances to partners was P44,000, the amount of the net income credited to Elmo is:
A. P21,875
B. P20,000
C. P18,334
D. P14,500
Problem 14
X, Y and Z are partners with average capital balances during 2018 of P120,000, P60,000
and P40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of P30,000 to X and P20,000 to Y, the residual profit
or loss is divided equally. In 2018 the partnership sustained a P33,000 loss before
interest and salaries to partners.
By what amount should X’s capital account change?
A. P7,000 increase
C. P11,000 decrease
B. P35,000 decrease
D. P42,000 increase
Problem 15
Partners Joyce and Marie share profits 3:1 after annual salary allowances of P4,000 and
P6,000 respectively; however, if profits are not adequate to meet the salary allowances,
the entire profit is to be divided in the salary ratio. Profits of P9,000 were reported for
the year 2017. in 2018, it is ascertained that in calculating net income for the year
ended December 31, 2017, depreciation was overstated by P3,600 and the ending
inventory was understated by P800.
2. The amount of the net adjustments in the books of Joyce and Marie are:
Joyce
Marie
A
P(3,699)
P(1,813)
B
P2,950
P1,450
C
D
P8,188
P2,300
P8,563
P3,475