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

31. 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 20x5, the
first year of operations, of P13,000 was allocated P8,800 to AA and P4,200 to DD.

On January 1, 20x6, the partnership agreement was changed to reflect the fact that DD could no longer devote an
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 20x6 an error was discovered such that the 20x5 reported income was understated
by P4,000. The partnership income of P25,000 for 20x6 included the P4,000 related to year 20x5.

In the reported net income of P25,000 for the year 20x6, AA and DD would have:

AA DD
Answer: A P 21,900 P 3,100

32. On January 1, 20x5, DD and EE decided to for, a partnership. At the end of the year, the partnership made a net
income of P120,000. 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 ……………….. P 5,000   
June 1 …………………    10,000
August 1 ………………  10,000  
September …………….   P 3,000 
October 1 ……………..  5,000 1,000 
December 1 …………..  4,000  5,000

Assuming that an interest of 20% per annum is given an average capital and the balance of the profits is
allocated equally, the allocation of profits should be:

Answer: B. DD, P61,200; EE P58,800

33. The partnership of DD and BB was formed and commenced operations on March 1, 20x5, with DD contributing
P30,000 cash and BB investing cash of P10,000 and equipment with an agreed upon valuation of P20,000. On
July 1, 20x5, BB invested an additional P10,000 in the partnership. DD made a capital withdrawal of P4,000
on May 2, 20x5 but reinvested the P4,000 on October 1, 20x5. During 20x5, DD withdrew P800 per month and
BB, the managing partner, withdrew P 1,000 per month. These drawings were charged to salary expense. A
preclosing trial balance taken at December 31, 20x5 is as follows:
 Debit Credit
Cash ……………………………………………………..... P 9,000
Receivable – net ………………………………………….. 15,000
Equipment – net ………………………………………….. 50,000
Other assets ……………………………………………… 19,000
Liabilities ………………………………………………… P 17,000
DD, Capital ……………………………………………… 30,000
BB, Capital ……………………………………………… 40,000
Service Revenue ………………………………………… 50,000
Supplies expense ………………………………………... 17,000
Utilities expense ………………………………………… 4,000
Salaries to partners ……………………………………… 18,000
Other miscellaneous expenses ……………...................... 5,000 _________
Total ………………………………………. P 137,000 P 137,000

Compute for the share of DD and BB in the partnership net income assuming monthly salary allowances
P800 and P1,000 for DD and BB, respectively; interest allowance at a 12% annual rate on average capital
balances; and remaining profits allocated equally.

Answer: D. DD, P10,600; BB P13,400

34. AA and BB formed a partnership in 20x5 and made the following investments and capital withdrawals during
the year:
AA BB
Investments Draws Investments Draws
March 1 ………………………………… P30 000 P20 000
June 1 …………………………... 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
20x5. 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:

Answer: D. AA, P30 684; BB, P29 316

35. Partner A first contributed P50 000 of capital into an existing partnership on March 1 20x5. On June 1
20x5, the partner contributed another P20 000. On September 1 20x5, the partner withdrew P15 000 from the
partnership. Withdrawals in excess of P10 000 are charged to the partner’s capital account. The annual weighted
average capital balance is

Answer: B. 51 667