PARTNERSHIP OPERATIONS
Average Capital Balance
Beg. balance, additional investment, withdrawal
1. WW and RR share profits and losses equally, WW and RR receive salary allowances of
P20,000 and P30,000, respectively, and both partners receive 10% interest on their average
capital balances. Average capital balances are calculated at the beginning of each month
regardless of when the capital contributions and capital withdrawals were made, and partners
drawings are not used in determining the average capital balances. Total net income for 2011
is P120,000.
WW
RR
January 1 capital balances
P1OO.OOO P120,000
Yearly drawings (PI .500 a month)
18,000
18,000
Permanent withdrawals of capital:
June 3
(12,000)
May 2
(15,000)
Additional investments of capital:
July 3
40,000
October 2
50,000
What is the weighted average capital for WW and RR respectively for 2011?
a. P110,667 and PI 19,583
c. P100,000 and P120,000
b. P105,333 and PI26,667
d. P126,667 and 105,333
2.
Mr. Zoom and his very close friend Mr. Boom formed a partnership on January 1, 2013 with Zoom
contributing P16,000 cash and Boom contributing equipment with a book value of P6,400 and a fair
value of P8,000. During 2013 Boom made additional investments of P1,600 on April 1 and P1,600
on June 1, and on September 1, he withdrew P4,000. Zoom had no additional investments nor
withdrawals during the year. The average capital balance at the end of 2013 for Mr. Boom is:
a. P9,600
c. P8,800
b. P8,000
d. P7,200
Beg. balance, add'l investment, excess withdrawal
3. Partner A first contributed P50,000 of capital into an existing partnership on March 1,2012.
On June 1,2012, the partner contributed another P20,000. On September 1, 2012, the
partner withdrew PI 5,000 from the partnership, Withdrawals in excess of PI0,000 are
charged to the partner's capital account. The annual weighted-average capital balance is
a. 62,000
c. 60.000
b. 51,667
d. 48,333
Partnership Net Income
Profit & loss statement given
4. Merlin, a partner in the Camelot Partnership, has a 30% participation in partnership profits
and losses. Merlin's capital account has a net decrease of P1,200,000 during the calendar
year 2011. During 2011, Merlin withdrew P2,600,000 (charged against his capital account)
and contributed property valued at P500,000 to the partnership. What was the net income of
the Camelot Partnership for year 2011 ?
a. 3,000,000
c. 7,000,000
b. 4,666,667
d. 11,000,000
5.
JJ and KK are partners who share profits and losses in the ratio of 60%: 40%, respectively.
JJ's salary is P60,000 and P'30,000 for KK. The partners are also paid interest on their
average capital balances. In 2012, J J received P30,000 of interest and KK, PI2,000. 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 P
60,000 in 2012, what was the total partnership income?
a. 192,000
c. 282,000
b.
345,000
d. 387,000
6.
RR, a partner in the RD partnership, is entitled to 40% of the profits and losses. During 2013, RR
contributed land to the partnership that cost her P50,000, but had a fair vlaue of P60,000. Also
during 2013, RR had drawings of P80,000. The balance of RR's capital accounts was
P120,000 at the beginning of the year and PI 50,000 at the end of the year.
What is the partnership's comprehensive income (loss) for 2013.
a. P(7 5,000)
c. P150,000
b. P(50,000)
d. P125,000
7.
Arturo Perez, a partner in the AP Partnership, has a 30% participation in partnership profits and
losses. Perez's capital account has a net decrease of P60,000 during the calendar year 2013.
During 2013, Perez withdrew PI30,000 (charged against his capital account) and contributed
property valued at P25,000 to the partnership. What was the net income of the AP Partnership for
2013?
a. P150,000
c. P350,000
b. P233,333
d. P550,000
Partner's required share in income given
8. CC, PP, and AA, accountants, agree to form a partnership and to share profits in the ratio of
5:3:2. They also agreed that AA is to be allowed a salary of P28,000, and that PP is to be
guaranteed P21,000 as his share of the profits. During the first year of operation, income
from fees are P180,000, while expenses total P96,000. What amount of net income should
be credited to each partner's capital account?
a. CC, P28,000, PP, P16,800, AA, P11,200
b. CC, P25,000, PP.P21.000, AA, P38,000
c. CC, P24,000, PP, P22,000, AA, P38,000
d. CC, P25.000, PP, P21.000, AA, P39,000
9.
On January 1,2012, A, B, C and D formed Bakya Trading Co., a partnership, with capital
contributions as follows: A, P50,000; B, P25,000; C, P25,000; and D, P20.000. The
partnership contract provided that each partner shall receive a 5% interest on contributed
capital, and that A and B shall receive salaries of P5.000 and P3,000, respectively. The
contract also provided that C shall receive a minimum of P2.500 per annum, and D a
minimum of P6,000 per annum, which is inclusive of amounts representing interest and share
of remaining profits. The balance of the profits shall be distributed to A, B, C, and D in a
3:3:2:2 ratio. What amount must be earned by the partnership, before any charge for interest
and salaries, so that A may receive an aggregate of P12,500 including interest, salary and
share of profits?
a. 16,667
c. 30.667
b. 30,000
d. 32,333
Net Income
10. The Partnership has the following accounting amounts:
(1) Sales =
(2) Cost of Goods Sold =
(3) Operating Expenses =
(4) Salary allocations to partners =
(5) Interest paid to banks =
(6) Partners' withdrawals =
The partnership net income (loss) is:
a. 20,000
b. 18,000
P70,000
P40,000
P10,000
PI3,000
P2,000
P8,000
c. 5,000
d. (3,000)
11. A partnership has the following accounting amounts:
Sales
P 700,000
Cost of goods sold
400,000
Operating expenses
100,000
Salary allocations to partners
130,000
Interest paid to banks
20,000
Partners' drawings
80,000
What is the partnership net income (loss)?
a. 200,000
b. 180,000
c. 50,000
d. (30,000)
Indifference Point
12. 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.
a. 240.O00
c. 94,000
b. 300,000
d. 334,000 Dayag 2013
13. Lancelot is trying to decide whether to accept a salary of P 40,000 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?
a. 165,000
c. 265.000
b. 290,000
d. 305,000
14. MM 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 salaries and bonus as a means of allocating profit among the
partners. Salaries traceable to the other partners are estimated to be PI00,000. What amount
of income would be necessary so that MM would consider the choices to be equal?
a. P165,000
c. P265,000
b. P290,000
d. P305,000
Partner’s Share in Net Income
Capital Contribution
15. The ABC Partnership reports net income of P60,000. If partners A, B, and C have income ratio
of 50%, 30%, and 20%, respectively. What is the share of Partner C from the net income of the
partnership, if he was given a capital ratio of 25%?
a. 30,000
c. 18,000
b. 12,000
d. 15,000
Interest + Salaries + Residual Loss
16. Henry, Marta and Nestor are partners with average capital balances in 2013 of P240,000,
PI20,000 and P80,000 respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of P60,000 to Henry and P40,000 to Nestor, the residual profit
or loss is divided equally. In 2008 the partner¬ ship sustained a P66,000 loss before interest and
salaries to partners. By what amount should Nestor's capital account change?
a. P30,000 decrease
c. P48,000 increase
b. P22,000 decrease
d. P28,000 increase
17. Dexter and Joliver are partners agreeing to allow monthly salaries (P6,000 and P5,000
respectively), 6% interest on the capital investment at the beginning of the year (P300,000 and
P230,000 respectively) and on the remaining balance, to be equally shared. The first year
registered a net income of P 100,000 Profit share of the partners are:
a. Dexter, P58,100 and Joliver, P41,900.
b. Dexter, P50,000 and Joliver, P50,000.
c. Dexter, P54,500 and Joliver, P45,500.
d. Dexter, P56,600 and Joliver, P43,400.
18. On January 1,2013, Zcep and Beep have capital balances of P20,000 and PI 6,000 respectively.
On July 1,2013 Zeep invests an additional P4,000 and Beep with¬ draws PI,600. Profits and
losses are divided as follows: Beep is the managing partner and as such shall receive PI6,000
salary and Zeep shall receive P7,200; both partners shall receive interest of 10% on their
beginning capital balances to offset whatever difference in capital investments they have and
any remainder shall be divided equally.
Income of the Zeep-Beep partnership for the year 2013 is P9,600. Zeep's share in the ret
income is:
a. P9,200
c. P 4,800
b. P 880
d. P 600
=
Salary + Residual Profit
19. S and T are in partnership and prepare their accounts to 31 December each year. On 1 July
2012, U joined the partnership. Profit sharing arrangements are:
Salary
Share of balance in profit
S
S
T
U
6 months to
30 June 2012
P15.000
60%
40%
6 months to 31
December 2012
P25,000
40%
40%
20%
The partnership profit for the year ended 31 December 2012 was P350,000 accruing evenly
over the year. What are the partners' total profit shares for the year ended 31 December
2012?
S
T
U
A.
196,000
124,000
P30,000
B.
217,000
108,000
25,000
C.
155,000
130,000
65,000
D.
175,000
145,000
35,000
20. AA and DD created a partnership to own and operate a health-food
store. The partnership agreement provided that AA receive a salary of
P10,000 and DD a salary of P5,000 to recognize their relative time spent in
operating the store. Remaining profits and losses were divided 60:40 to AA and
DD, respectively. Income for 2012, the first year of operations, of P13,000 was
allocated P8,800 to AA and P4,200 to DD.
On January 1, 2013, the partnership agreement was changed to reflect the
fact that DD could no longer devote any time to the store's operations. The new
agreement allows AA a salary of P18,000, and the remaining profits and losses are
divided equally. In 2013 an error was discovered such that the 2012 reported
income was understated by P4,000. The partnership income of P25,000 for
2013 included the P4,000 related to year 2012. In the reported net income of
P25,000 for the year 2013, AA and DD would have:
AA
DD
AA
DD
a.
21.900
3,100
c.
O
0
b.
17,100
17,100
d.
12,500
12,500
21. In its first year of operations. Alba and Company, a partnership, made a net income of P20,000
before providing for salaries of P5,000 and P3,000 per annum for Alba and Bana, respectively, as
stipulated in the partnership agreement. Capital contributions are as follows:
Alba
P30,000
Bana
20,000
Cada
10,000
Assuming that no profit-and-loss ratios are provided in the partnership agreement and that there
has been no change in the capital contributions during the year, how much profit share would Alba
be entitled to received?
a. P10,000
c. P11,000
b. P 5,000
d. P15,000
Salary + Residual Loss
22. Red and White formed a partnership in 2010. The partnership agreement provides for annual
salary allowances of P55,000 for Red and P45,000 for White. The partners share profits
equally and losses in a 60/40 ratio. The partnership had earnings of P80,000 for 2006 before
any allowance to partners. What amount of these earnings should be credited to each
partner's capital account?
Red
White
a. 40,000
40,000
b. 43,000
37,000
c. 44,000
36,000
d. 45,000
35,000
Interest + Residual Profit
23. 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 2011 net income was P500,000 before any allocations to partners. What
amount should be allocated to XX?
a. 202,000
c. 206,000
b. 216,000
d. 220,000
24. ABC's partnership provided for the following distribution of profits and losses;
"First". A to receive 10% of the net income up to P 1,000,000 and 20% on the amount of
excess thereof;
"Second", B and C each, are to receive 5% of the remaining income in excess of PI,500,000 after
A's share as per above and;
"The balance to be divided equally among the partners."
For the year just ended, the partnership realized a net income of P2,500,000 before distribution to
partners. The share of A is:
a. P1,300,000
c. P1,080,000
b. P1,000,000
d. P1,100,000
Interest + Residual Loss
25. During 2010, Young and Zinc maintained average capital balances in their partnership of
P160,000 and P100,0Q0, respectively. The partners receive 10% interest on average capital
balances, and residual profit or loss is divided equally. Partnership profit before interest was
P4,000. By what amount should Zinc's capital account change for the year?
a. 1,000 decrease
c. 11,000 decrease
b. 2,000 increase
d. 12,000 increase
Interest + Salaries + Bonus + Residual Loss
26. AA and BB formed a partnership in 2012 and made the following investments and capital
withdrawals during the year:
AA
BB
Investments Draws Investments Draws
March 1
P30,000
P20,000
Junel
P10.000
P10,000
August 1
20,000
2,000
December 1
5,000
The partnership's profit and loss agreement provides for a salary of which P30,000 was paid
to each partner for 2012. AA is to receive a bonus of 10% on net income after salaries and
bonus. The partners are also to receive interest of 8% on average annual capital balances
affected by both investments and drawings. Any remaining profits are to be allocated equally
among the partners. Assuming net income of P60,000 before salaries and bonus, determine
how the income would be allocated among the partners:
a. AA,P31,138;BB,P28,862
c. AA, P30,633; BB, P29,367
b. AA, P33,537; BB, P26,463
d. AA, P30,684; BB,P29,316
Interest + Salaries + Bonus + Residual Profit
27. A, B, and C are partners in an accounting firm. Their capital account balances at year-end
were A P90,000; B P110,000 and C P50,000. They share profits and losses on a 4:4:2 ratio,
after the following special terms:
1. Partner C is to receive a bonus of 10% of net income after the bonus.
2.
Interests of 10% shall be paid on that portion of a partner's capital
in excess of P100,000.
3. Salaries of P10,000 and P12,000 shall be paid to partners A & C
respectively.
Assuming a net income of P44,000 for the year, the total profit share of Partner C was:
a. 7,800
c. 19,400
b. 16,800
d. 19,800
28. 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 P20,000 and a bonus of 3% of income
after all bonuses.
Rob receives a salary of P10,000 and a bonus of 2% of income
after dll bonuses.
All partners are to receive 10% interest on their average capital
balances.
The average capital balances are as follows:
Hunt
P50,000
Rob
45,000
Turman
20,000
Kelly
47,000
Any remaining profits and loss are to be divided equally among the partners.
Determine how a profit of P105,000 would be allocated among the partners.
a. Hunt, P41,450; Rob, P29,950; Turman,P 15,450; Kelly, P18,150
b. Hunt, P28,000; Rob, P16,500; Turman,P 2,000; Kelly, P 4,700
c. Hunt, P39.700; Rob, P29,200; TurmaaP 16,700; Kelly, P19.400
d. Cannot be determined.
Dayag 2013
29. Partners AA and BB have profit and loss agreement with the following provisions: salaries of
P30,000 and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after
salaries and bonus; and interest of 10% on average capital balances of P20,000 and P35,000
for AA and BB, respectively. One-third of any remaining profits will be allocated to AA and the
balance to BB. If the partnership had net income of P102,500, how much should be allocated
to Partner AA?
a. 44,250
c. 41,000
b. 47,500
d. 41,167
Interest + Bonus + Residual Profit
30. The partnership agreement of Donn, Eddy, and Fair provides for annual distribution of profit
and loss in the following sequence:
• Donn, the managing partner, receives a bonus of 10% of profit.
• Each partner receives 6% interest on average capital investment.
• Residual profit or loss is divided equally.
Average capital investments for 2010 were:
Donn P80,000
Eddy
Fair
50,000
30,000
What portion of the P100,000 partnership profit for 2010 should be allocated to Fair?
a. 28,600
c. 35,133
b. 29,800
d. 41,600
Interest Based on Weighted-Average Capital
31. The partnership agreement of RR and SS provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of
the capital account of SS for the year ended December 31, 2012, is as follows:
Balance, January 1
P420,000
Additional investment, July 1
120,000
Withdrawal, August 1
( 45,000)
Balance, December31
495,000
What amount of interest should be credited to SS's capital account for 2012?
a. 45.750
c. 46,125
b. 49,500
d. 51,750
32. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of
Simm's capital account for the year-ended December 31, 2010, is as follows:
Balance, January 1
Additional investment, July 1
Withdrawal, August 1
Balance, December 31
P140,000
40,000
(15,000)
165,000
What amount of interest should be credited to Simm's capital account for 2010?
a. 15,250
c. 16,500
b. 15,375
d. 17,250
33.
The partnership agreement of Eve and Fred provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of Fred's
capital account for the year ended 31 December 2013 is as follows:
Balance, 1 January
P280,000.00
Additional Invstment, July 1
80,000.00
Withdrawal, 1 August
(30,000.00)
Balance, 31 December
330,000.00
The amount of interest that should be credited to Fred's capital account for 2013 is
a. P30,750
c. P34,500
b. P30,500
d. P33,000
Interest Based on Ave. Capital + Salaries + Residual Loss
34. The partnership of DD and BB was formed and commenced operations on March 1,2011,
with DD contributing P30,000 cash and BB investing cash of PI0,000 and equipment with an
agreed upon valuation of P20,000. On July 1,2011, BB invested an additional P 10,000 in the
partnership, DD made a capital withdrawal of P4,000 on May 2, 2011 but reinvested the
P4,000 on October 1, 2011. During 2011, DD withdrew P800 per month and BB, the
managing partner, withdrew PI,000 per month. These drawings were charged to salary
expense.
A pre-closing trial balance taken at December 31,2011 is as follows:
Debit
Cash
Receivable-net
Equipment - net
Other assets
Liabilities
DD, capital
BB, capital
Service revenue
Supplies expense
Utilities expense
Salaries to partners
Other miscellaneous expenses
Total
a. DD, P10,520; BB, PI3,480
c.
b. DD, P12,000; BB, PI2,000
d.
Credit
P 9,000
15,000
50,000
19,000
P 17,000
30,000
40,000
50,000
17,000
4,000
18,000
5,000
P137,000
DD, P10,800; BB, PI3,200
DD, P10,600; BB, PI3,400
P137,000
Interest Based on Ave. Capital + Residual Profit
35. On January 1, 2012, DD and EE decided to form a partnership. At the end of the year, the
partnership made a net income of PI 20,000. The capital accounts of the partnership show
"the following transactions.
DD, Capital
EE, Capital
Dr.
Cr.
Dr.
Cr.
January 1
P40,000
- P25,000
April 1
P5,000
June 1
10,000
August 1
10,000
September 1
P3,000
October 1
5,000
1,000
December 1
4,000
5,000
Assuming that an interest of 20% per annum is given on average capital and the balance of
the profits is allocated equally, the allocation of profits should be:
a. DD, P60,000; EE, P59,400
c. DD, P67,200; EE, P52,800
b. DD, P61,200; EE, P58,800
d. DD, P68,800; EE, P51.200
Bonus + Residual Profit
36. The partners, A and B, share profits 3:2. However, A is to receive a yearly bonus of 20% of the
profits, in addition to his profit share. The partnership made a net income for the year of P24,000
before the bonus. Assuming A's bonus is computed on profit after deducting said bonus, how
much profit share will B receive?
a. P15,200
c. P8,000
b. P9,600
d. P 9,000
Salary + Bonus + Residual Profit
37. On October 31, 2010, Zita and Jones formed a partnership by investing cash of P300,000
and P200,000, respectively. The partners agreed to receive an annual salary allowance of
P360,000, and to give Zita a bonus of 20% of the net income after partners' salaries, the
bonus being treated as an expense. If the profits after salaries and bonus are to be divided
equally, and the profits on December 31, 2010 after partners' salaries but before bonus of
Zita is P360,000, how much is the share of Zita in the profit?
a. 100,000
c. 210,000
b. 120,000
d. 270,000
38. The Articles of Partnership of Adam and Eve the following provisions were stipulated:
a. Annual salary of P60,000 each.
b. Bonus to Adam of 20% of the net income after partners' salaries, the bonus being treated
as an expense.
c. Balance to be divided equally.
The partnership reported a net income of P360,000 after partners' salaries but before bonus.
How much is the share of Eve in the profit?
a. 60,000
c. 150,000
b. 90,000
d. 210,000
Comprehensive
Questions 1 & 2 are based on the following:
In the calendar year 2010, the partnership of A and B realized a net profit of P240,000. The capital
accounts of the partners show the following postings:
A, capital
B, capital
Debit
Credit
Debit
Credit
Jan. 1
P120,000
P80,000
May 1
P20,000
P10,000
July 1
20,000
Aug. 1
10,000
Oct. 1
10,000
5,000
39. If the profits are to be divided based on average capital, the share of A and B, respectively
are:
a.
b.
c.
d.
129,600
144,000
136,800
136,543
110,400
96,000
103,200
103,457
40. If 20% interest based on the capital at the end of the year is allowed and given and the
balance of the P240,000 profit is divided equally, the total share of A and B, respectively are:
a. 121,500
118,500
b. 124,000
116,000
c. 123,000
117,000
d. 122,625
117,375
Partner's Share in Net Income (Partial/Order of Priority)
Salaries
41. Partners AA and BB have profit and loss agreement with the following provisions: salaries of
P30,000 and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after
salaries and bonus; and interest of 10% on average capital balances of P20,000 and P35,000
for AA and BB, respectively. One-third of any remaining profits will be allocated to AA and the
balance to BB. If the partnership had net income of P22,000, how much should be allocated to
Partner AA, assuming that the provisions of the profit and loss,, agreement are ranked by order
of priority starting with salaries?
a. 13,200
c. 12,000
b. 12,500
d. 8,800
Salary + Interest
42. Luz, Vi, and Minda are partners when the partnership earned a profit of P30,000. Their agreement
provides the following regarding the allocation of profits and losses:
a. 8% interest on partners' ending capital in excess of P75,000.
b. Salaries of P20,000 for Luz and P30.000 for Vi.
c. Any balance is to be distributed 2:1:1 for Luz, Vi, and Minda, respectively.
Assume ending capital balances of P60,000, P80,000, and PI00,000 for partners Luz, Vi, and
Minda, respectively. What is the amount of profit allocated for Minda, if each provision of the
profit and loss agreement is satisfied to whatever extent possible using the priority order shown
above?
a. (3,600)
c. (2,000)
b. 3,600
d. 2,000
Partner’s Share in Net Loss
Share in Undistributed Losses
43. Downs, Frey, and Vick formed the DFV general partnership to act as manufacturer's
representatives. The partners agreed Downs would receive 40% of any partnership profits and
Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership
would not terminate for 5 years. After the fourth year, the partners agreed to terminate the
partnership. At that time, the partners capital accounts were as follows: Downs, P20,000; Frey,
P15,000; and Vick P10,000. There also were undistributed losses of P30,000. Vick's share of
the undistributed losses will be
a. 0
c. 9,000
b. 1,000
d. 10,000
Share of Industrial Partner
44. Alder, Benson, and Carl are capitalist partners and Denver, an industrial partner. The
partnership reported a net loss of P100,000. How much is the share of Denver in the reported
net loss?
a. 0
c. 25,000
b. 10,000
d. 100,000
Interest + Residual Loss
45. FF, GQ and HH form a partnership and agree to maintain average investments of P2,500,000,
PI,250,000 and PI,250,000, respectively. Interest on the excess or deficiency in a capital
contribution is to be computed at 6% per annum. After the interest allowances, FF, GG, and HH
are to share any balance in the ratio of 5:3:2. Average amounts invested during the first six
months were as follows: FF, P3,000,000, GG, PI,375,000; and HH, PI,000,000. A loss from
operations of P62,500 was incurred for the first six months.
How is this loss distributed among the partners?
FF
GG
HH
P21,875
a.
PI8,375 P22,250
b. 12,500 10,000 49,500
c. 31,250 18,750 12,500
d. 18,375 21,875 22,250
Salary + Interest + Residual Loss
46. AA, BB, and CC are partners with average capital balances during 2012 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 2012 the partnership sustained a P99,000 loss before interest and
salaries to partners. By what amount should AA's capital account change?
a. 21,000 increase
c. 105,000 decrease
b. 33,000 decrease
d. 126,000 increase
47. Fox, Greg, and Howe are partners with average capital balances during 2010 of PI20,000,
P60,000, and P40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of P30,000 to Fox and P20,000 to Howe, the residual profit
and loss is divided equally. In 2010, the partnership sustained a P33,000 loss before interest
and salaries to partners. By what amount should Fox's capital account change?
a. 7,000 increase
c. 35,000 decrease
b. 11,000 decrease
d. 42,000 increase
Partner's Ending Capital Balances
48. AA and BB entered into a partnership as of March 1, 2011 by investing P125,000 and
P75,000, respectively. They agreed that AA, as the managing partner, was to receive a
salary of P30,000 per year and a bonus computed at 10% of the net profit after adjustment
for the salary; the balance of the profit was to be distributed in the ratio of their original capital
balances. On December 31, 2011, account balances were as follows:
Cash
P70,000
Accounts payable . P 60,000
Accounts receivable .
67,000
AA, capital
125,000
Furniture and fixtures .
45,000
BB, capital
75,000
Sales returns
5,000
AA, drawing
( 20,000)
Purchases
196,000
BB, drawing
( 30,000)
Operating expenses...
60,000
Sales
233,000
Inventories on December 31, 2011 were as follows: supplies, P2,500, merchandise, P73,000.
Prepaid insurance was P950 while accrued expenses were P1.550. Depreciation rate was 20%
per year.
The partners' capital balances on December 31, 2011, after closing the net profit and drawing
accounts, were:
AA
BB
AA
BB
A.
P135,940
P47,960
C.
P139,680
P48,680
B.
P139,540
P49,860
D.
P142,350
P47670
49. XX, YY and ZZ formed a partnership on January 1, 2012. Each contributed P120,000.
Salaries were to be allocated as follows:
XX
YY
ZZ
P30.000
P30.000
P45,000
Drawings were equal to salaries and be taken out evenly throughout the year.
With sufficient partnership net income, XX and YY could split a bonus equal to 25 percent of
partnership net income after salaries and bonus (in no event could the bonus go below zero).
Remaining profits were to be split as follows: 30% for XX; 30% for YY, and 40% for ZZ.
For the year, partnership net income was PI 20,000. Compute the ending capital for each
partner:
a. XX, P155,100; YY, P155,100; ZZ, P169,800
b. XX, P126,000; YY, P126,000; ZZ, P124,500
c. XX, P125,100; YY, P125,100; ZZ, P124,800
d. XX, P125,500; YY, P125,500; ZZ, P124,000
50. HH, MM, and AA formed a partnership on January 1,2011, and contributed P150,00,
P200,000, and P250,000, respectively. Their articles of co-partnership provide that the
operating income be shared among the partners as follows: as salary, P24,000 for HH,
P18,000 for MM, and P12,000 for AA; interest of 12% on the average capital during 2011 of
the three partners; and the remainder in the ratio of 2:4:4, respectively. The operating income
for the year ending December 31, 2011 amounted to P176,000. HH contributed additional
capital of P30,000 on July 1 and made a drawing of P10,000 on October 1; MM contributed
additional capital of P20,000 on August land made a drawing of P10,000 on October 1; and,
AA made a drawing of P30,000 on November 1. The partners' capital balances on December
31, 2011 are:
a. HH, P179,680; MM, P229,360; and, AA, P239,360
b. HH, P179,760; MM, P229,520; and, AA, P239,520
c. HH, P189,680; MM, P239,360; and, AA, P269,360
d. HH, P223,180; MM, P272,060; and, AA, P280,760
51. TM partnership begins its first year of operations with the following capital balances:
Tan capital
P200,000
May capital
P100,000
According to the partnership agreement, all profits will be distributed as follows:
a. Tan will be allowed a monthly salary ot P20,000 with P10,000 assigned to May.
b. The partners will be allowed with interest equal to 10 percent of the capital balance as of
the first day of the year.
c. Tan will be allowed a bonus of 10 percent of the net profit after bonus.
d. The remainder will be divided on the basis of the beginning capital for the first year and
equally for the second year.
e. Each partner is allowed to withdraw up to P10,000 a year.
Assume that the net loss for the first year of operations is P15,000 with net income of P55,0O0 in the
subsequent year. Assume further that each partner withdraws the maximum amount from the
business each period.
What is the balance of Tan's capital account at the end of the second year?
a. P264,750
c. P180,000
b. P284,750
d. P184,750
52. Roy and Sam was organized and began operations on March 1,2013. On that date, Roy invested
PI50,000 and Sam invested computer equipment with current fair value of PI80,000. Because of
shortage of cash, on November 1, 2013 Sam in¬ vested additional cash of P60,000 in the
partnership. The partnership contract includes the following remuneration plan:*
Roy Sam
Monthly salary (recognized as expense)
PI0,000 P20,000
Annual interest on beginning capital
12% 12%
Bonus on the net profit before salaries and
interest but after bonus
20% Balance equally.
The salary was to be withdrawn by each partner in monthly installments. The partnership's net
profit for 2013 is P120,000.
What are the capital balances of the partners on December 31, 2013?
Roy
Sam
a. P243,500 P266,500
b. P136,000 P350,000
c. P 86,000 PI54,000
d. P 87,000 PI55,000
53. Adam and Eve are CPA's who have been operating their own separate practices as sole
proprietors. They decided to combine the two firms as a partnership on January 5, 2013. The
following assets were contributed by each:
Adam Eve
Cash
P100,000 P100,000
Accounts receivables
225,000 190,000
Furniture and equipment
35,000 38,000
Computer equipment
46,000
The partners agreed to split profits on the basis of gross cash collections from billing generated
from clients. During 2013, Adam's clients paid the firm a total of PI,500,000 and Eve's clients
paid Pl,625,000. Expenses for the year were PI,080,000 of which P480,000 were attributable
to Adam and P600,000 to Eve. During 2013 Eve withdrew P750,000 cash for personal needs and
contributed an additional computer valued at P22,000.
What is the capital balance of Eve at December 31, 2013?
a. P576,000
c. P709,400
b. P839,400
d. P889,400
54. KK, SS and WW formed a partnership on January 1, 2013. Each contributed PI 44,000.
Salaries were to be allowed as follows:
KK
P36,000
SS
36,000
WW
54,000
Drawings were equal to salaries and be taken out evenly throughout the year.
With sufficient partnership net income, KK and SS could split a bonus equal to 25 percent of
partnership net income after salaries and bonus (in no event could the bonus go below zero).
Remaining profits were to be divided as follows: 30% for KK; 30% for SS, and 40% for WW.
For the year, partnership total comprehensive income was P144,000.
What are the capital balances of the partners on December 31, 2013.
a. KK, P186,120; SS, P186,120; WW, P203,760
b. KK,151,200;
SS,151,200;
WW,149,400
c. KK,150,120;
SS,150,120;
WW,149,760
d. KK,150,600;
SS,150,600;
WW,148,800
55. Tim and Tom entered into a partnership on March 1, 2013 by investing P125,000 and P75,000,
respectively. They agreed that Tim, as the managing partner, is to receive a salary of P30,000
per year and a bonus computed at 10% of the net profit after adjustment for the salary and
bonus; the balance of the profit was to be distributed in the ratio of their original capital balances.
On December 31, 2013, account balances were as follows:
Cash
P70,000
Accounts payable
P60,000
Accounts receivable
67,000
Tim, capital
125,000
Furniture and fixtures
45,000
Tom, capital
75,000
Sales returns and allowances 5,000
Tim, drawing
(20,000)
Net Purchases
196,000
Tom, drawing
(30,000)
Operating expenses
60,000
Sales
233,000
Inventories on December 31, 2013 were as follows: supplies, P2,500; merchan¬ dise, P73,000.
Prepaid insurance was P950 while accrued expenses were PI,550. Depreciation rate was 20%
per year. The partner's capital balances on December 31, 2013, after closing the net profit and
drawing accounts, were:
Tim
Tom
a. P142,350 P 47,670
b. P135,940 P 47,960
c. P139,540 P49,860
d. P139,491 P49,909
56. On January 2, 2013 Phil, Art, and Rey formed the PAR partnership contributing cash as follows:
Phil
PI 92,000
Art
288,000
Rey
432,000
The partnership contract provides the following provisions in respect with partner's remuneration:
1. Interest of 12% on average capital balances.
2. Annual salaries as follows:
Phil
P28,800
Art
P24,000
Rey
P27,200
3. Remainder of the net income divided 40% to Phil, 30% to Art, and 30% to Rey.
Income before partner's salaries and interest for the year ended December 31, 2013 was
P184,160. Phil invested additional cash of P48,000 to the partnership on July 1,2013. Rey withdrew
P72,000 from the partnership on October 1,2013. The partners also withdrew PI,500 monthly
agianst their share of net income for the year.
What is the capital balance of Phil on December 31, 2013?
a. P274,320
c. P235,200
b. P286,992
d. P257,280
57. The partnership of Gary, Jerome, and Paul was formed on January 1, 2013. The original
investments were as follows:
Gary
P80,000
Jerome
PI 20,000
Paul
PI 80,000
According to the partnership agreement, net income or loss will be divided among the respective
partners as follows:
Salaries of P12,000 for Gary, P10,000 for Jerome, and P8,000 for Paul.
Interest of 8% on the average capital balance during the year of Gary, Jerome, and Paul
Remainder divided equally.
Additional information is as follows:
Net income of the partnership for the year ended December 31, 2013 was P70,000.
Gary invested an additional P20,000 in the partnership on July 1,2013.
Paul withdrew P30,000 from the partnership on October 1,2013.
Gary, Jerome and Paul made regular drawings against their shares of net income during 2013
of PI 0,000 each.
The partner's capital balances as of December 31, 2013 are:
Gary
Jerome
Paul
a. P112,333 P132,733 P164,934
b. 102,333 122,733
154,934
c. 92,000
102,000
134,934
d. 122,333 132,733
164,934
58. Herm, Mar and Ama formed a partnership on January 1, 2013 and contributed PI 50,000,
P200,000 and P250,000, respectively. The Articles of Co-partnership provides that the operating
income be shared among the partners as follows: As salary, for Herm in the amount of P24,000, for
Mar, PI 8,000 and for Ama, P12,000. Interest of 12% on the average capital during 2013 of the
three (3) partners and the remainder in the ratio 2:4:4 respectively.
Additional information:
Operating income for the year ended December 31, 2013, P 176,000.
Herm contributed additional capital on July 1, P30,000 and made a drawing on October 1,
PI0,000, Mar contributed additional capital on August 1, P20,000 and made a drawing on October
1, PI0,000, and Ama made a drawing of P30,000 on November 1
The partners' capital balances on December 31, 2013 are:
a. Herm, PI79,680; Mar, P229,360; Ama, P239,360
b. Herm, PI79,760; Mar, P229,520; Ama, P239,520
c. Herm, P189,680; Mar, P239,360; Ama, P269,360
d. Herm, P223,180; Mar, P272,060; Ama, P280,760
59. A and B entered into a partnership as of March 1,2013 by investing PI 25,000 and P75,000,
respectively, they agreed that A, as the managing partner, was to receive a salary; P30,000 per
year and a bonus computed at 10% of the net profit after adjustment for the salary; the balance
of the profit was to be distributed in the ratio of their original capital balances. On December 31,
2013, account balances were as follows:
Cash
P 70,000
Accounts Payable P60,000
Accounts receivable
67,000
A, capital
125,000
Furnitures and fixtures 45,000
B, capital
75,000
Sales returns
5,000
A, drawing
20,000)
Purchases
196,000
B, drawing
30,000)
Operating expenses
60,000
Sales
233,000
Inventories on December 31,2013 were as follows: supplies, P2,500, merchandise, P73,000,
prepaid insurance was P950 while accrued expenses were PI,550. Depreciation rate was 20% per
year.
The partners' capital balances on December 31, 2013, after closing the net profit and drawing
accounts, were:
A
B
a. P135,940
P47,960
P49,860
b. P139,540
c. P139,680
P48,680
d. P142,350
P 47,670
Bonus Computations
Based on Profit Before Salary, Interest & Bonus
60. On January 2,2011, BB and PP formed a partnership. BB contributed capital of P175,000.00
and PP, P25,000.00. They agreed to share profits and losses 80% and 20%, respectively. PP
is the general manager and works in the partnership full time and is given a salary of
P5,000.00 a month; an interest of 5% of the beginning capital (of both partner) and a bonus
of 15% of net income before the salary, interest and the bonus. The profit and loss statement
of the partnership for the year ended December 31, 2011 is as follows:
Net Sales
P875,000
Cost of goods sold
700,000
Gross profit
P175,000
Expenses (including the salary, interest and the bonus)
143,000
Net income
P 32,000
The amount of bonus to PP in 2011 amounted to:
a. 13,304
c. 18,000
b. 16,456
d. 20,700
61. Garcia and Henson formed a partnership on January 2, 2013 and agreed to share profits 90%,
10%, respectively. Garcia contributed capital of P25,000. Henson 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 begining capital. Henson is to be paid a salary of PI,000 a month.
Henson is to received a bonus of 20% of income calculated before deducting his salary and
interest on both capital accounts. Bonus, interest, and Henson's salary are to be considered
partnership expenses. The partnership 2011 income statement follows:
Revenues
P96,450
Expenses (including salary, interest, and bonus)
49,700
Net income
P46,750
What is Henson's 2013 bonus?
a. P11,688
c. P15,000
b. P12,000
d. P15,038
Based on Profit After Bonus
62. If a partnership has net income of P44,000 and Partner X is to be allocated bonus of 10% of
income after the bonus. What is the amount of bonus Partner X will receive?
a. 3,000
c. 4,000
b. 3,300
d. 4,400
63. Michelle, an active partner in the Michelle-Esme partnership receive an annual bonus of 25% of
the partnership income after deducting the bonus. For the year ended, December 31, 2013,
partnership income before the bonus amounted to P240,000. The bonus of Michelle for the
year 2013 is:
a. P45,000
c. P80,000
b. P48,000
d. P60,000
Comprehensive
64. X, Y and Z, a partnership formed on January 1, 2011 had the following initial investments:
X
P100,000
Y
150,000
Z
- '
225,000
The partnership agreement states that profits and losses are to be shared equally by the
partners after consideration is made for the following:
Salaries allowed to partners: P60,000 forX, P48,000 for Y and 36,000 forZ.
Average partner's capital balances during the year shall be allowed 10%.
Additional information:
On June 30, 2011 X invested an additional P60,000
Z withdrew P70,000 from the partnership on September 30,2011. Share
in the remaining partnership profit was P5.000 for each partner.
The total partnership capital on December 31, 2011 was:
a. 405,000
c. 480.000
b. 671,500
d. 672,750
65. MM, NN and OO partners, share profits on a 5:3:2 ratio. On January 1,2012, PP admitted into
the partnership with a 10% share in profits. The old partners continue to participate in profits
in their original ratio. For the year 2012, the net income of the partnership was reported as
P12,500. However, it was discovered that the following items were omitted in the firm's
books:
Unrecorded at year end
2011
2012
Prepaid expense
P800
Accrued expense
P600
Unearned income
700
Accrued income
500
(1) The new profit and loss ratio for N, and (2) the share of partner OO in the 2012 net
income:
a. (1)30%;(2)P2,214
c. (1) 27%; (2) P2.286
b. (1)27%;(2)P2,214
d. (1) 30%; (2) P2.286
Questions 1 & 2 are based on the following:
66. AA, BB and CC are partners with average capital balances during 2011 of P472,500,
P238.650, and PI62,350, respectively. The partners receive 10% interest on their average
capital balances; after deducting salaries of P122,325 to AA and P82,625 to CC, the residual
profits or loss is divided equally. In 2011, the partnership had a net loss of PI 25,624 before
the interest and salaries to partners. By what amount should AA's and CC's capital account
change - increase (decrease)?
AA
CC
AA
CC
a.
30.267
(40,448)
c.
(40,844)
31.235
b.
29,476
17,536
d.
28,358
32,458
67. The same information in Number 32, except the partnership had a loss of P125,624 after the
interest and salaries to partners, by what amount should BB's capital account change increase (decrease) ?
a. (115,443)
c. (41,875)
b. 23,865
d. (18,010)
Questions 1 & 2 are based on the following:
Hanz, Ivy, Jasper, and Kelly own a publishing company that they operate as a partnership. Their
agreement includes the following:
•
•
•
•
Hanz will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses.
Ivy will receive a salary of PI 0,000 and a bonus of 2% of income after all the bonuses.
All partners are to receive the following: Hanz P5,000; Ivy P4,500; Jasper - P2,000; and
Kelly - P4,700, representing 10% interest on their average capital balances.
Any remaining profits are to be divided equally among the partners.
68. How would a net loss of P40,000 would be allocated among the partners?
Hanz
Ivy
Jasper
Kell
a. 3,261.75
(7,169.25)
(18,181.25)
(17,911.25)
b. 3,450.00
(7,050.00)
(19,550.00)
(16,850.00)
c. 4,116.75
(6,764.25)
(20,026.25)
(17,326.25)
d. 45,000.00
4,500.00
(8,000.00)
(5,300.00)
69. Assuming a profit of P40,000, how would this amount be distributed to them given the
following order of priority: Interest on invested capital, then bonuses, then salary, and then
according to profit and loss percentage?
Hanz
Ivy
Jasper
Kelly
a. 23,261.75 12,830.75
1,818.75
2,088.75
b. 20,867.00 12,433.00
2,000.00
4,700.00
c. 20,740.00 12,560.00
2,000.00
4,700.00
d. 18,038.00 15,262.00
2,000.00
4,700.00
70. K, L, and M are partners with average capital balances during 2013 of P472,500, P238,650, and
P 162,350, respectively. The partners receive 10% interest on their average capital balances; after
deducting salaries of P 122,325 to K and P82,625 to M, the residual profits or loss is divided equally.
In 2013, the partnership had a net loss of PI 25,624 before the interest and salaries to partners.
By what amount should K's and M's capital account change?
a.
b.
c.
d.
K's Capital Account
P40,844 decrease
P28,358 increase
P29,476 increase
P30,267 increase
M's Capital Account
P31,235 decrease
P32,458 increase
P17,536 increase
P40,448 decrease
Solution
1 . (a)
The weighted average capital would be:
WW:
January
July
August
P.100,000 x 6 (Jan. - Jun.)
P 88,000 x 1 (July)
P128,000 x 5 (Aug.-Dec.)
Divided by: Months per annum
P 600,000
88,000
640,000
P 1,328,000
12 months
P110,667
It should be noted that the number of months in the computation
includes the current month (before the date of investment or date of
withdrawal! since the counting should start at the beginning of the month
(let's say June 3, therefore the month of June should be included in the
counting to compute the average capital for the PI 00,000).
January
P120,000 x 5 (Jan. - May)
June
P105.000 x 5 (June - Oct.)
November
P155,000 x 2 (Nov. - Dec.)
PI,435,000
Divided by: Months per annum
RR:
P 600,000
525,000
310,000
12 months
P119,583
Drawings are ignored as stated in the problem.
2.
Date Capital Balances
January 1
P8,000
April 1
9,600
June 1
11,200
September 1
7,200
Months Unchanged Peso Months
3
P24,000
2
19,200
3
33,600
4
28,800
12
P105,600
Average Capital of Boom (105,600 + 12) = P8,800
Partnership Operations - Solutions
Page 27
3.
(b)
The annual weighted average capital would be:
March 1: P50.000 x 3
June 1: P70.000 x 3
September 1: P65.000 x 4
P620.000
Divided by: Months per annum
PI50,000
210,000
260,000
12 months
P 51,667
The following should be noted:
1. Only P5.000 withdrawals should be deducted from capital to
compute average capital.
2. The question is based on annual, therefore the denominator
should be twelve (12 months. However, the 10-month weighted
average capital would be P62.000 (P620.000 / 10 months)
4.
(a)
5.
(c)
Withdrawals
Investment
Share in net income (balancing figure).
Net (decrease) increase
Net income of the partnership: P90.000 , 30%
Salary
Interest
Balance or Residual profit
P(2,600,000)
500,000
900,000
P( 1,200,000)
P 3,000,000
JJ
P60.000
30.000
KK
P30.000
12,000
60,000®
Total
P 90,000
42,000
150,000
P282.000
Given
P60.000 + 40% profit and loss ratio = P150,000
6.
Capital balance, beginning
Additional investment (land at fair value)
Profit share (squeeze)
Drawings
Capital balance, end
Net profit (P50,000 / 40%)
ANSWER KEY
P120,000
60,000
50,000
( 80,000)
P150,000
P125,000
Page 28
7.
Investment
Withdrawals
Decrease in capital
Net decrease in capital
Profit share (30%)
Net income (45,000 +
P 25,000
( 130,000)
105,000
60,000
P 45,000
P150,000
8.
CC
PP
AA
Total
Salary
P28.000 P28,000
Balance (P84.000-P28,000), .5:3:2
P28.000 PI6,800 11,200 56,000
Additional profit to PP (P21,000 - PI 6,800)
(3,000) 4,200 (1,200)
P25,000 P21,000 P38.000 P84,000* (b)
Net Income would be:
Fees
P18C000
Less: Expenses
96,000
P 84,000
It should be noted that the additional profit given to PP actually came from CC and
AA based on their respective revised P&L ratio (5:2!. The P4,200, additional profit
should not be added to total net income because by doing so, it would be tantamount
to distorting the net income of P84,000.
On the other hand, assuming the P4.200 would be added to net income of
P84.000, the total net income will now be P88.200, but an adjustments of P4.200
should be reflected to make it P84.000, and such adjustments will be shared
accordingly by CC and AA (5:2!. Mathematically, the final results remain the same
9.
(d)
A
5% interest on capital* P 2,500
Salaries
Balance (3:3:2:2)
Additional profit
A : P50,000 x 5% = P2,500
B
:P25,000x5%=
C :P25,000x5%=
D :P20,000x5%=
5,000
5,000
PI2,500
B
P1.250
3,000
5,000
C
P1.250
3,333
P9,250
P4,583
D
P1,000
3,333
1,667
P6,000
Total
P 6,000
8,000
]6,666
1,667
P32,333 (d)
1,250
1,250
1,000
Partnership Operations - Solutions
Page 29
First, determine who among the partners will receive a fixed amount, then,
compute for the residual amount, i.e. for AA P12.500 - P2.500 - P5.000 resulting to a
share in the residual profits of P5,000. The P5,000 share in residual profits of AA represents
30%, therefore capitalize P5.000 by 30% to arrive at P/6,666 which will be allocated to all
partners based on their profit and loss ratio.
Second, determine who among the partners will receive a minimum amount. Any
partner who receives an amount lower than the minimum amount is required to have
an additional profit, i.e. for partner DD, which in DD's case PI.667 is needed to satisfy
the minimum amount provided therein. Any partner who receive an amount equal,
or more than the minimum amount obviously does not need an additional profit.
10. (b)
Sales
Less: Cost of goods sold
Gross profit
Less: Operating expenses
Operating income
Less: Other expenses: Interest expense
Net Income
P70.000
40,000
P30,000
10,000
P20.000
2,000
PI8,000 (b)
Salaries to partners are considered as an allocations of net income rather than
as determinant of net income. In other words, salaries to partners are not
expenses of the partnership, but part of profit and loss sharing plan.
11. Suggested answer: (b) 180,000
Sales
700,000
Less cost of goods sold
400,000
Gross profit
300,000
Less operating expenses
100,000
Operating profit
200,000
Less interest paid to banks
20,000
Net income
180,000
Salaries, like interest on capital investments, are viewed as a means of allocating income
rather than as an expense. The drawing account is a temporary account and is
periodically closed to the partner's capital account, and has nothing to do with the computation
of net income.
ANSWER KEY
Page 30
12. (d)
To equate P52.000 to P40.000 plus bonus, the bonus should amount to
P12.000 (P52.000 - P40,000j to be indifferent under the two profitsharing options. Since Cab would receive the same bonus, the total
bonus would have to be P24.000 (P12.000 x 2j. Based on the foregoing, the
following equation should be developed:
Bonus = 10% (Net income - Salaries - Bonus)
P24.000 = .10 [Nl - (P30,000 + P40.000) - P24.000] P24,000= .10 [NI-P94.000]
P24,000 = .10 Nl - P9.400 P33,400 = .10 Nl
P33,400/.10 = NI
Nl = P334.000 (d)
or, alternatively:
Bonus = P52.000
P24.000-.10 (Nl
P24.000 = .10 (Nl
P24.000 = .10 Nl
P33,400 = .10 Nl
Nl = P334.000
P40,000 = PI2,000 x 2 = P24.000
Salaries - Bonus)
P70,000 - P24,000)
P9,400
13. (b)
To equate P40,000 to P25.000 plus bonus, the bonus should amount to
P15,000 (P40,000 - P25.000!. Based on the foregoing the following
equation should be developed:
Bonus=
P15,000
PI5,000
P15.000
P29,000/.l
Nl
10% (Nl - Salaries - Bonus)
= .10 [Nl - (P100.000 + P25.000)
= .10 [Nl-PI40,000]
= .10 NI-P14.000
= Nl
= P290.000 (b)
Partnership Operations - Solutions
PI 5,000]
Page 31
or, alternatively:
P40.000
P40.000
(PI00.000 + P25.000)
P40,000
P40,000
P40,000
P29,000
Nl
P25.000 + 10 (Nl - salaries - bonus)
P25,000 +
10 [NlPI 5,000]
P25.000 + 10 [Nl-PI40,000]
P25.000 + 10NI-PR000
PI 1,000 +
10 Nl
.10 Nl
P290.000 (b)
14. Bonus required (P40,000 - P25,000)
Divided by
Total comprehensive income after bonus and salaries
Add back: Salaries (P25,000 + P100,000)
Bonus
Net profit before bonus and salaries
P 15,000
10%
150,000
P125,000
15,000
140,000
P290,000
15. Partnership net income or net loss is shared based on capital contribution of the partners, unless
the partnership contract specifically indicates otherwise. As a result, it is customary to refer to the
basis as the income ratio, income and loss ratio, or the profit or loss ratio. Thus, the share of
Partner C, should be P 12,000 (60,000x20%).
16.
Interest
Salaries
Balance, equally
Total
Total
Henry
P 44,000 P 24,000
100,000
60,000
(210,000) ( 70,000)
P(66,000) P(14,000)
Annual salary
Interest
Balance, equally
Total
Dexter
P72,000
18,000
(31,900)
P 5 8,100
17.
18.
Salaries
Interests
Balance, equally
Total
19. (a)
ANSWER KEY
Zeep
P 7,200
2,000
( 8,600)
P 600
Joliver
P60,000
13,800
(31,900)
P41,900
Beep
P16,000
1,600
( 8,600)
P 9,000
Marta
P 12,000
40,000
( 70,000)
P(58,000)
Nestor
P8,000
( 80,000)
P(22,000)
Total
PI 32,000
31,800
(63,800)
PI 00,000
Total
P 23,200
3,600
( 16,600)
P 9,600
Page 32
First 6 months
Salaries
Balance (60%:40%)
175,000
Second 6 months
Salaries
Balance (40%:40%:20%)
175,000
196,000
Evenly means average
S
15,000
96,000
T
U
Total
15,000
160,000
64,000
25,000
60,000
60,000
30,000
25,000
150,000
124,000
30,000
350,000
AA
P18.000
1,500
PI 9,500
2,400
P21,900
DD
Total
PI 8,000
3,000
P21,000
4,000
P25,000
20. (a)
Salary
Balance: Equally
Income for year 2013 only
Income for year 2012 (60:40)
Reported income for year 2013
21.
Salaries
Balance, capital ratio
Total
Alba
Bana
P5,000
P3,000
6,000
4,000
P11,000 P7,000
Cad a
P8,000
2,000
P2,000
PI,500
PI,500
1,600
P3,100
Total
12,000
P20,000
22. Suggested answer: (b) 43,000, 37,000
Salary allowances
Loss after allowances (60:40)
Earnings credited to partners
Red
55,000
(12,000)
43,000
White
45,000
(8,000)
37,000
Total
100,000
(20,000)
80,000
The earnings before any allowance of P80.000 is reduced by the salary allowances in the
total amount of P100,000 which resulted to a loss after allowances of P20,000, because
credits to partners capital accounts are based on earnings after allowances (e.g.
interest, salary, and bonus). It should be pointed out that per partnership agreement
profits should be shared equally and losses in a 60/40 ratio, thus the loss of P20.000
was shared at 60/40 ratio
23. (b)
XX
Partnership Operations - Solutions
YY
11
Total
Page 33
XX First P200.000 x 10%
Over P200.000: (500,000 P200.000) x 20%
YY and ZZ: 5% of remaining income
over P300,000: (P500,000 - P20.000 P60.000 - P300,000) x 5%..
Balance: Allocate equally
24.
To A(P 1,000,000x10%)
(1,500,000x20%)
To B & C (2,500,000-400,000 1,500,000=600,000x5%)
Balance, equally
Total
P 20,000
P 20,000
60,000
60,000
P 6,000 P 6,000
12,000
136,000 136,000 136,000 408,000
P216,000 PI42,000 PI42,000 P500.000
A
P 100,000
300,000
B
P 400,000
P 30,000
680,000
Pl,080,000
P 30,000 60,000
680,000 680,000 2,040,000
P710,000 P710,000 P2,500,000
C
Total
25. Suggested answer: (a) 1,000 decrease
Young
Zinc
Total
BB
P30.000
Total
P30,000
P60,000
2,167
( 1,483)
P30,684
800
( 1,484)
P29,316
2,967
( 2,967)
P60,000 (d)
10% interest on ave. capital:
(10% x 160,000)
PI6,000
(10% x 100,000)
PI 0,000
P26.000
Balance (equally)
(11,000)
(11,000)
(22,000)
Total
P 5,000
(PI,000)
P 4,000
The partnership profit before interest was P4.000, however, it resulted to a loss of P 2 2,000
after interest. Thus, the capital balance of Zinc decreases by PI,000.
26. (d)
AA
Salaries
Bonus*
Interest on Average Capital**
Balance (equally)
*No bonus, since the basis of such computation would be zero.
"Interest on Average Capital:
AA: P30.000 x 3 =
P 90,000
ANSWER KEY
Page 34
P20.000 x 2 =
P 40,000x4 =
P35,000 x 1
=
40,000
160,000
35,000
P325.000
10-Month Average Capital: P325,000 / 10 = P32.500 x 8% x 10/12 = P2,167
Annual Average Capital: P32,500 / 12 = P27,083 x 8% = P2.167
BB: P20.000 x 3 =
P 60,000
P10,000x2=
20,000
P 8,000-x5=
40,000
P120,000
10-Month Average Capital: P120.000 / 10 = P1Z000 x 8% x 10/12 = P800 Annual
Average Capital: P120,000 / 12 = P10.000 x 8% = P800
27. (c)
Bonus
Interest:
10% (PI 10,000-P 100,000) ..
Salaries
Balance: 4:4:2
Bonus = 10% (Nl - Bonus)
B = .10(P44,000-B) B= PA.400- JOB
1.108=P4,400
B = P4.000
A
B
C
Total
P4,000
P4,000
P1.000
1,000
P10.000
12,000
22,000
3,400
17,000
P19,400 P44.000
28.
Salaries
Bonus
10% Interest on Average Cap. Balance (equally)
Hunt
P20.000
3,000
Rob
P10,000
2,000
Partnership Operations - Solutions
Turman
-
Kelly
-
Total
P30,000
5,000
Page 35
5,000
4,500
P2,000
P4,700
16,200
13,450
13,450
13,450
13,450
53,800
P41,450
P29,950
P15,450
P18,150
PI05,000
Bonus = (3% + 2%) (Net Income - Bonus) B = 5% (P105,000.-B)
B = P5,250 - .05 B
1.05B = P5,250 B = P5,250 / 1.05
B = P5.000, therefore Hunt should receive P3.000 (P5.000 x 3/5), while Rob will receive P2.000
(P5,000 x 2/5).
29. Suggested answer (c) 41,000 Salaries
30,00.0
45,000
75,000
Bonus (after bonus)
NY before Bonus
27,500
NY after Bonus
(27,500/110%)
25,000
2,500
2,500
10% interest
2,000
3,500
5,500
Balance (1/3:2/3)
6,500
13,000
19,500
Total
41,000
61,500
102,500
One of the alternatives in profit allocations if the net income is not sufficient is to completely satisfy
all provisions of the profit and loss agreement and use the profit and loss ratios to absorb
any deficiency or additional loss caused by such action.
30. Suggested answer: (a) 28,600
10% bonus to Donn
6% interest on
average capital
Balance (equally)
Total
Donn
10,000
Eddy
Farr
Total
10,000
4,800
26,800
41,600
3,000
26,800
29,800
1,800
26,800
28,600
9,600
80,400
100,000
In some instances, a managing partner is allowed a bonus that is to be based on the earnings
of the business. The bonus is commonly stated as a percentage of profits, but the
agreement should indicate whether the percentage is to be applied to the profit determined
bejbre deduction of the bonus or after deduction of the bonus. Based on the data provided in
this problem, the "10% bonus of the profit" was assumed to be applied to the profit before
deduction of the bonus.
31 . (c)
The weighted-average capital is computed as follows:
ANSWER KEY
Page 36
January 1 -July 1
July 1 - August 1
August 1 -December 31
P5,535,000
Divided by:
Weighted-average capital
Multiply by: Interest rate peryear
Amount of interest per year
P420.000 x 6 months
P540,000 x 1 month
P495,000 x 5 months
P2,520,000
540,000
2,475,000
12 months
P 461,250
10%
P 46,125
32. Date
Balances
Unchanged
January 1
PI40,000
6
July 1
180,000
1
August 1
165,000
5
Total
12
Weighted average capital (1,845,000/ 12 months)
Interest rate
Interest to be credited to Simm
Total
P 840,000
180,000
825,000
PI,845,000
PI53,750
10%
P 15,375
When partners wish to distribute profits in terms of relative investments, the 'use of average
capitals, which provides for the recognition of capital changes during the period, normally
offers the most equitable method. From the data given above, partners investment were
expressed in terms of peso-month. Under this method (peso-day, peso-month),
withdrawals and investments made during the first half of the month should be treated as if
they were made on the first day of the month, while withdrawals and investments made during
the later half of the month should be treated as if they were made on the first day of the following
month
33
Capital
Balances
P280.000
360,000
330,000
Months
Peso
Date
Unchanged
Months
January 1
6
PI,680,000
1
360,000
July 1
August 1
5
1,650,000
P3,690,000
Average capital (P3,690,000 /12) P 307,500
Interest (P307,500 x 10%) P 30,750
34. (d)
Salary Allowances
Interest on Average Capital .................
Partnership Operations - Solutions
DD
P 8,000*
2,800**
BB
PI 0,000*
3,600**
Total
PI 8,000
6,400
Page 37
Balance (equally)
(
200)
PI 0,600
200)
PI 3,400
Net income of P24.000 would be computed as follows:
Service Revenue
Less: Expenses:
Supplies
PI 7,000
Utilities
'.
4,000
Other miscellaneous expenses
5,000
Net Income.
*DD : P800x 10 = P8.000
*BB : Pl.OOOx
10 = P10.000
Refer to No.
16 for discussion on salaries.
""Interest on Average Capital:
DD: P30.000 x 2 =
P 60,000
P26,000x5=
130,000
P30.000 x 3 =
90,000
P280.000
400)
P24,000 (d)
P50,000
26,000
P24.000
10-month Average Capital: P280.000 / 10 = P28.000 x 12% x TO/12 = P2,800
Annual Average Capital: P280.000 / 12 = P23.333 x 12% = P2.800
BB:
P30,000x4= PI 20,000
P40.000 x 6 =
240,000
P36O000
10-month Average Capital : P360.000 / 10 = P36.000 x 12% x 10/12 = P3.600
Annual Average Capital : P36.000 / 12 = P30.000 x 12% = P3.600
35. (b)
Interest on Average Capital:
DD: 20% x P 42,000^
EE: 20% x 30,000"
Balance: equally
Average Capitals:
©
DD:
1/1 -4/1
: P40,000x3
4/1
-8/1 : P35.000x4
ANSWER KEY
DD
EE
Total
P 6,000
52,800
P58,800
P 14,400
105,600
PI20,000 (b)
P 8,400
52,800
P61,200
PI 20,000
140,000
Page 38
8/1 - 10/1
: P45,000 x 2
10/1
- 12/1 : P50,000x2..
12/1
- 12/31
: P54,000x
P504.000
Divided by:
Weighted - average capital.
EE:
6/1 : P25,000 x 5
1/1 6/1
- 9/1 : P35,000x3
9/1
- 10/1 : P32.000 x 1 ...
10/1
-12/I : P31.000x2.
12/1
12/31 : P36,000 x 1
P360,000
Divided by:
Weighted - average capital.
36
Bonus to A [(P24,000 + 120%) x 20%]
Balance, 3:2
Total
37
Salaries (360,000x2/12)
Bonus
Balance (equally)
Total
A
B
P 4,000 P 4,000
12,000
3,000
PI6,000 P 8,000
Zita
60,000
60,000
150,000
270,000
90,000
100,000
1 54,000
12 months
P 42,000
PI 25,000
105,000
32,000
62,000
36,000
12 months
P 30,000
Total
20,000
P 24,000
Jones
60,000
150,000
210,000
Total
120,000
60,000.
300,000
480,000
Net income before bonus
360,000
Net income after bonus (360,000/120%)
300,000
Bonus
60,000
Note that based on the given information, the net income after salaries is P360.000 (300,000
+ 60,000), which is equivalent to P480,000 net income before salaries, bonus and distribution of
balance using profit and loss ratio (equally).
38. Suggested answer (d) 210,000
Adam
Eve
Total
Salaries
60,000
60,000
120,000
Bonus to Adam:
NY before bonus P360,000
Partnership Operations - Solutions
Page 39
- NY after bonus
(360,000/ 120%)
Balance (equally) 300,000
Total
300.000
60,000
150,000
270,000
150,000
210,000
60,000
300,000
480,000
It should be pointed out that it was clearly mentioned in the problem that the P360,000 net income
is after salaries but before bonus, therefore, the net income before salaries and bonus
should be P480,000 (120,000 + 360,000).
39. Suggested answer: (d) 136,543, 103,457
A, capital:
Date
January 1
May 1
Aug. 1
Oct. 1
Total
PI20,000
100,000
110,000
100,000
Months
Balances
4
3
2
3
12
Unchanged Total
P 480,000
300,000
220,000
300,000
Pl,300,000
Average capital - A = PI,300,000/12 = PI08,333.
B, capital:
Months
Date
Balances
Unchanged
January 1
P80,000
4
Mayl
70,000
2
Julyl
90,000
3
Oct. 1
85,000
3
Total
12
Average capital - B = P985,000/12=E8Zfl82
A
P240,000x (108,333/190,417)
B
240,000 x (82,083/190,417)
Total
Total
P320,000
140,000
270,000
255,000
P985,000
P136,543
103,457
P240,000
Again, under this method (peso-day, peso-month), withdrawal and investments made during
the first half of the month should be treated as if they were made on the first day of the
month, while withdrawals and investments made during the latter half of the month should
be treated as if they were made on the first day of the following month.
40. Suggested answer: (a) 121.500, 118,500
ANSWER KEY
Page 40
A
B
Total
Interest on ending capital
(100,000 x 20%)
P 20,000
(85,000x20%)
P 17,000
P 37,000
Balance (equally)
101,500
101,500
203,000
Total
P121,500
P118,500
P240,000
The capital contributions to be considered as the basis for the distribution of profits and losses
should be clearly defined in the agreement, because it may be based on the original capital
contribution, on the capitals at the beginning of each period, on the capitals at the end of each
period, or on the average capitals during the period
41. Suggested answer (d) 8,800
AA
BB
Total
Salaries (30:45)
8,800
13,200
22,000
Another alternative in profit allocation if the net income is not sufficient is to satisfy each of the
provision to whatever extent it is possible. In other words, the allocation of salaries would be
satisfied to whatever extent possible before the allocation of interest is begun. If the
provision of the profit and loss agreement are ranked by order of priority starting with salaries,
and the total salaries amounted to P75,000, therefore the net income of P22,000, which is
insufficient, will be distributed between AA and BB based on the degree of salary claims
42.
Interest
8% x 80,0008% x 100,000Salary (20:30)
Luz
Vi
75,000
75,000
11,040
400
16,560
Minda
2,000
Total
2,400
27,600
Total
11,040
16,960
2,000
30,000
Again, where income is not sufficient or an operating loss exists, two alternatives may be
employed: 1.) all provisions of the profit and loss agreement may be satisfied and any
deficiency will be absorbed using the profit and loss ratio; and 2.) each of the provision
may be satisfied to whatever extent possible. The second alternative, as applied above,
requires that provisions of the profit and loss agreement be ranked by order of priority
43. Vick's share of undistributed losses (30% x 30,000)
9,000
If the partners agree to distribute profits based on profit sharing ratio but are silent on loss
sharing, partnership losses will be divided based on the agreed profit sharing proportions.
44. Suggested answer: (a) 0
In case there is an industrial partner, and there is no profit and loss sharing agreement, an
industrial partner shall not be liable for the losses. As to profit, the share of an industrial
Partnership Operations - Solutions
Page 41
partner shall be that which is just and equitable under the circumstances. In order for an
industrial partner be liable for the losses, there should be an expressed stipulation to that effect.
45.
FF
Interest on excess (deficiency):
FF (P2,500,000 - P3,000,000) x 6% x 1/2
GG (P1,250,000 - P1,375,000) x 6% x 1/2
HH(Pl,250,000-Pl,000,000)x6%xl/2
Balance, 5:3:2
Total
GG
HH
Total
P 15,000
3,750
(7,500) P 11,250
( 36,875) ( 27,135) ( 14,750) (73,750)
P(2l,87S) P(18,37S) P(22,250)P(62,S00)
46. (a)
AA
Interest on Average Capital:
AA:P360,000xl0%
BB: PI 80,000x10%
CC: PI20,000x10%
Salaries
Balance or Residual: Equally.
Increase (decrease)
BB
CCTotal
P36.000
PI 8,000
PI 2,000 P66,000
90,000
60,000 ' 150,000
(105,000) (105,000) (105,000) (315,000)
P21,000 P(87,000) P(3,000) P(99,000)
47. Suggested answer: (a) 7,000 increase
10% interest on
average capital
Salaries
Bal. (equally)
Total inc(dec) '
Fox
Greg
Howe
Total
12,000
30,000
(35,000)
7,000
6,000
4,000
20,000
(35,000)
(11,000)
22,000
50,000
(105,000)
(33,000)
(35,000)
(29,000)
Again, v/hen the partnership agreement provides without qualification that interest is to be
allowed on investment, interest must be allowed even though operations have resulted in earnings
that are less than the allowable interest or in a loss.
And when agreement also provides for salaries without qualification, salary distribution must be
made even though profit is inadequate to cover salaries or there is a loss. Interest and salary
allowances allocated to partners increase their capital balances as well as the amount of
loss. Accordingly, the amount of loss will reduce the partners' capital accounts. The resulting
loss in the total amount of PI 05,000 after the interest and salary allowances was allocated among
partners equally based on their agreement, that profit and loss is divided equally.
ANSWER KEY
Page 42
48. (b)
Capital, March 1,2011
Add: Net Income*
Total
Less: Drawings
Capital, December 31, 2011
*Allocation of Net Income
Salary (10 months)
Bonus*
Balance: 125:75..
AA
P125,O00
34,540
P159,540
20,000
PI39,540
AA
P 25,000
1,440
8,100
P 34,540
Sales
Less: Sales returns
Net Sales
Less: Cost of goods sold:
Inventory, March
1
Add: Purchases
Cost of goods available for sale
Less: Inventory, December 31
Gross profit
Less: Operating Expenses [P60.000 - P2.500 - P950
+ PI,550 + (20% x P45,000 x 10/12)]
Net Income
Bonus =
10% [Nl - Salaries]
B = .10 [P39.400 - (P30.000 x
10/12)]
B = .10 (PK400) B = PI,440
49. (c)
XX
Capital, January 1,2012 P120.000
Salaries
P 30,000
Bonus*
1,500
Balance: 30%: 30%: 40%..
3,600
Share in Net Income
P 35.100
Partnership Operations - Solutions
YY
P120,000
P 30,000
1,500
3,600
P 35,100
BB
P75,000
4,860
P79,860
30,000
P49,860
BB
P
4,860
P 4,860
Total
P200,000
39,400
P239,400
50,000
PI89,400 (b)
Total
P 25,000
1,440
12,960
P 39,400
P233.000
5,000
P228.000
P -0196,000
P196,000
73,000
123,000
P105,000
65,600
P 39,400
ZZ
P120,000
P 45,000
4,800
P 49,800
Total
P360.000
PI05,000
3,000
12,000
P120,000
Page 43
Less: drawings - personal
30,000
P5,100
Capital, December31, 2012.P125,100
30,000
P5,100
P125,100
45,000
P4,800
P124,800
105,000
P 15,000
P375,000
Bonus=25%(Nl-Salaries-Bonus)
B = .25 (P120,000 - P105,000 - B)
B = P3.750 - .25 B
1.25B = P3,750
B = P3.000; P1,500 for XX and YY.
50 . (d)
Capital, January 1,201
Add:lnvestment
Net Income
Total
Less: Withdrawals
Capital, December 31,2011
HH
MM
PI50,000 P200,000
30,000
20,000
53,180
62,060
P233,180 P282,060
10,000
10,000
P223,180
P272,060
AA
P250,O00
60,760
P310,760
30,000
P280,760
Total
P600,000
50,000
176,000
P826.000
50,000
P776,000
HH
MM
P 24,000 P 18,000
AA
P 12,000
Total
P 54,000
29,400
19,360
P 60,760
73,600
48,400
PI76,000
Salary
Interest on Average Capital*
HH: 12% x PI 62,500 .........................
MM : 12% x P205,833...
AA:12%xP245,000 .........................
Balance: 2:4:4
Average Capitals:
HH"
1/1 -7/1
7/1 - 10/1
10/1 - 12/31
24,700
9,680
19,360
P 53,180 P 62,060
: P150,000x6
: P180,000x3
: P170,000x3.
Divided by: Months per annum .
months
ANSWER KEY
19,500
P 900,000
540,000
510,000
P1,950,000
12
Page 44
Weighted-average capital
MM:
1/1 -8/1
8/1- 10/1
10/1- 12/31
P162,500
: P200,000x7
: P220.000 x 2
: P210,000x3
P1,400,000
440,000
630,000
P2,470,000
12
Divided by: Months per annum.
months
Weighted-average capital
AA:
1/1 11/1 : P250.00X10
11/1 12/31 : P220,000x2
P
Divided by: Months per annum.
months
Weighted-average capital
51.
P205,833
P2,500,000
440,000
2,940,000
12
P245,000
Capital balances, beginning-1 st year
Net loss:
Annual salary
Interest
Balance, beg capital ratio
Total
Total
Drawings
Capital balances, beginning-2nd year
Tan
P200,000
May
PI 00,000
Total
P3 00,000
240,000
20,000
( 270,000)
( 10,000)
190,000
( 10,000)
P180,000
120,000
10,000
( 135,000)
(
5,000)
95,000
( 10,000)
P 85,000
360,000
30,000
( 405,000)
( 15,000)
285,000
( 20,000)
P265,000
Total comprehensive income:
Annual salary
Interest
Bonus
Balance, equally'
Total
Total
Drawings
Capital balances, end of 2nd year
240,000
18,000
5,000
( 168,250)
94,750
274,750
( 10,000)
P264,750
120,000
8,500
Partnership Operations - Solutions
360,000
26,500
5,000
( 168,250) ( 336,500)
( 39,750) 55.000
45,250 320,000
( 10,000) ( 20,000)
P 35,250 P300,000
Page 45
52.
Capital balances, March 1,2013
Additional investment, Nov. 1
Total
Total comprehensive income, P120,000 distributed as follows:
Interest (10 months)
Bonus (Schedule 1)
Balance, P17,000 equally
Salaries (10 months)
Total
Drawings
Capital balances, December 31, 2013
Schedule 1:
Total comprehensive income before salaries, interest and bonus
(P120,000 + P300,000)
Total comprehensive income after bonus (P420,000 /
Bonus
Roy
PI 50,000
Sam
PI 80,000
60,000
P240,000
PI 50.000
15,000
70,000
8,500
100,000
P343,500
(100,000)
P243,500
120%)
18,000
8,500
200,000
P466,500
(200,000)
P266,500
P420,000
350,000
P 70,000
53. Eve's capital balance, January 1
Additional investment
Profit share (Schedule 1)
Drawings
Eve's capital balance, December 31
P 374,000
22,000
1,063,400
( 750,000)
P 709,400
Schedule 1
Total receipts (PI,500,000 + PI ,625,000)
Expenses
Comprehensive income
P3,125,000
1,080,000
P2,045,000
Distributed as follows:
Adam (Pl,500,000/P3,125,000 x P2,045,000)
Eve (Pl,625,000/P3,125,000 x P2,045,000)
P 981,600
Pl,063,400
54.
Capita! balances, Jan. 1,2011
Net profit:
Salaries
Bonus (Schedule 1)
ANSWER KEY
KK
P144,000
SS
P144,000
WW
P144,000
Total
P432,000
36,000
1,800
36,000
1,800
54,000
126,000
3,600
Page 46
Balance, 3:3:4
Total
Total
Drawings
Capital balances, Dec. 31,2013
4320
42,120
186,120
36,000
P150,020
4,320
42,120
186,120
36,000
PI50,020
5,760
59,760
203,760
54,000
PI49,760
14,400
144,000
576,000
126,000
P450,000
Schedule 1:
Total comprehensive income before bonus and salaries
Less salaries
Total comprehensive income before bonus
Total comprehensive income after bonus (PI8,000/125%)
Bonus
P 144,000
126,000
18,000
14,400
P 3,600
Equally to KK and SS.
55
Capital balances before closing
Comprehensive income, P39,400 (Sch. 1):
Salaries (P30,000 x 10/12)
Bonus (P3 9,400 - P25,000) -=- 10% x 10%
Balance, 125:75, P12,960
Total
Drawings
Capital balances, Dec. 31, 2013
Schedule 1:
Sales
Sales returns and allowances
Net sales
Cost of sales:
Purchases
Merchandise inventory, Dec. 31
Gross income
Operating expenses:
Unadjusted
Supplies
Partnership Operations - Solutions
Tim
P125,000 P
Tom
75,000
25,000
1,309
8,182
4,909
159,491
79,909
( 20,000)
(30,000)
P139,491
P49,909
P233,000
5,000
228,000
PI 96,000
73,000
105,000
123,000
P 60,000
( 2,500)
Page 47
Prepaid expenses
Accrued expenses
Depreciation (P45,000x 20% x 10/12)
Total comprehensive income
(
950)
1,550
7,500
56 Phil Capital, January 2,2013
Additional investment
Profit share, (Schedule 1)
Drawings (Pl,500x 12)
Phil capital balance, December 31, 2013
Schedule I.
Phil
Interest, (Schedule 2)
P25,920
Salaries
28,800
Remainder, 4:3:3
( 2,400)
Total
P52,320
Schedule 2:
Phil: 1/1 P192,000 x6/12= P
7/1
240,000 x6/12=
P216,000 x 12%
Art:
1/1 P288,000 x 12%
Rey:
1/1 P432,000 x9/12=
10/1
360,000 x3/12=
P414,000 x 12%
57.
Balances at January 1, 2013
Additional Investment
Withdrawal
Net income (Sch. 1)
Regular drawings
Balances at December 2013
Schedule 1
Salaries
Interest on average capital
ANSWER KEY
65,600
P39,400
P192,000
48,000
52,320
(18,000)
P274,320
Art
P34,560
24,000
( 1,800)
P56,760
Rey
P49,680
27,200
( 1,800)
P75,080
Total
PI 10,160
80,000
(6,000)
P184.160
96,000
120,000
= P25,920
= P34,560
P324,000
90,000
= P49,680
Gary
P 80,000
20,000
22333
( 10,000)
Pll2,333
P410,000
Gary
P 12,000
Jerome
P120,000
22,733
( 10,000)
P132J33
Paul
P180,000
(30,000)
24,934
( 10,000)
P164,934
Total
P380,000
20,000
(30,000)
70,000
30,000
Jerome
P 10,000
Paul
P 8,000
Total
P 30,000
Page 48
balance (Sch. 2)
Total
Remainder divided equally
Division of comprehensive
income
7,200
19,200
3,133
9,600
19,600
3,133
13,800
21,800
3,134
30,600
60,600
9,400
P 22,333
P 22,733
P 24,934
P 70,000
Schedule 2:
Gary
P80,000 x8%x6/12
P100,000 x8%x6/12
Jerome
PI20,000 x 8%
Paul
PI80,000 x8%x9/12
P150,000 x8%x3/12
Total
P 3,200
4,000
10,800
3,000
P 7,200
9,600
13,800
P30,600
58. To compute the answer a statement of partner's capital should be prepared as follows:
Herm
Mar
Capital balances, 1/1/013
P150,000
P200,000
Additional Investment
30,000
20,000
Drawing
( 10,000)
( 10,000)
Net income (sch. 1)
53,180
62,060
Capital balances, 12/31/013 P223,180
P272,060
Schedule 1 - Distribution of Net Income:
Salaries
P 24,000 P
18,000
Interest (Sch. 2)
19,500
24,700
Remainder, 2:4:4
9,680
19,360
Total
P 53,180
P 62,060
Schedule 2 - Computation of Interest:
Herm: P150,000 x 12% x 6/12= P 9,000
180,000 x 12% x 3/12=
5,400
170,000 x 12% x 3/12=
5,100
Total
PI 9,500
Mar.
200,000 x 12% x 7/12=
220,000 x 12% x 2/12=
210,000 x 12% x 3/12=
Total
14,000
4,400
6,300
P24,700
Ama:
25,000
250,000 x12x10/12=
Partnership Operations - Solutions
Ama
P250,000
( 30,000)
60,760
P280,760
Total
P600,000
50,000
( 50,000)
176,000
P776,000
P 12,000
29,400
19,360
P 60,760
P 54,000
73,600
48,400
P176,000
Page 49
220,000
Total
x12x2/12=
4,400
P29,400
59. Schedule 1 - Computation and Distribution of Net Profit
Net Sales (P233,000- 5,000)
Cost of Sales (PI 96,000- 73,000)
Expenses:
Operating expense
P60,000
Supplies
( 2,500)
Prepaid insurance
(950)
Accrued expenses
1,550
Depreciation (45,000 x 20% x 10/12)
7,500
Comprehensive income
Distribution
Salary: (P30,000 x 10/12)
Bonus: (P39,400 - P25,000) x 10%
Remainder, at 5:3
Total
Total
P25,000
1,440
12,960
P39,400
Partners' capital balances, Dec. 31, 2013:
Initial investments
Share in Profit (Schedule 1)
Drawing
Dec. 31, 2013 capital balances
P228,000
P123,000
65,600
A
P 25,000
1,440
8,100
P 34,540
A
P125,000
34,540
( 20,000)
PI 39,540
( 188,600)
P 39,400
B
4,860
P4,860
B
P 75,000
4,860
( 30,000)
P49,860
60. (c)
Bonus
= .15 (Nl before salaries, interest and bonus)
B
= .15 (Nl after salaries, interest and bonus + salaries + interest + bonus)
B
= .15 [P32,000 + (P5,000 X 12) + (5% x P200.000) + B]
B.
= .15 [P32.000 + P 60,000 + P10,000 + B]
B
= .15 [PI02,000 + B]
B
= P15.300 + .15B
B
- .15 B = P15,300
.85 B = PI5,300
B = P15,300/.85
B = PI8,000 (c)
61. Comprehensive income
P 46,750
ANSWER KEY
Page 50
Add: Salary (PI,000 x 12 mo.)
2,000
Interest (P25,000 x 5%)
1,250
Comprehensive income before salary and interest*
P 60,000
Divide by
+ 80%
Comprehensive income before salary, interest and bonus
P 75,000
Less income before salary and interest
60,000
Bonus to Henson
PI5,000
*Since P60.000 is the total comprehensive income before salary and interest and the bonus is 20%
before deducting salary and interest, then P60.000 = 80% of the income base to be used for
computing the bonus.
62. Net income before bonus
Less net income after bonus (44,000/110%)
Bonus (10%)
44,000
40,000
4,000
Note that the provision for bonus is 10% of income AFTER the bonus, thus the bonus is the
difference between the net income before and after the bonus.
63. Comprehensive income before Bonus
Comprehensive income after Bonus (240,000 - 125%)
Bonus
P240,000
192,000
P 48,000
64. (d)
Total
P475.000
60,000
207,750
P742.750
70,000
P672.750
Capital, January 1, 2011
Add: Investment
Net Income*
Total
Less: Withdrawals
Capital, December 31, 2011
Net Income:
Salaries
Interest on Average Capital:
Partnership Operations - Solutions
X
Y
z
P60.000 P 48,000 P36.000
Total
P144.000
Page 51
X:
10% x P130.000
Y : 10% x P150.000
Z:
10% x P207,500
Balance
P207.750
65.
13,000
5,000
15,000
5,000
Average Capital:
X:
P100,000x6
P160,000x6
=
PI,560,000
= P
600,000
960,000
+ 12 = P130,000
Z:
P225,000x9
P155,000x3
P2,490,000
P2,025,000
465,000
+.12 = P207,500
=
=
20,750
5,000
48,750
15,000
1. Profit and loss ratio:
Old
MM50%X90%
NN 30%X90%
OO20%X90%
PP
100%
New
10%
100%
=45%
=27%
=18%
=10%
100%
(2) Reported Net Income
P12,500
Add (deduct): adjustments
a. Prepaid expense-2011
(
800)
b. Accrued expense-2012
(
600)
c. Unearned income-2011
700
d. Accrued income-2012
500
Adjusted Net Income
P12,300
Multiply by: P & L ratio of 00
18%
Share of OO in net income
P 2,214
(b)
a. Omission of prepaid expense at the end
of 2011
indicates
the expense was
recognized when paid in 2011 and not when used in 2012, thereby
ANSWER KEY
Page 52
b.
c.
d.
66.
understating the expenses and overstating income in 2012.
Omission of accrued expense at the end of 2012 understate expenses
and overstate income.
Omission of unearned income at the end of 2011 indicates income was
recognized when received in 2011 and not when earned in 2012,
thereby understating the 2012 income.
Omission of accrued income at the end of 2012 understate income
AA
BB
CC
Total
10% Interest on average capital* P47,250 P
23,865 P 16,235 P 87,350
Salaries
122,325
82,625
204,950
Balance equally...
(139,308) (139,308) (139,308) (417,924)
Increase (decrease)
P30267 P( 115,443) P(40,448) P( 125,624)
AA : 10% x P472.500 = P47,250
BB : 10% x P238,650 = P23.865
CC : 10% x PI 62,350 = P16,235
67. (d)
AA
BB
P47,250 P23,865
122,325
(41,875)* (41,875)*
P 85,200 P(18,010)
*Not rounded due to discrepancy of PI
10% Interest on average cap.
Salaries
Balance: Equally
68. Suggested answer (b) 3,450, (7,050), (19,550), (16,850)
Hanz
Ivy
Jasper
Salaries
20,000
10,000
Interest
5,000
4,500
2,000
Balance
(equally)
(21,550)
. (21,550)
(21,550)
Total
3,450
(7,050)
_(19,550)
Kelly
4,700
Total
30,000
16,200
(21,550)
(16,850)
(86,200)
(40,000)
Based on the information provided in the problem, the profit and loss ratios are used to absorb any
deficiency or any additional loss.
Partnership Operations - Solutions
Page 53
69.
Interest
Bonus (3:2)
Salaries (20:10)
Total
Hanz
5,000
1,1,43
14,597
" 20,740
Ivy
4,500
762
7,298
12,560
Jasper
2,000
Kelly
4,700
2,000
4,700
Net income before bonuses
Net income after bonuses (40,000/105%)
Bonuses
Total
16,200
1,905
21,895
40,000
40,000
38,095
1,905
If each of the provision of the profit and loss agreement are satisfied to whatever extent it
is possible based on the given order of priority, at such provision (salaries) the remaining
amount (21,895) shall be allocated using the degree of the claims.
70.
Total
10% interest on average capital
balances
Salary allowances
Balance (deficit), equally
Total
ANSWER KEY
K
P87350 P47,250
204,950 122,325
( 417,924) (139,308)
P(125,624) P30,267
M
N
P 23,865
82,625
( 139,308)
P(l 15,443)
P 16,235
(139,308)
P(40,448)
Page 54