Theories

1. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution
b. Contributing partner’s original cost
c. Assessed valuation for property tax purposes
d. Contributing partner’s tax basis

2. A partner’s withdrawal of assets from a limited liability partnership that is considered a

3. Which of the following is an advantage of a partnership?

4. A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus
allocation, interest on capital, with any remainder to be allocated by preset ratios. If a partnership
has a loss to allocated, generally which of the following procedures would be applied?
a. Any loss would be allocated equally to all partners.
b. Any salary allocation criteria would not be used.
c. The bonus criteria would not be used.
d. The loss would be allocated using the profit and loss ratios, only.

5. If the partnership agreement provides a formula for the computation of a bonus to the partners,
the bonus would be computed
a. next to last, because the final allocation is the distribution of the profit residual.
b. before income tax allocations are made.
c. after the salary and interest allocations are made.
d. in any manner agreed to by the partners.

6. Which of the following statements is true concerning the treatment of salaries in partnership
accounting?
a. Partner salaries may be used to allocate profits and losses; they are not considered
expenses of the partnership.
b. Partner salaries are equal to the annual partner draw.
c. The salary of a partner is treated in the same manner as salaries of corporate employees.
d. Partner salaries are directly closed to the capital account.
 7. In a partnership, interest on capital investment is accounted for as a(n)
a. Return on investment
b. Expense
c. Allocation of net income
d. Reduction of capital

8. Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During the first year
of operation, the partnership incurs a P 20,000 loss. The partners should share the losses
a. Based on their average capital balances
b. In a 2 to 1 ratio
c. Equally
d. Based on their ending capital balances

9. In general, profits or losses of a corporation shall be divided

10. Partners active in a partnership business should have their share of partnership profits based on
the following
a. A combination of salaries plus interest based on average capital balances.
b. A combination of salaries and percentage of net income after salaries and any other
allocation basis.
c. Salaries only.
d. Percentage of net income after salaries is paid to inactive partners.

I.

Melai admits Nora as a partner in business. Just before the partnership’s formation, Melai’s books showed
the following:

Cash 2,600
Accounts receivable 12,000
Merchandise Inventory 18,000
Accounts Payable 6,200
Melai, Capital 26,400

It was agreed that, for purposes of establishing Melai’s investment in the firm, the following adjustments
shall be reflected:
 Allowance for bad debts of 2% should be set up.
 Merchandise inventory should be valued at P 20,200.
 Prepaid expenses of P 350 and accrued expenses of P 400 should be recognized.

1. How much is the adjusted capital of Melai prior to admission of Nora? 28,310

2. How much cash should Nora invest to secure a one-third interest in the partnership? 14,155
 3. If Nora contributed an equipment with carrying value of P 4,000 and fair value of P 4,500,
how much cash was contributed for a one-fifth interest in the partnership? 2,577.50

II.
Maria and Nora entered into a partnership on March 1, 2013 by investing the following assets:

Maria Nora
Cash P 30,000 P –
Merchandise Inventory - 90,000
Computer Equipment 160,000
Furnitures and Fixtures 200,000
The agreement between Maria and Nora provides that profits and losses are to be divided into 40% to
Maria and 60% to Nora, and that the partnership is to assume a liability on the computer equipment of P
60,000. The partners further agree that Nora is to receive a capital credit equal to her profit and loss ratio.

4. How much cash is to be invested by Nora? P 155,000

III.
On September 30, 2019, LL admits MM for an interest in his business. On this date, LL’s capital account
shows a balance of P 158,400. The following were agreed upon before the formation of the partnership:
1. Prepaid expenses of P 17,500 and accrued expenses of P 5,000 are to be recognized.
2. 5% of the outstanding accounts receivable of Lopez amounting to P 100,000 is to be
recognized as uncollectible.
3. MM is to be credited with a one-third interest in the partnership and is to invest cash aside
from the P 50,000 worth of merchandise.

5. How much is the total capital of the partnership? P 248,850

IV.
Matt and Jeff organized their partnership on 1/1/2019. The following entries were made into their capital
accounts during 2019:

Matt
Debit Credit Balance
1/1 35,000 35,000
6/1 10,000 45,000
10/1 5,000 50,000

Jeff
Debit Credit Balance
1/1 25,000 25,000
3/1 10,000 35,000
9/1 10,000 25,000
11/1 5,000 20,000
12/1 8,000 28,000

If partnership profits for the year equaled 66,000, indicate the allocations between the partners under the
following independent profit-sharing allocation conditions:
 6. Interest of 10% is allocated on weighted average capital balance and the remainder is divided
equally.
7. A salary of P 9,000 will be allocated to Jeff; 10% interest on ending capital is allocated to the
partners; remainder is divided 60/40 to Matt and Jeff, respectively.
8. Salaries are allocated to Matt and Jeff in the amount of P 10,000 and P 15,000 respectively and
the remainder is allocated in proportion to weighted average capital balances
9. A bonus of 10% of partnership profits after bonus is credited to Matt, a salary of P 35,000 is
allocated to Jeff, a P 20,000 salary is allocated to Matt, 10% interest on weighted capital is
allocated, and remainder is split equally.

V
Cleary, Wasser and Nolan formed a partnership on January 1, 2018, with investments of P 100,000, P
150,000 and P 200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of P 10,000 to Wasser and (3) sharing the
remainder of the income or loss in a ration of 20% got Cleary and 40% each for Wasser and Nolan. Net
income was P 150,000 in 2018 and P 180,000 in 2019. Each partner withdrew P 1,000 for personal use
every month during 2018 and 2019.
10. What was Wasser’s share of income for 2018? P 63,000
11. What was Nolan’s capital balance at the end of 2018? P 246,000
12. What was Cleary’s share of income for 2019? P 34,420
13. What was Wasser’s capital balance at the end of 2019? P 264,540

VI
Arthur Plack, a partner in the Brite Partnership, has a 30% participation in partnership profits and losses.
Plack’s capital account had a net decrease of P 60,000 during the calendar year 2019. During 2019, Plack
withdrew P 130,000 (charged against his capital account) and contributed property valued at P 25,000 to
the partnership.
14. What was the net income of the Brite Partnership for 2019? 150,000
VII
Garcia and Henson formed a partnership on January 2, 2019 and agreed to share profits 90% and 10%,
respectively. Garcia contributed capital of P 25,000. 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 of 5% of beginning capital.
 Henson is to be paid salary of P 1,000 a month.
 Henson is to receive a bonus of 20% of income calculated before deducting his salary and
interest on both capital accounts.
The partnership 2019 income statement follows:
Revenues P 96,450
Expenses (including salary, interest and bonus) 49,700
Net Income P 46,750
15. What is Henson’s 2019 bonus?