PARTNERSHIP
OPERATIONS
The accounting cycle of a partnership is the same as with the other forms of
business organization. The accounting for business transactions will differ on what line of
business they are operating, e.g. service, merchandising and manufacturing.
A business in the form of partnership is governed by the Articles of Co-partnership
under Article No. 1767 – 1867 of the Civil Code of the Philippines. A business is formed is
to earn a profit. Since the partnership is formed by two or more persons, therefore, the
problem will be on how to divided the profits and losses at the end of the period. The
contract of partnership should state on how the profit and losses shall be divided among
the partners. In the absence of such agreement, Article 1797 of the Phil. Law on
Partnership provides that the share of each partner in the profits and losses shall be in
proportion of their capital contribution and the industrial partner shall not share in the
losses.
There are many ways in which the profit and losses can be divided, as follows:
1. Equally;
2. Arbitrary ratio;
3. In the ratio of partner’s capital account balances;
a. Original capital;
b. Beginning or Ending capital balance of the period;
c. Average Capital
4. By allowing interest on capital balances and dividing the balance on agreed ratio.
5. By allowing salaries to partners and dividing the balance on agreed ratio.
6. By allowing bonus to partners and dividing the balance on agreed ratio
7. By allowing interest on capital balances, salaries and bonuses to
partners And dividing the balance on agreed ratio.
The most common method used in dividing profits and losses of partners are
equally or arbitrary ratio. The amount of net income divided among the partners shall be
the net income after tax. The net income given on the examples shall be net income after
tax. (for simplicity of analysis)
For simplicity of illustration the tax is ignored in the examples.
ILLUSTRATIONS:
Case 1. Equally
Philip Santos and Ruel Cruz are partners and have capital balance at the end of
2020 as follows: Philip Santos – P60,000.00; Ruel Cruz – P30,000.00. The results of its
2020 operations is a net income after tax of P120,000. Prepare the entry to record the
allocation of the net income between the two partners – Equally.
Entry to close the credit balance of the Income Summary Account to the partners’ capital
accounts:
PARTNERSHIP
OPERATIONS
Page 58
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
120,000 / 2
P/R
Debit
120,000.0
0
Credit
60,000.00
60,000.00
After this closing entry, the balance of Philip Santos Capital is P120,000 and Ruel
Cruz, Capital is P90,000.00.
Case 2. Arbitrary Ratio
Philip Santos and Ruel Cruz are partners and have capital balance at the end of
2020 as follows: Philip Santos – P60,000.00; Ruel Cruz – P30,000.00. The results of its
2020 operations is a net income after tax of P120,000. Prepare the entry to record the
allocation of the net income between the two partners’ assuming that they agreed that the net
income be divided by 1:3
Entry to close the credit balance of the Income Summary Account to the partners’ capital
accounts:
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
Santos = 120,000 x 1/4 =
30,000
Cruz = 120,000 x ¾ = 90,000
P/R
Debit
120,000.0
0
Credit
30,000.00
90,000.00
Case 3 – In the Ratio of Partners’ Capital Balances
Philip Santos and Ruel Cruz are partners and invested cash to their partnership in
January 2020 as follows: Philip Santos – P60,000.00; Ruel Cruz – P30,000.00.
Withdrawals are made by the partners in the amount of P10,000 on October 1, 2020. The
partners made additional investment on June 1, 2020 of P30,000 and P20,000
respectively. The results of its 2020 operations is a net income after tax of P120,000.
Prepare the entry to record the allocation of the net income between the two partners’
assuming:
A. Based on the ratio of the partners’ original capital balances
B. Based on the ratio of the partners’ capital balances
Entry to close the credit balance of the Income Summary Account to the partners’ capital
accounts on December 31, 2020
A. Based on the ratio of partners’ original capital balances:
PARTNERSHIP
OPERATIONS
Page 59
Original Capital – is the amount of capital invested by the partners at the start of their
partnership.
Date
Dec. 31, 2020
Descriptio
P/R
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
Santos = 120,000 x 60/90 =
80,000
Cruz = 120,000 x30/90 = 40,000
Debit
Credit
120,000.00
30,000.00
40,000.00
B. Based on the ratio of the partners’ ending capital balances
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
120,000.0
0
80,000.00
40,000.00
Santos= 120,000 x 80/120 =
80,000
Cruz = 120,000 x 40/120 =
40,000
C. Based on the average capital balances
Compute the average capital balances of each partner, as follows: (nearest peso)
Philip Santos, Capital
Date
Jan. 1, 2020
June 1, 2020
Oct 1, 2020
Number of
Months
Unchang
ed (C)
Capital
Balance
(B)
60,000.00
90,000.00
80,000.00
5
4
3
12
Peso
Months
(Col. B x
C)
300,000.00
360,000.00
240,000.00
900,000.00
Average Capital
75,000
Ruel Cruz Capital
Date
Jan. 1, 2020
June 1, 2020
Oct 1, 2020
Number of
Months
Unchang
ed (C)
Capital
Balance
(B)
30,000.00
50,000.00
40,000.00
Total
PARTNERSHIP
OPERATIONS
5
4
3
12
Peso
Months
(Col. B x
C)
150,000.00
200,000.00
120,000.00
470,000.00
P
Average Capital
39,167
114,167
Page 60
1,370,000
Using Peso Months (nearest peso)
Philip Santos share in profits: 900/1370 x 120,000 =
78,832 Ruel Cruz share in profits: 470/1370 x 120,000
= 41,168 Using Average Capital
Philip Santos share in profits: 75000/114,167 x 120,000 =
78,832 Ruel Cruz share in profits: 39,167/114,167 x
120,000 = 41,168
PARTNERSHIP
OPERATIONS
Page 61
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
120,000.0
0
Credit
78,832
41,168
In using the average capital ratio in distributing profits, the method provides the
recognition of the changes in capital during the period.
Philip Santos and Ruel Cruz are partners and invested cash to their partnership in
January 2020 as follows: Philip Santos – P60,000.00; Ruel Cruz – P30,000.00.
Withdrawals are made by the partners in the amount of P10,000 on October 1, 2020. The
partners made additional investment on June 1, 2020 of P30,000 and P20,000
respectively. The results of its 2020 operations is a net income after tax of P120,000.
Prepare the entry to record the allocation of the net income between the two partners’
assuming:
Case 4. By allowing 8% interest on average capital balances and the remainder
based on 3:1 (Use the amount of average capital on Case no. 3.C)
The partners may agree to provide interest on capital balances and the interest to
be applied should be agreed by them and the balance in arbitrary ratio. It should also be
stated that the computation of interest in terms of capital balances as of a certain period or
for their average capital balances for the period.
Computation of Interest of 8% on average capital balance (amount of interest rounded
to nearest peso)
1. Entry to allow interest on average capital balances
Date
Descriptio
P/R
Debit
Credit
n
Income Summary
Dec. 31, 2020
9,133
Philip Santos, Capital
6,000.00
Ruel Cruz, Capital
3,133.00
PS = 75,000 x .08= 6000.00
RC = 39,167 x .08 = 3,133.00
2. Entry to divide the balance of net profit according to arbitrary ratio 3:1 (120,000-9133)
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
110,867
83,150.00
27,717.00
Or (compound entry)
Date
Dec. 31, 2020
PARTNERSHIP
OPERATIONS
Descriptio
n
Income Summary
P/R
Debit
Credit
120,000.00
Page 62
Philip Santos, Capital
Ruel Cruz, Capital
PARTNERSHIP
OPERATIONS
89,150.00
30,850.00
Page 63
Computation:
Interest Allowance
Remainder to be divided 3:1
P110,867 x 3/4
P110,867 x 1/4
TOTAL
Philip,
Capital
P 6,000.00
Ruel,
Total
Capital
P 3,133.00 P 9,133.00
83,150.00
P89,150.00
27,717.00 110,867.00
P30,850.00
P120,000.00
Case 4.a By allowing 8% interest on average capital balances and the remainder
based on 3:1 (Use the amount of average capital on Case no. 3.C)
Assuming that the net income for the year is only 5,000.00.
The entries to record the division of profits to partner capital accounts, follows:
1. Entry to allow interest on average capital balances
Date
Descriptio
P/R
n
Income Summary
Dec. 31, 2020
Philip Santos, Capital
Ruel Cruz, Capital
Debit
Credit
9,133
6,000.00
3,133.00
PS = 75,000 x .08= 6000.00
RC = 39,166.67 x .08 = 3,133.00
2. Entry to divide the balance of the insufficient profit according to arbitrary ratio 3:1
*5000-9133= (4133)
Date
Dec. 31, 2020
Descriptio
n
Philip Santos, Capital
Ruel Cruz, Capital
Income Summary
(see computation below)
P/R
Debit
Credit
3,100.00
1,033.00
4,133.00
Or (compound entry)
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
5,000.00
2,900.00
2,100.00
Computation:
Interest Allowance
Remainder: 3:1
TOTAL
PARTNERSHIP
OPERATIONS
Philip
6,000.00
(3,100.00)
2,900.00
Ruel
3,133.00
(1,033.00)
2,100.00
Total
9,133.00
(4,133.00)
5,000.00
Page 64
Remainder is computed Net Income P5,000 – allotted for allowance P9,133 =
negative remainder of P4,133. This represents insufficient profit.
Case 5. By allowing salaries to partners and dividing the balance on agreed ratio.
Problem data is from
A. Assuming that salaries is allowed to each partner in the amount of P40,000
annually and the balance in agreed ratio of 3:1.
5.a Net Income is P90,000.00 for the year 2020.
5.b. Net Income is P50,000.00 for the year 2020.
The entry to close the Income Summary Account to partners’ capital accounts follows:
5.a Net Income is P90,000.00 for the year 2020. Remainder 3:1
1. Entry to allow salaries to partners
Dat
Descriptio
e
n
Income Summary
Dec. 31, 2020
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
80,000.00
40,000.00
40,000.00
2. Entry to divide the P10,000 balance of net profit according to arbitrary ratio 3:1
(90000- 80000)
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
10,000.00
7,500.00
2,500.00
PS 10,000 x ¾
RC 10,000 x 1/4
Or (compound entry)
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
90.000.00
47,500.00
42,500.00
Computation:
Salary Allowance
Philip
P40,000.00
Ruel
P40,000.00
Remainder: 3:1
TOTAL
7,500.00
P47,500.00
2,500.00
P42,500.00
PARTNERSHIP
OPERATIONS
Total
P80,000.0
0
10,000.00
P90,000.0
0
Page 65
5.b. Net Income is P50,000.00 for the year 2020. Remainder 3:1
1. Entry to allow salaries to partners
Dat
Descriptio
e
n
Income Summary
Dec. 31, 2020
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
80,000.00
40,000.00
40,000.00
2. Entry to divide the balance of insufficient profit according to arbitrary ratio 3:1
*50000-80000= (30000)
Date
Descriptio
P/R
Debit
Credit
n
Philip Santos, Capital
22,500.00
Dec. 31, 2020
Ruel Cruz, Capital
7,500.00
30,000.00
Income Summary
(see computation below)
Or (compound entry)
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
50,000.00
17,500.00
32,500.00
Computation:
Salary Allowance
Remainder: 3:1
TOTAL
Philip
Ruel
P 40,000.00 P 40,000.00
(22,500.00)
(7,500.00)
P
P 32,500.00
17,500.00
Total
P 80,000.00
(30,000.00)
P 50,000.00
Case 6. 10% bonus is allowed to each partner based on net income after tax of
P120,000 and dividing the balance on agreed ratio of 3:1.
Philip Santos and Ruel Cruz are partners and have capital balance at the end of
2020 as follows: Philip Santos – P60,000.00; Ruel Cruz – P30,000.00. The results of its
2020 operations is a net income after tax of P120,000. Prepare the entry to record the
allocation of the net income between the two partners as follows:
1. Entry to record the bonus to partners.
Date
Dec. 31, 2020
PARTNERSHIP
OPERATIONS
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
P/R
Debit
Credit
24,000.00
12,000.00
12,000.00
Page 66
Santos = 120,000 x .10 = 12,000
Cruz = 120,000 x .10 = 12,000
PARTNERSHIP
OPERATIONS
Page 67
2. Entry to record the remainder of profit based on agreed ratio of 3:1 (120000-24000)
Date
Dec. 31, 2020
Descriptio
P/R
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
Santos = 96000 x 3/4 = 72,000
Cruz = 96,000 x 1/4 = 24,000
Debit
Credit
96,000.00
72,000.00
24,000.00
Philip
P 12,000.00
Ruel
Total
P
P
12,000.00
24,000.00
72,000.00
24,000.00
96,000.00
P 84,000.00 P 36,000.00 P 120,000.00
Bonus
Remainder: 3:1
TOTAL
OR (compound entry)
Date
Dec. 31, 2020
Descriptio
n
Income Summary
Philip Santos, Capital
Ruel Cruz, Capital
(see computation above)
P/R
Debit
Credit
120,000.00
84,000.00
36,000.00
Case 7 .Lani, Emma and Selya are partners. The initial investment of the three
partners are P40,000 each. They withdrew cash every June 30 and Dec. 31, 2020 of
P30,000 each. They have additional investment of P50,000 each in March 31 and in
Sept. 30, 2020. . After a year of operation, the company earned a net profit of
P90,000 after tax. The profit and loss agreement follows:
1.
2.
3.
4.
By allowing P5,000 monthly salary to the managing partner Selya;
By allowing 10% interest on their original capital investment to all the partners;
By allowing bonus to managing partner of P3,000
Remainder is divided equally.
Prepare the entries to record the division of profits based on the above agreement:
1. Entry to record the salary allowance to Selya; P5,000 x 12=P60,000
Date
Dec. 31, 2020
PARTNERSHIP
OPERATIONS
Descriptio
n
Income
Summary
Selya,
Capital
P/R
Debit
Credit
60,000.00
60,000.00
Page 68
2. Entry to record the 10% interest on their original capital. 10% x P40,000
Date
Dec. 31, 2020
3.
Descriptio
n
Income Summary
Lani, Capital
Emma, Capital
Selya, Capital
P/R
Debit
Credit
12,000.00
4,000.00
4,000.00
4,000.00
Entry to record the bonus to managing partner of P3,000.
Date
Dec. 31, 2020
Descriptio
n
P/R
Income
Summary
Selya,
Capital
Debit
Credit
3,000.00
3,000.00
4.
Entry to record the remainder profit to partners
equally. 90000-60000-12000-3000 = 15000/3 =
5000 each
Date
Description
P/R
Dec. 31, 2020
Income Summary
Lani, Capital
Debit
15,000.0
0
5,000.00
5,000.00
5,000.00
Emma, Capital
Selya, Capital
Remainder divided equally
Lan
i
Credit
Emma
Salary Allowance
Selya
Total
P 60,000.00
Interest Allowance
Bonus
Remainder divided equally
TOTAL
P 4,000.00 P 4,000.00
5,000.00
P 9,000.00
5,000.00
P 9,000.00
P
60,000.00
4,000.00
12,000.00
3,000.00
3,000.00
5,000.00
15,000.00
P 72,000.00 P 90,000.00
OR (compound entry)
Date
Dec. 31, 2020
Description
Income Summary
Lani, Capital
Emma, Capital
Selya, Capital
PARTNERSHIP
OPERATIONS
P/R
Debit
90,000.0
0
Credit
9,000.00
9,000.00
72,000.00
Page 69
(see computation above)
PARTNERSHIP
OPERATIONS
Page 70
Same data in Case 7 except that the results of operation in 2020 is a net loss of P90,000.00.
Prepare the entries to record the division of profits and losses: Entries for Nos. 1
to 2 are the same. Bonus is not allowed for insufficient income or Net Loss. The
remainder will be divided as follows, -90000-60000-12000 = (162000)/3 = (54000)
Date
Dec. 31, 2020
Description
Lani, Capital
P/R
Emma, Capital
Selya, Capital
Debit
54,000.0
0
54,000.0
0
54,000.0
0
Income Summary
Lan
i
Credit
162,000
Emma
Selya
Total
Salary Allowance
60,000.00 60,000.00
Interest Allowance
4,000.00
4,000.00
4,000.00 12,000.00
Remainder divided into 3
(54,000.00) (54,000.00) (54,000.00) (162,000.00)
TOTAL
(50,000.00) (50,000.00) 10,000.00
(90,000)
Remainder = Net Loss + Salary Allowance + Interest Allowance
= P90,0000 + P60,000 + P12,000 = P162,000
OR (compound entry)
Date
Dec. 31, 2020
PARTNERSHIP
OPERATIONS
Descriptio
n
Lani, Capital
Emma, Capital
Income Summary
Selya, Capital
(see computation above)
P/R
Debit
Credit
50,000.00
50,000.00
90,000.00
10,000.00
Page 71
EXERCISES
3-1
The capital accounts of Jose and Andres at the end of the calendar of 2020 are as
follows:
Jose, Capital
January 1
Balance
P 63,000
May
1
Investment
27,000
October 1
Withdrawal
P 18,000
Andres,
Capital
January 1
April
1
Balance
Withdrawal
P 45,000
P 9,000
The partnership profit for the year ended December 31, 2020 is P 90,000.
Instructions: Give the journal entries to record the sharing of the partnership income under
each of the following independent cases:
1.
Profit is divided 2:1 to Jose and Andres respectively.
2.
Profit is divided in the ratio of capital balances at the beginning of the period.
3.
Profit is divided in the ratio of average capital.
4.
Interest of 8% is allowed on average capital and the balance of profit divided equally.
5.
Salaries of P 24,000 and P 19,000 are allowed to Jose and Andres, respectively, the
balance of profit is divided in the ratio of capital balances at the end of the period.
6.
Andres is allowed a bonus of 20% of profit after bonus, the balance of the profit
divided in the ratio of the average capital.
3-2
The partnership agreement of Justin and Kyle provides that interest at 10% per annum is to
be
credited to each partner on the basis of average capital balances. A summary of Kyle’s capital
accounts for the year ended December 31, 2020 is as follows:
Balance, January 1
Additional investment, June 30
Withdrawal, July 31
Balance, December 31
P 280,000
80,000
30,000
?
1. How much is the average capital of Kyle?
2. What amount of interest should be credited to Kyle for the
year
2020?
PARTNERSHIP
OPERATIONS
Page 72
3-3
The partnership agreement of Malik, Michael and Marco provides for the year-end
allocations of
profit in the following manner:
 First, Malik is to receive bonus of 10% of profit for the first P 100,000, and 20% of
profit in excess of P 100,000;
 Second, Michael and Marco each will receive 5% of remaining profit after the
above bonus to Malik;
 Balance of profit to be divided equally.
The partnership’s 2020 profit was P 360,000 before any allocation to partners.
1.
2.
3.
4.
3-4
Daquis and Dionela are partners who share profits and losses in the ratio of 60% and
40%,
respectively. Daquis’ salary is P 60,000 and P 30,000 for Dionela. The partners are also
paid interest on their average capital balances. In 2020, Daquis received P 30,000
of interest and Dionela, P 12,000. The profit and loss allocation is determined after
deductions for the salary and interest payments. Dionela’s share in the residual income
(balance after deducting salaries and interest) was P 78,000 in 2020.
1.
3-5
How much is the bonus of Malik?
How much is the share of Malik in the partnership profit?
How much is the share of Michael in the partnership profit?
How much is the share of Marco in the partnership profit?
What was the total partnership profit?
Carter, Vince and Wayne are partners with beginning capital balances of P 100,000, P
200,000
and P 300,000, respectively. The partnership agreement provides for the following division
of profits and losses:
a. Salaries to Carter, Vince and Wayne amounting to P 30,000, P 40,000 and P
50,000, respectively;
b. 10% interest on beginning capital balances;
c. Partner Carter is to receive a bonus of 20% of profit after deducting salaries,
interest, and bonus;
d. Any remainder of profit is divided equally.
If the profit before deducting salaries, interest, and bonus amounted to P 300,000, how
much is the share of each partner in the partnership profit?
Carter
3-6
Vince
Wayne
Using the same profit and loss agreement as in exercise 3-5, assume the profit after
deducting salaries, interest, and bonus is P 200,000, how much is the share of each
partner in the partnership profit? (take note that salaries, interest, and bonus are not
operating expenses but used only as part of profit distribution)
Carter
PARTNERSHIP
OPERATIONS
Vince
Wayne
Page 73
3-7
Still using the same profit and loss agreement as in exercise 3-5, assume that the
residual profit after deducting salaries and interest is a loss or negative figure of P
100,000, how much is the partnership profit for the period?
3-8
As of December 31, 2020, King, Jolly and Donald Partnership has the following data
before effecting distribution of income summary account with a debit balance of P
300,000 from operation beginning January 1, 2020.
ASSE
TS
Cash
Non-Cash
Assets
P
400,000
?
LIABILITI
ES
Accounts Payable
King, Loan
P
100,000
500,00
0
CAPITA
L
King, Capital
Jolly, Capital
P
500,000
500,000
Donald, Capital
500,000
The partners have the following profit and loss agreement:
a. All partners shall have a monthly salary of P 10,000;
b. Mr. King shall have a 10% bonus on the profit before salary, interest and bonus;
c. Interest on beginning capital would be 6% annually; and
d. Balance divided equally.
Upon distribution of P 300,000 debit balance of income summary account:
1.
By how much will the capital balance of Mr. King
increased (decreased)?
2.
How much is the adjusted capital of Mr. Jolly after distributing
their respective share?
3.
How much is the total partnership assets after distribution of
the income summary account?
3-9
The partnership has the following accounting amounts: Sales, P 70,000; Cost of Sales, P
40,000;
Operating expenses, P 10,000; Salary allocations to partners, P 13,000; Partners’
withdrawals, P 8,000. What was the profit (net loss) of the partnership?
3-10
Noel, Burkes and Ariza are partners of NBA Partnership. During 2020, their average
capital
balances are as follows: Noel – P 280,000; Burkes – P 200,000; Ariza – P
120,000 The partnership agreement includes the following:
1.
2.
3.
6% interest is allowed on average capital balances.
Salary allowances to Burkes and Ariza are P 48,000 and P 40,000, respectively.
Burkes is the managing partner and is to receive a bonus of 25% of profit in excess
of
P 72,000 after partners’ interest and salary allowances.
PARTNERSHIP
OPERATIONS
Page 74
4.
Remaining profit or loss will be divided in the ratio of 5:3:2
PARTNERSHIP
OPERATIONS
Page 75
Required: Prepare schedules showing how profit or loss will be distributed among the
three partners under each of the following independent assumptions.
1)
3-11
P 25,000 loss
b) P 60,000 profit
c) P 250,000 profit
Dick, Jane, Jack and Jill formed a partnership with the following profit or loss agreement:
1.
2.
3.
4.
Dick receives a salary of P 400,000 and a bonus of 3% of profit after all bonuses;
Jane receives a salary of P 200,000 and a bonus of 2% of profit after all bonuses;
All partners are to receive a 10% interest on their beginning capital
balances.
The
partners’ beginning capital balances are as follows: Dick – P 1,000,000; Jane – P
900,000; Jack – P 400,000; and Jill – P 940,000;
Any remaining profits or losses are to be divided equally among the partners.
Required: Prepare schedules showing how profit or loss will be distributed among the
three partners under each of the following independent assumptions.
3-12
1.
Prepare a schedule how a profit of P 2,100,000 would be allocated among the
partners.
2.
Prepare a schedule how a loss of P 800,000 would be allocated among the partners.
3.
Prepare a schedule how a profit of P 800,000 would be allocated among the
partners assuming the following priority system. Profit should be allocated by first
giving priority to interest on beginning capital balances, then bonuses, then salary,
and then according to the profit or loss percentages.
Stew and Peed entered into a partnership on March 1, 2020 investing P 2,000,000 and
P 1,000,000 respectively. They agreed that Stew is the managing partner and is to
receive a salary allowance of P 240,000 per year and a bonus of 10% of the net profit
after deducting salary but before bonus. The balance is to be divided in the ratio of their
original capital.
Selected ledger account balances as of December 31, 2020 before adjustments showed
the following:
Stew, Capital
Stew, Drawing
Peed, Capital
Peed, Drawing
Sales
Sales returns and allowances
Purchases
Operating expenses
PARTNERSHIP
OPERATIONS
P 2,000,000
200,000
1,000,000
100,000
3,000,000
30,000
1,800,000
480,000
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Inventories on December 31, 2020 were as follows: Office supplies, P 8,100;
merchandise, P 500,000. Prepaid insurance of P 12,000 and accrued expenses of P
4,000 were recognized. Depreciation expense of P 40,000 was also provided.
PARTNERSHIP
OPERATIONS
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Required:
1.
Determine the profit or loss of the partnership. Assuming 30% income tax rate.
2.
Prepare a schedule showing the distribution of partnership profit or loss.
3.
Prepare a Statement of Changes in Partners’ Equity for the period ended December
31, 2020.
PARTNERSHIP
OPERATIONS
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