Quiz 1 Answers and Solutions

(Partnership Formation and Operation)

MCQs

1. C
2. C
3. D
4. B
5. B

T/F
1. FALSE – ₱2M
2. FALSE – credited for ₱200
3. TRUE (200 + 100) x 60% = 180
4. FALSE (200 + 100) x 40% = 120 capital credit – 100 contribution = ₱20
5. TRUE
6. FALSE - ₱100
7. FALSE – in proportion to their contributions
8. FALSE – 1M x 80% x 50% = 400K
9. FALSE – -1M x 50% = -500K
10. FALSE
11. TRUE – (12M – 2M) x 40% = 4M
12. TRUE – (-8M – 2M) x 40% = -4M
13. FALSE – {50 + [(100 – 50 – 30) x 50%]} = 60
14. TRUE {50 + [(-100 – 50 – 30) x 50%]} = -40
15. FALSE [360 – (360 ÷ 120%)] = 60

Problem 1

1.
Solution:

  A B Partnership

Cash 200,000 - 200,000

Accounts receivable 120,000 - 120,000

Inventory (110K – 20K) 90,000 90,000

Land 500,000 500,000

Building (620K + 30K) 650,000 650,000

Total 410,000 1,150,000 1,560,000

 Note payable, net (210,000) (210,000)

Mortgage payable – bldg. (550,000) (550,000)

Adjusted capital balances 200,000 600,000 800,000

2.
Solution:

Using first A’s capital, let us determine if B’s capital contribution has any deficiency.

A, capital 200,000
Divide by: Profit (loss) sharing ratio of A 40%

Total 500,000
Multiply by: B's profit (loss) sharing ratio 60%

Minimum capital required of B 300,000

B's capital 600,000

Deficiency on B's capital contribution -

Now using B’s capital, let us determine if A’s capital contribution has any deficiency.

B, capital 600,000
Divide by: Profit (loss) sharing ratio of A 60%

Total 1,000,000
Multiply by: A's profit (loss) sharing ratio 40%

Minimum capital required of A 400,000

A's capital 200,000

Deficiency on A's capital contribution 200,000

3.

  A B Total

Amount being allocated     (500,000)

Allocation:
 1. Salaries 100,000 70,000 170,000

2. Bonus after bonus - -

3. Allocation of remaining profit

(-500K – 170K) = -670K
(335,000) (335,000) (670,000)
(-670 x 50%); (-670K x 50%)

As allocated (235,000) (265,000) (500,000)

4.
Solution:

Let: X = profit after salaries and bonus

10%X = bonus after bonus

Choice #1 Choice #2
40,000 salary = 25,000 salary + 10%X

40,000 – 25,000 = 10%X

10%X = 40,000 – 25,000
X = 15,000 ÷ 10%
X = 150,000

150,000 profit after salaries and bonus + 25,000 salary of A + 15,000* bonus of A + 100,000 salaries of
other partners = 290,000 profit before salaries and bonus

*Bonus = 10% x 150,000 = 15,000

5.

Solution:
  Axel Berg Cobb Total

Amount being allocated       250,000

Allocation:
 1. Bonus to Axel

First 100K (100K x 10%) 10,000 10,000

Over 100K [(250K - 100K) x 20%] 30,000 30,000

2. Bonus to Berg and Cobb

(250K - 10K - 30K - 150K) x 5% 3,000 3,000 6,000

3. Allocation of bal. (204K / 3) 68,000 68,000 68,000 204,000

As allocated 108,000 71,000 71,000 250,000

6.
Solution:
The weighted average balance of B’s capital account is computed as follows:

Months outstanding ÷ Total Weighted

  Balances months in a year average

Beg. Balance 60,000 12/12 60,000

Mar. 31 additional investment 20,000 9/12 15,000

Aug. 1 withdrawal (30,000) 5/12 (12,500)

Oct. 1 additional investment 40,000 3/12 10,000

Dec.1 additional investment 10,000 1/12 833

Weighted average capital balance 73,333

  A B Total

Amount being allocated 100,000

Allocation:

1. Salaries 40,000 - 40,000

2. Interest on weighted ave. capital

- 7,333 7,333
balance (73,333 x 10%)

3. Allocation of remaining loss

(100K – 40K – 7,333) = 52,667
42,134 10,533 52,667
(52,667 x 80%); (52,677 x 20%)

As allocated 82,134 17,866 100,000

7.
Solution:
 Profit (after deduction of monthly salaries) 840,000

Add back: Monthly salaries (8K x 10 mos.) + (40K x 10mos.) 480,000

Profit before salaries (Amount to be allocated) 1,320,000

The profit before salaries, interest and bonus is allocated as follows:

  A B Total

Amount being allocated (see computation above) 1,320,000

Allocation:

1. Salaries 80,000 400,000 480,000

2. Bonus a 220,000 220,000

3. Interest (400K x 12% x 10/12) 40,000 - 40,000

4. Allocation of remaining profit

(1.320M - 480K - 220K - 40K) ÷ 2 290,000 290,000 580,000

As allocated 410,000 910,000 1,320,000

a
The “bonus after bonus” is computed as follows:

P
B = P -
1 + Br

1,320,000
B = 1,320,000 -
1 + 20%

B = 1,320,000 - 1,100,000

B = 220,000
The ending balances of the partners’ respective capital accounts are computed as follows:

  A B

Capital, beg. 400,000 720,000

Additional investment 80,000 -

Share in profit 410,000 910,000

Drawings (monthly salaries) (80,000) (400,000)

Capital, end. 810,000 1,230,000

8.
A's Capital

  60,000 beg.

withdrawal 130,000 25,000 contribution

  45,000 sh. in profit – squeeze

end. -  

45,000 ÷ 30% = 150,000