Partnership Operations:
18. JJ and KK are partners who share profits and losses in the ratio of 60%: 40%, respectively. JJ’s salary is
P60,000 and P30,000 for KK. The partners are also paid interest on their average capital balances. In 20x5, JJ
received P30,000 of interest and KK, P12,000. The profit and loss allocation is determined after deductions
for the salary and interest payments. If KK’s share in the residual income (income after deducting salaries
and interest) was P60,000 in 20x5, what was the total partnership income?
Answer: C. P282,000
19. The Partnership has the following accounting amounts:
(1) Sales = P 70,000
(2) Cost of Goods Sold = P40,000
(3) Operating Expenses = P10,000
(4) Salary allocations to partners = P13,000
(5) Interest Paid to banks = P2,000
(6) Partners’ withdrawals = P8,000
The partnership net income (loss) is:
Answer: B. P 18,000
20. Lancelot is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a bonus of 10%
of net income after salary and bonus as a means of allocating profit among the partners. Salaries traceable to
the other partners are estimated to be P100,000. What amount of income would be necessary so that Lancelot
would consider the choices to be equal?
Answer: B. P 290,000
21. Peter and Ronald are partners. They have shared profits and losses 65/35 for a number of years. Peter has
indicated that he is going to reduce his involvement in the partnership so the profit and loss ratio is being
modified to 45/55. At the date of the change in the profit and loss ratio, the partnership owns vacant land with a
market value of P300,000 and a book value of P100,000. Peter and Ronald compile a list of assets with market
and book value differences. Two years after the change in the profit and loss ratios, the land is sold for
P450,000. How much of the gain is allocated to Peter?
Answer: B. P 197,500
22. Jennifer and Robert are partners who are changing their profit and loss ratios from 60/40 to 45/55. At the date
of the change, the partners choose to revalue assets with market value different from book value. One asset
revalued is land with a book value of P50,000 and a market value of P120,000. Two years after the profit and
loss ratio is changed, the land is sold for P200,000. What is the amount of change to Robert’s capital account at
the date the land is sold?
Answer: B. 44,000
23. Shawn is a managing partner in a local business. Part of his profit allocation is a bonus based on the store’s
operating income in excess of P200,000 after deducting the bonus. If operating income for the year is
P250,000, what is Shawn’s bonus (rounded to the nearest peso)?
Answer: A. P 3,703
24. James has a bonus as part of his partner profit allocation. The bonus is based on the partnership’s net income.
James receives a bonus equal to 5 percent that the net income exceeds P150,000. If the net income in the
current year is P180,000, how much bonus does James receive?
Answer: D. P 1,500
25. Cheryl is the manager of a local store. She is also a partner in the company and she receives a bonus as part of
the profit and loss allocation. Cheryl’s bonus is based on the increase in revenues recorded during the period. The
bonus arrangement is that Cheryl receives 1 percent of net income for every full percentage point growth for
revenues in excess of a 5 percent revenue growth. During the most recent period, revenues grew from P500,000
to P540,000 and net income grew from P98,000 to P120,000. How much bonus does Cheryl receive for this
period?
Answer: C. P 3,600
26. Nick, Joe and Mike are partners. The company has P150,000 net income for the period. How is this income
divided to the partners if the following profit and loss allocation process is followed?
Nick
Joe
Mike
Weighted average capital
P 200,000
P 350,000
P 180,000
Salary
25,000
15,000
35,000
Bonus
.1 (NI – P100,000)
Residual profit/loss ratios
25
.45
.30
Return on invested capital 9%
Answer: D.
Nick
Joe
Mike
P44,075
P 48,435
P 57,490
27. Cab and Jo are considering forming a partnership whereby profits will be allocated through the use of salaries
and bonuses. Bonuses will be 10% of net income after total salaries and bonuses. Cab will receive a salary of
P30,000 and a bonus. Jo has the option of receiving a salary of P40,000 and a 10% bonus or simply receiving a
salary of P52,000. Both partners will receive the same amount of bonus.
Determine the level of net income that would be necessary so that Jo would be indifferent to the profit sharing
option selected.
Answer: D. 334,000
28. The partnership agreement of XX, YY & ZZ provides for the year-end allocation of net income in the following
order:
First, XX is to receive 10 % of net income up to P200,000 and 20% over P200,000.
Second, YY and ZZ each are to receive 5% of the remaining income over P300,000.
The balance of income is to be allocated equally among the three partners.
The partnership’s 20x5 net income was P500,000 before any allocations to partners. What amount should be
allocated to XX?
Answer: B. P 216,000
29. The partnership agreement of RR and SS provides that interest at 10% per year is to be credited to each partner
om the basis of weighted-average capital balances. A summary of the capital account of SS for the year ended
December 31, 20x5, is as follows:
Balance, January 1 ………………………………………………………………
P 420,000
Additional investment, July 1 …………………………………………………..
120,000
Withdrawal, August 1 …………………………………………………………..
( 45,000)
Balance, December 31 ………………………………………………………….
495,000
What amount of interest should be credited to SS’s capital account for 20x5?
Answer: C. P 46,125
30. AA, BB and CC are partners with average capital balances during 20x5 of P360,000, P180,000 and P120,000,
respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of P90,000
to AA and P60,000 to CC the residual profit or loss is divided equally. In 20x5 the partnership sustained a
P99,000 loss before interest and salaries to partners. By what amount should AA’s capital account change?
Answer: A. P 21,000 increase