Partnership 13

Partnership Operations:
18. JJ and KK are partners who share profits and losses in the ratio of 60%: 40%.
respectively. JJ's salary is P60,000 and P30,000 for KK. The partners are also
paid interest on their average capital balances. In 20x5, JJ received P30,000
of interest and KK, PI2,000. The profit and loss allocation is determined
after deductions for the salary and interest payments. If KK's share inthe
residual income (income after deductingsalaries and interest) was P60,000
in 20x5, what was the total partnership income?
a. P192,000 C. P282,000
b. 345,000 d. 387,000 (Adopted)
19. The Partnership has the following accounting amounts:
(0) Sales = P70,000
(2) Cost of Goods Sold = P40,000
(3) OperatingExpenses =Pl0,000
(4) Salary allocations to patners = P13,000
(5) Interest paid to banks P2,000
(6) Partners' withdrawals = P8,000

The partnership net income (loss) is:

a. P20,000. C. P5,000
b. 18,000 d. (3,000) (Adapted)
20. Lancelot is trying to decide whether to accept g salary of P40,000 or a
salary of P25,000 plus abonus of 10% of net income after salary and bonus
as ameans of allocating profitamong the partners. Salaries traceable to
the other partners are estimated to be P100,000. What amount of income
wOuld be necessary so that Lancelot wouid consider thechoíces to be
equal?
a. Pl65,000 C. P265,000
b 290,000 d. 305,000 (Adapted)
21. Peter and Ronald are partners. They have shared profits and losses 65/35
for anumber of years. Peter has indicated that he is going to reduce his
involvement in the partnership so the profit and loss ratio is being modified
to 45/55. At the date of the change in the profit and loss ratio, the
partnership own vacant land with a market value of P300,000 and a book
value of P100,000. Peter and Ronald compile a list of assets with market
and book value differences. Two years after thechange in the profit and
loss rafios, the land is sold for P450,000. How much of the gain is allocated
to Peter?
a. P157,500 P227,500
b. P197,500 P287,500
14
Partnership
22. Jernnifer and Robert are partners who are changing their profit and loss
ratios ftom 60/40 to 45/55. At the date of the change, the partners choose
to revalue assets with market yalve different from book value. One asset
revalued is land with a book value of P5O,000 and a market value of
P120,000. Two years after the profit and loss ratio is changed, the land is
sold for P200,000. What is the amount of change to Robert's Capital
dccount at the date the land issold?
a. P32,000 C. .P60,000
b. P44,000 d. P82,500

23. Shown is amanaging partner in a local business. Part of hisprofifallocation

is àbonus based on the store's operating ncome. The bonus is 8 percent
of operating income in exceSs ef P200,000 affer deducting the bonus. If
operating income for the year is P250,000, what is Shawn's bonus (rounded
to the nearest peso)?
a. P 3,703 C. P20,000
b. P40,000 d. P40,000

24. James has abonus as part of his partner profit allocation. The bonus is
based onthe partnerships net income. James receives abonus equal to
5 percênt that the net income exceeds P150,000. if the net income in the
Current year is P180,000, howmuch bonus üoes James receive?
a. P30,000 C. P7,500
b. P9,000 d. P1,500

25. Cheryl is the manager of a local store. She is also apartner in the company
and she receivesa bonUs as part of the profit and loss allocation, Cheryl's
bonus is based on the increase in revenues recorded during the period.
The bonus arrangement is that Cherylreceives l percent of net income for
every fullpercentage point growth for revenues in excess of a 5 percent
revenUe growth. During the most recent period, revenues grew from
P500,000to P540,000 and net income grew from P98,000 to P120,000. How
much bonus does Cheryl receive for thís period?
a. P2,000 C. P3,600
b. P1,100 d. P6,000

26. Nick,Joe, and Mike are partners. The company has P150,000 net income
for the period. How is this income divided to the partners if the
following profit and loss allocation process is followed?
Nick Joe Mike
Weighted average capital P200,000 P350,000 Pl80,000
Salary 25,000 15,000 33,000
Bonus .1(NI-PI00.000)
Residual profit/ioss ratics 25 45 30
- Return on invested capital 9%
Partnership 15

Nick Joe Mike

P43,000 P46,500 P60.500
b. P45,325 P50,685 P53.990
C. P50,000 PS0,000 P50,000
d. P44,075 P48,435 P57,490

27. Cab and Jo are considering formning a partnership whereby pronts wil be
allocated through the use of sakaries and bonuses. Bonuses willbe i0% of
net income after total salaries and bonuses. Cab will receive g solary of
P30,000 and a bonus. Jo has the option of receiving a salary of P40.000
ond a 10% bonus or simply receiving a solary of P52.000. Both portners wil
receive the same amOunt of bonus.

Determine the level of net income thát would be necessary so that Jo

would be indifferent to the profit shaingoption selected.
a. P240,000 C. P 94,000
b. 300,000 d. 334,000

28. The portnership agreement of XX, YY & 2Z provides for the yeor-end
allocation of net income in the following order:
First, XX is to receive 10% of net income up to P200,000 ond 20%
over P200,000.
Second., YY and ZZ eoch are to receive S% of the rernaining
income over P300,000.
The balance of income is to be allocated equolly omong the
three partners.

The portnership's 20x5 net income was P500,000 before anyalkocations to

partners. What amount shoud be ollocated to Xx?
d. P202,000 C. P206.000
b. 216,000 d. 220.000 (AICPA)
29. The partnership agreermentof RR and $S provides that interest at 10% per
year is to be credited to each partner on the basis of weighted-average
capital balances. Asummary of the copital occount of $S for the year
ended December 31, 20x5, is as follows:
Balonce. Januory I P420.000
Additional investment, July I..... 120.000
Withdrawal, August 1 (45.000)
Balance, Decenber 31 95.000
16 Chapter i

account for
What amount of interest should be credited to SS's Capital
20x5
P45,750 P46, 125
49,500 51,750 (AICPA)
SO. AA, BB, and CCare partners with avergge capital balances during 20x5 of
receive 10%interest
PS60,0O0, P180,000,and P120.000. respectivelv. Partnerssalaries
After deducting of P90,000 to
Ontheir average capital balances. profit or loss is divided equally. In 20x5
AA and P80,000to CC the residual salaries to
the partnership sustained a P99,000 loss before interest and
partners. By what amount should AA's Capital account change
P105,000 decrease
a. P21,000 increase 126,000 increase (AlCPA)
b. 33,000 decrease
to own and operate a health-food
31. AA and DD created a partnershipprovided
store. The partnership ggreement that AA receive asalary of
PI0.000and DD asalary of P5,000 to recognize their relative time spent in
operating the store. Remaining profits and loSseswere divided 60:40 to AA
P13,000
and DD,respectively. Income for 20x5, the first year of operations, of
Was allocated P8,800 to AA and P4,200 4o DD.
On January 1. 20x6, the partnership agreement was changed to refiect
the fact that DD COuld no longer devote any time to the store's operations.
profits
The new agreement allows AAa salary of P18,000, and the remnaining that
SUch
and loSses are divided equally. In 20x6 an error was discoveredpartnership
the 20x5 reported income was understated by P4,000. The
income of P25,000 for 20x6 included the P4,000 related to year 20x5.

inthe reported net income of P25,000for the year 20x6, AA and DD would
have:
AA DD AA. DD
a. P21,900 P 3,100 P P
b. 17,100 17,100 12,500 12,500
(Adapted)
32. On January 1, 20xX5, DD and EE decided to form a partnership, At the end
of the year, the partnership made a net income of PI20,000. The capital
accounts of the partnership show the following transactions.
DD, Capital EE, Capital
Dr. Cr. Dr. C
January 1 P40,000 P25,000
April 1 P5,000
June 1 10,000
August1 10,000
September P3,000
October 1 5,000 1,000
December .1 .... 4,000 5,000
Partnership 17

Assuming that an interest of 20% per annum is givern 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
(PhilCPA)
33. The partnership of DD and BB was formed and Commenced operations on
March l,20x5, with DD contributingP30,000 cash and BB investing cash of
P10,000 and equipment with an agreed upon valuation of P20,000. On
July 1,2Ox5, B8 invested an additional P10,000 In the partnership, DD made
acapital withdrawal of P4,000 on May 2, 20x5 but reinvested the PA,000
on October 1, 20x5. During20x5, DDwithdrew P800 per month and BB, the
managing partner, withdrew Pl,000 per month.These drawings were
charged tosalary expense. Apreclosing 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
B8, capital 40,000
Service revenue 50,000
Supplies expense 17,000
Utilities expense. 4,000
Salaries topartners 18,000
Other miscellaneousexpernses 5,000
Total P13Z,000 P137,000
Compute for the share of DD and BB in the partnership net income
assuming monthly salary allowances P800 and Pl,000 for DD and BB,
respectively: interest allowance at a 12% annual rate on average capital
balances: and remaining profitsallocated equally.
a. DD, P10,520; BB, P13,480 C. DD, P10,800; BB, PI3,200
b. DD, P12,000; BB, P12,000 d. DD, P10,600: B8, P13,400
(Adapted)
34. AA and BB formed a partnership in 20x5 and made the following investments
and capital withdrawals duringthe year:
AA
Investments Drgws Investments Draws
March 1 P30,000 P20.000
June 1 PI0,000 PI0.000
August 1l 20,000 2,000
December l ......... 5,000
18
Chapter i
Ihe partnership's profit and loss aareement provides forg saldry
PsO,00OWas paid to each portner for 20x5. AÀA 0s to receive a bonus ofwhich,
l0%
On net ncomne after salaries gnd bonus. The partners are aisotO receive
nTeresSt of 8% on avergge annual capital balances afteCted bY both
nvestments and drawings, Any remainirg profits are to be alocated
'equally among the partners.
ASSUing net income of P60,000 before salaries and bonus, determine how
the inCome wOuld be allocated among the partnerS:
a. AA, P3l.138; BB,P28,862 C. AA, P30,633; BB, P29,367
b. AA, P33,537: BB, P26,463 AA, P30,684; BB, P29,31l6
d.
(Adapted: Fischer &Taylor
35. Partner A first contributed P50.000 of capital into an existing partnership
on March 1,20x5.On June l,20x5, the partner contributed another P20O,000.
On September 1,20Ox5, the partner withdrewP15,000 fron the partnership.
Withdrawals in excess of PI0,000 are charged to the partner's capital
acCOunt. The annuat weighted-average capital balance is
a. P62,000 C. P60,000
b. 51,667 d. 48,333
(Adapted-Fischer &Taylor)
36. wW and RR share profits and losses equally, WW and RR receive salary
aliowances of P20,000 and P30,000. respectively, and both partners receive
10% interest ontheir average capital balances. Average capital balances
are calculated at the beginning of each month regardless of when the
capital contributions and capital withdrawats were made, and partners
drawings are not used in determining the average capital balances. Total
net income for 20x5 is P120,000.
WW RR
January 1capital balances Pl00,000 P120,000
Yearly drawings (P1,500 a month) ...... 18,000 18,000
Permanent withdrawals of capital:
June 3 (12,000)
May2 (15.000)
Additional investments of capital:
July 3 ... 40.000
October 2 ..... 50,000
What is the weighted average çapital for ww and RR respectively for
20%5
O. Pi10,667 and PI19,583 C. Pl00,000 and PI20,000
b. PI05,333and P126,667 d. P126,667 andP105,333
(Adapted- Patterson/Shoulders)
Partnership 19.

Q7. HH, MM, and AAfomedapartneship on January 1,20x5, and contributed

PIS0,.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 capitalduring 20x5 of the three partners; and the
remainder in the ratioof 2:4:4, respectively.
The operating income for the year ending December 31.20x5 amounted
to P176,000. HH contributed additional capita of P30,000 on July 1 and
made a drawing of P10.000 on October i; MAcontauted additional
capital of P20,000 on AUgust land made a drawiñg óf RIQnopoOttober
1;and, AA made a drawing of P30,000 on November 1.
The partners' capital balances on December 31, 20x5 are:
a. HH, P179,680; MM, P229,360; and, AA, P239.360
b. HH, P1Z9,760; 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 (PhilCPA)
38. Merlin, a partner in the Camelot Partnership, has a 30% participation in
partnership profits and losses. Merlin's capitalaccount has a net decrease
of P1.200.000during the calendar year 20x5. During 20x5, Mertin withdrew
P2,600,000 (charged against his capitalaccount) andcontributed property.
valued at P500,000 to the partnership. What wás the net ihcome of: the
CamelotPartnership for year 20x5?
a. P3,000,000 c. P 7.000,000
b. 4,666.667 d. 11,000,000
(AiCPA),
39. OnJanyary 2, 20x5, BB and PP formed apartnership. 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 isgiven 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 31,20x5 is as follows:

Net Sales P873,000

Cost of goods sold T00000
Gross profit P1}5.000
Expenses (inciuding the salary. interest and the bonus) 143,000
Net income P 32,000
22
Chapter 1
Any remaining profits and loss are to be divided equaly among the partners.
Determine how aprofit of P105,000Owould be allocated among the partners
Hunt, P4l450; Rob. P29.950: Turman,P15.450; Kelly, P18,150
O Hnt, P28,000; Rob, Pl6.500: Turman,P 2,000; Kelly, P 4,700
G.Hüht, P39,700:Rob, P29200: Turman,Pl6,700; Kely, PI,400
d. Carinot be determined. (Adapted)
"*9.KK dnd PP share profits after theprovision of annual salary dllowances of
Pl4,400and P13,20o. respectivelvin the rßtio of 6:4. However, if partnership's
net income is insutficient to provide for said allowances in tul amount.
Tne net income shall be divided eauglly between the partners. In 20x5, the
TOIOwing erors were discovered: Depreciation for 20x5 is understated by
T<,l00, and the inventory on December 31, 20x5 is overstated by P1400.
Ihe partnership net income for 20x5 was reported to be P19,500.
Thecapital accounts of the partners should be increased (decreased) by:.
à. RR, PI6.540): PP. P(6.540) C. RR, P(6.960): PP, P 6,540
P3.000; PP,P 3,.O00 d. RR, P(6,750): PP, P(6,750)
(Adapted)
47. JJand KK are partnerssharingprofits 60% and40%respectively. The average
profits for the past two years are to be capitalized at 20% per year (for
purposes of admitting a new partner) in determining the aggregate capital
of JJ and KK, after adjusting the profits for the following items omitted
from the books:
Omissions at Year-End 20x5 20x6

Prepaid Expense. Pl,600

Accrued Expense .:.. 1,200
Deferred Income Pl400,
Accrüed Income L,000

-Othèr petiientjniormation are us follows:

20x5 20x6
Net íncome of partnership P14,400 P13,600
Capitalaccounts, endof the year:
JJ 45,400 54,000
KK ...... 45,000 55,000

The aggregate capita of Ji and KK after capitalizing the average profits

at 20% per annum is:
a. P67,765 C. P69,000
b. 72,105 d. 71,000 (PhilCPA)
Partnership 23

A8. MM, NN and OO partners, share profits on a 5:3:2 ratio.On : Jary 1, 20x6,
PP admitted into the partnership with a 10% sharein orofits. T' : old partners
continue to participate in profits in their original ratia.
For the year 20x6, the net income of thepartnership was renrted as P12,500.
However. it was discovered that the following items yer omitted in the
firm's books:
Unrecorded at year end 2075 20x6
Prepaid expense 00
Accrued expense P600
Unearnedincome 700
Accrued income 500

(1) The newprofit and loss ratio for N, and (2) the siare of partner OO in
the 20x6 net income:
d. ()30%: (2) P2.214 C (1) 27%: (2) P2,286
b. j27%: (2) P2,214 d. )30%; (2)P2,286
(PhilCPA)
49. A, B, and Care partners in an gCCOynting firm. Their capital aCCOunt
balancesat year-end were A P90,000: B Pi10,000 and C P50,000. They share
profitsand losses on a 4:4:2 ratio, after the followingspecial terms:
1. Partner C is to receivea bonuS of 10% of net income after the
bonus.
2. Interests of 10% shall be paid on that portion of apartner's capital
in excess of Pl00,000.
3. Salaries of P10,000and P12,000 shall be paid to partners A &C
respectively.
Assuminga net income of P44,000for the year, the total profit share of
Partner Cwas:
a. P7,800 C. P19,400
b. 16,800 d. 19,800 (PhilCPA)
50. X, Y and 2, apartnership formed on January 1, 20x5 had the following
initial investments:
P100,000
Y 150,000
225,000

The partnership agreement states that profits and losses are to be shared
equaly by the partners after consideration is made for the following:

Salarnes allowed to partners:P60,000 for X,P48,000 for Yand 36.000

for Z.
Average partner's capital balances during the year shall be
allowed 10%.
24

Chapter
Additional information:
On June 30, 20x5 Xinvested an additional P60,000
Lwithdrew P70,000 from the partnershipon
SepTember 30, 20x5.
Share in the remaining partnership profit was
partner. P5.000 tor each

Ihe fotal partnership capital on December 31, 20x5 was:

a.
b.
P405,000 C. P480,000
671,500 672,750
Si X and Y are in
d.
(PhilCPA)
partnership, sharing profits
acCounts to 31 December each year, On equally and preparing their
1 July 20x5, Z joined in the
partnership, and from that date profits are shared X40%, Y40%, and Z20%.
In the year ended 31 December 20x5,
6
profitswere:
months to 31 June 20x5 P200,000
6 months to 31 December 20x5
300,000
It wasagreed that Xand Yonly should bear equally the
expense for a bad
debtof P40,000written-off in the six months to 31 December
at the P300,000 profit. Which of the following 20x5 in arriving
share for the year? corectly states X's profit
a. P216.000 C. P220,000
b. 200,000 d. 224,000 (ACCA)
52. S and T are in partnership and prepare their accounts to 31
each year. On 1July 20x5, U joined the partnership. Profit Decemnber
arrangements are: sharing
6 months to 6 months to 31l
30 June 20x5 December 20x5
Salary P15,000 P25,000
Share of balance in profit S 60% 40%
T 40% 40%
20%
The partnership profit forthe year ended 31 December 20x5 was P350.000
accruingevenly over the year. What are the partners' total profit shares
for the yeor ended 31 December 20x5
S U
a. P196,000 P124,000 P30,000
b. 217,000 108,000 25,000
C. 155,000 130,000 65,000
d. 175,000 145,000 35,000 (ACCA)
Partnership 25

s3. AA and BB entered into a partnership as of March 1, 20x5 by investina

P125,000 and P75,000, respectively.They agreed that AA, as the mangging
partner,Was to receive asalary of P30,000 per year andabonus 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 ofiginal capital balances.
On December 31, 20x5, account balances were ds 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, 20x5 were as follows: supplies, P2,500,

merchandise, P73,000. Prepaid insurance was P950while accrued expenses
were P1,550. Depreciation rate was 20% per year.
The partners' capitalbalances on December 31, 20x5, after closing the net
profit and drawing accounts,were:
AA BB AA BB

a. P135,940 P47,960 P139,680 P48,680

b. P139,540 P49,860 Pl42,350 P47,670
(PhilCPA)

54. There and Craig are partners. Their current profit and loss ratios (70/30) are
being changed to (60/40). The partners decide to adjust their capital
accounts at the date of the change in the profit and loss ratios to reflect
the difference between market value and book value of assets and
liabilities. At the date of the change, land has a market value of P250,000
and a book value of P120,000. How much will Craig's capital account be
adjusted at the date of the change in the profit and loss ratios?
a. P52,000O increase C. P52,000 decrease
b. P13,00O increase d. P13,000 decrease
55. James and Bruce are partners. They have shared profits and losses 70/30
for several years. The partnership profif allocation agreement is curently
being modified to 60/40. At the date of the change, the partners choose
to revalue assets with market value different from book value. One asset
revalued is a buildingwith abook value of P370,000 and amarket value
ofP520,000. One year after the profit and lossratiois changed the bUitding
is sold for P650,000. What is the amount of change to Bruce's copital
account at the date the building is revalued?
a. P105,000 C. P45,000
b. P91,000 d. P39,000
26
Chapter 1
S6. Using the same informgtion in No. 55, what is the amount of change to
Bruce's capital account at,the date the building is sold?
a.
P91,000 P39,000
b. P78,000 d. P52,000
Items 57 and 58 are based on the following information:
37. Johnson and Pritchard are partners. Theyare changing the profit and loss
ratios from the curent 60/40 to 70/30. Atthe date of the change,vacant
landowned by the partnership has a book value of P50.000 and a market
value of P60,000. The partners choose to prepare an itemized list of assets
with market values different from book values. If the land is sold in the
tuture for P80,000, how mych of the gain willbe assigned to Johnson?
a. P18,000 P21,00O
b, P20,000 d. P27,000

58. If fhe iand is sold in the future for P80,000, how muchof the gain willbe
assigned to Pritchard?
a. P9.000 C. P12,000
b. Pi0,000 d. P13,000

59. Karen and Andreaare currently changing their partnership profit and loSS
ratios from 75/25 to 60/40. They have created a list of. assets that have
market and book value differences. One of the assets is a building with a
P300,000 market value and P200,000book value. Twoyears after changing
the profit and loss ratios, the building is solcd for P380,000. How much of
the profit is allocated to Karen?
a. P108,000 C. Pi35,000
b. P123,000 d. Pl83,000
60. Ericand Phillip have been partners for several years. During that time they
have shared profitsand iosses (60/40). They are currently revising the profit
and loss ratios to (70/30). Eric and Phillip decide to adjust the capital
accounts at the date of the change to reflect the difference between
market value and book value of assets and liabilities. At the date of the
change, the partnership owns a building with a book value of P350,000
and amarket value of P600,000. How much wil! Eric's capital
account be
adiusted at the date of fhe change in the profit and loss ratios?
a. P25,00O increase C. P25,000decrease
b. P50,000 increase d. P50,000 decrese
Partnership 27

Assignment of Interest to a Third Party:

67. BIG
Capital balances and profit and loss sharing ratios of the partners in the
Entertainment Gallery are as follows:
Betty.capital (50%) P140,000
Iggy. capital (30%)] 160,000
rabby. capital (20%) 100,000
Total P400,000
Betty needs moneyand agrees to assign half of her interest in the partnership
to Yessir for P90,000 cash. Yessir pays directly to Betty.Yessir does notbecome
apartner.
What is the total capital of the BIG Partnership immediately after the
assignment of the interest to Yessir?
a. P310,000 P490,000
b. 200,000 400,000 (Adapted)
62. Jenna is about to purchasesome of Cynthia'spartnership interest. Cynthia
currently has partnership equity of P84,500. If Jenna pays Cynthia P30,000
for 30 percent of her capital, what amount will be recorded in the
partnership accounting records?
Jenna Cynthig
P30,000 credit P25,350 debit
b. P25,350 credit P25,350 debit
C. P30,000 credit P30,000 debit
d. P25,350 debit P25,350 credit
18. (c)
JJ KK Total
Solory P60,000 P30,000 P 90,000
Interest 30,000 12,000
42,000
Boiance or Residual profit 60,000o
150,000°
P282,000 (c)
Given
P60.000 + 40% profit and loss ratio = P150,000
19. (b)
Saies P70,000
Less: Cost of goods sold 40,000
Gross profit P30,000
Less: Operating expenses 10,000
Operating income P20.000
Less: Other expenses: Interest expense 2,000
Net income P18,000 (b)
Salaries to pgrtners gre considered as an allocations of net income rather than 0s
determingnt of net income. In other words, salaries to partners are not expenses o
the partnership, but port of profit and loss sharing plan,
 71
Partnership

20. (b)
To eguate P40,000 to P25.000 plus bonus, the bonus should amount to P15,000 (P40,000
- P25.000). Based on fhe foregoing the following equafion should be developed:

Bonus= 10% (NI -Salaries -Bonus)

P1S,000 10 [NI (P100,000 + P25,000) - P15,000]
P15,000 .10 [NI - P140,000]
P15,000 .10 NI - P14,000
P29,000/.1 NI
NI P290,000 (b)
or, alternatively:
P40,000 P25,000 +.10 (NI - Salaries - bonus)
P40,000 P25,000 + .10-[NI - (P100,000 + P25,000) - P15,000]
P40,000 P25,000 +.10 (NI-P140,0001
P40,000 P25,000 +.10 NI-P14,000
P40,000 Pi1,000 +10 NI
P29,000 .10 NI
NI P290,000. (b)

21. (b)- (P300,000 - P100,000) (.65) + (P450,000 - P300,000) (.45)

22. (b)- (P200,000- P120,000) (.55)

23. (a) - BonuS =.08 (P250,000- P200,000- B)

24. (d) - Bonus=.05 (P180,000-P150,000)

25. (c) - Bonus={[(P540,000 - P500,000)/P500,000]-.05) P120,000
26. (d) - Mike Total
Nick Joe
nterest on capital
P200,000 x .09 P18,000
P350,000 x .09 P31,500
P180,000 x .09 Pl6,200 P 65,700
25,000 15,000 35,000 75,000
Salary 5,000 5,000
Bonus .1(P150,000 - P100,000)
Residual
P4,300 x.25 L,075
P4,300 x .45 1,935
P4,500 x.30 1,290 4,300

Totals P44,075 P48,435 P57,490 PI50.000

72 Chapter l
27. (d)
PI2,000 (P52.o00
To equate P52,000 to P40.000 plus bonus, the bonus should amount to
- P40,000) to be indifferent under the two profit-sharing options. Since Cab would
receive the some bonus, the total bonus woUuld have to be P24,000 (PI2,00O x 2). Based
on the foregoing, the following equation should be developed:
Bonus 10% (Net Income - Salaries - Bonus)
P24,000 = 10 [NI - (P30,000 + P40,000) - P24,000
P24,000 = 10 [NI- P94,000)
P24,000=10 NI P9,400
P33,400 =10 NI
P33,400 /.10 =NI
NI = P334,000 (d)

or, alternatively:
Bonus = P52,000 - P40,000 = P12,000 x 2= P24,000
P24,00010 (N| - Salaries - Bonus)
P24,000=10 (NI P70,000 - P24,000)
P24,000 =,10 NI P9,400
P33,400 =10 NI
NI = P334,000

28. (b)
XX YY Total

XX First P200,000 x 10% P 20,000 P 20,000

Over P200,000: (500,000 -
P200,000) x 20% 60,000 60,000
YY and ZZ: 5% of remaining income
over P300,000: (P500,000- P20,000
P60,000 - P300,000) x 5% .. P 6,000 P 6,000 12,000
Balance: Allocate equally ... 136,000 136,000 136,000 408,000
P216,000 P142,000 P142,000 P500,000 (b)
29. (c)
The weighted-average capital is computed as follows:
January l- July 1 P420,000 x 6 months P2,520,000
July 1- August I P540,000 x 1month 540,000
August 1- December 31 P495,000 x 5 mnonths 2,475.000
P5,535,000
Divided by:. 12 months
Weighted-average capital P 461,250
Multiply by: Interest rate per year eee

10%
Amount of inteest per year P 46,125. (C)
Partnership 73

30. (a)
AA 88 CC Total
Interest on Average Capital:
AA: P360,000 x 10% P36,000
BB: P180,000 x 10% P18,000
CC: PI20,000 x 10% P12,000 P66.000
SaBaries ... 90,000 60,000 150,000
Balance or Residual: Equally (105,000) (105,000) (105,000) (315,000)
Increase (decrease) P21.000 PI8Z.000) PI3,000) P(99.000) (o)
31. (a) Total
AA DD
Salary P18.000 P18,000
Balance: Equaly. 1,500 P1,500 3,000
Income for year 20x6 oniy P19,500 P1,500 P21,000
income for year 20x5 (60:40) 2,400 L,600 4,000
Reported income for year 20x6 P21,900 P3,100 P25,000, (a)
32. (b)
DD EE Total
Interest on Average Capital:
DD: 20%%x P42,000".... P 8,400
EE: 20% x 30,000:.. P6,000 P 14,400
Balance: equally 52.800 52,800 105.600
P61.200 P58.800 P120.000 (b)
Average Capitals:
DD:
1/| 4/1:P40,000 x3 P120,000
4/1- 8/l:P35,000 x 4 140,000
8/1 - 1O/1:P45,000 x 2..... 90,000
10/1 -12/1 : P50,000 x 2 . . . . 100,000
12/1 - 12/31 : P54,000 x1 o0000ee0e
54,000
P504,000
Divided by: 12 months
Weighted - average capital P 42,00O
EE:
1/|-6/1: P25,000 x 5. P125,000
6/1-9/i: P35,000 x 3 105,000
9/1 - 10/1, : P32,000 x 32,000
10/1- 12/1 : P31,000 x 2... 62,000
12/1- 12/31 : P36,000 x l . . . . 36.000
P360,000
D0vided by: 12 months
Weighted -average capital. P30.000Q.
74 Chapter 1
33. (d) B8 Total
DD
P 8.000* P10,000 PI8,000
Solary Allowances ... 2,8004*
3,600"* 6,400
Interest on Average Capltl... 200) 400)
Balance (equally] . 200)
P10,600 P13,400 P24,000 (d)
Nef income of P24,000 would be computed as followWS: P50,000
Service Revenue ....
Less: Expenses: P17,000
Supplies 4,000
Utilities
Other miscellaneouS expenses
5,000 26,000
Net InCome eeee
P24,000

"DD : P800 x 10 = P8,000

*BB: Pl,000 x 10 = P10,000
Refer to No. 16 for discussion on salaries.
***Interest on Average Capital:
DD: P30,000 x 2= P 60,000
P26,000x 5 = 130,000
P30,000 x3= 90,000
P280,000
10-month Averoge Capital: P280,000/ 10 = P28,000 x 12% x 10/12 = P2,800
Annual Average Capital: P280,000/12 = P23,333 x12% = P2,800
BB: P30,000 x 4 = P120,000
P40,000 x 6 = 240,000
P360,000

10-month Average Capital:P360,000/ 10 =P36,000 x 12% x10/12 = P3,600

Annual Average Capital:P36,000 / 12 = P30,000 x 12% = P3,600

34 (d)
AA BB Total
Salaries P30,000 P30,000 P60.000
Bonus*
Interest on Average Capital** ........ 2,167 800 2,967
Balance (equally) (1,483) ( 1,484) ( 2.967)
P30,684 P29,316 P60.000 (d)
Refer to No. 16 for discussion on salaries.
No bonus, since the basis of such computatlon would be zero.
*interest on Average Capital:
AA: P30,000 x 3 = P 90,000
P20,000 x 2 = 40,000
P40,000 x 4 = 160,000
P35,000 xI= 35,000
P325,000
Partnership 75

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 x3 = P 60,000
P10,000 x 2 = 20,000
P 8,000 x 5 = 40,000
P120,000
10-Month Average Capital: P120,000 / to = P12,000 x 8% x 10/12 = P800
Annual Average Capifal: P120,000 / 12 = P10,000 x 8% =P800
35. (b)
The annuaiweighted average capital would be:
March 1: P50,000. x3 P150,000
June 1: P70,000 x 3.. 210,000
September 1: P65,000 X4...... 260,000
P620,000
Divided by: Months per annum eeee 12 months
P 51,667 (b)
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 verage copitol
wOuld be P62,000(P620,000 / 10 months)
36. (a)
The weighted average capital would be:
Ww:
January P100,000 x6 (Jan. - Jun.) P 600,000
July P88,000 x1 (July) . 88,000
AUgust P128,000 x 5 (Aug. - Dec.) .. 640,000
Pl,328,000
Divided by: Months per annum 12 months
R 110,667 (a)
it should be noted that the number of months in the computation includes the
curent month (before the date of investmenit or date of withcrawal since the counting
should stort 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 capitol for the
PI00,000).
RR:
January P120,000 x 5 (Jan, - May) P 600.000
June P105,000 x 5 (June - Oct.) 525,000
November P155,000 x 2 (Nov, - Dec.) 310.000
Pl,435,000
Divided by: Months per annum 12 months
P 112.583 (a)
Drawings are ignored as stated in the problem.
 Chapter I
76

37. (d) AA Tofal

HH MM
P250,000 P600,000
P150,000 P200,000
Capital, Januory 1, 20x5. 20,000
50,000
30,000
Add: Investment ... 62,060 60,760 176,000
Net InCome 53,180
P310,760 P826,000
P233,180 P282,060 50,000
Total 10,000 30,000
Less: Withdrawals 10,000
P223,180 P272,060. P280,760 P776,000 (d)
Capital, December 31, 20x5
MM AA Total
HH
P 12,000 P 54,000
P 24,000 P. 18,000
Salary.
Interest on Average Capital
HH: 12%x P162,500 19,500
MM: 12% xP205,833 24,700
29,400 73,600
AA:12% x P245,000... 19.360 48,400
9,680 19,360
Balance: 2:4:4 eeeeebee.

P53,180 P 62,060 P 60,760 P176,000

*Average Capitals:
HH: P 900.000
1/|-7/1:P150,000 x6. 540,000
7/| - 10/1 :P180,000 x 3
10/1- 12/31 : P1Z0,000 x3..... 510,000
P 1,950,000
12 months
Divided by: Months per annum
Weighted-average capital... P 162,500

MM:
1/1- 8/1:P200,000 x7 P 1,400,000
8/1 - 10/1: P220,0d0 x 2 440,000
10/1 - 12/31 : P210,000 x 3 630,000
P 2,470,000
Divided by: Months per onnum 12 months
Weighted-average capital. P 205,833

AA:
1/1-11/1: P250,00 x10 P 2,500,000
11/|- 12/31 :P220,000 x 2 440,000
P 2,940,000
Divided by: Months per annum 12 months

Weighted-average capltal.. 245,000

Partnership 77

38. (a)
Withdrawals P(2,600,000)
Investment 500,000
Share in net income (balancing figure) 900.000
Net (decrease) increase P(L,200,000)
Net income of the partnership: P90,000,30% P3,000,000 (a)
39. (C)
Bonus .15 (NI before salaries, interest and bonus)
.15 (NI after salaries, interest and bonus +salaries +interest +bonus)
B .15 (P32,000 + (P5,000 x 12) + (5% x P200,000) + B]
.15 [P32,000 + P60,000 + P10,000 + B)
.15 [P102,000 + B)
P15,300 +.15B
B .15 B P15,300
.85 B = P15,300
B= P15,300/.85
B= P18,000 (c)

40. (d)
A B C D Total

5% interest on capital P 2,500 Pi,250 P1,250 P1,000 P 6,000

Salaries 5,000 3,000 8,000
Balance (3:3:2:2) .. 5,000 5,000 3,333 3,333 16,666
Additional profif ............. 1,667 1,667
P12,500 P9,250 P4,583 P6,000 P32,333 (d)
A: P50,000x 5% = P2,500
B:P25,000 x 5% = 1,250
C:P25,000 x 5% = 1,250
D :P20,000 x5%= 1,000

Fist, detemine who amongthe partners willreceive a fixed amount, then, compute
for the residual amount, ie. for AAPI2,500 - P2,500 - P5,000 resulting to ashare in the
residual profifs of P5,000. The P5,000 share in residual proftis of AA represents 30%, therefore
capitalize P5,000 by 30% to arive at Pl6,666 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 gdditional próft, i.e. for partner DD, which in DD's case Pl,667 is needed to satisty
the minimum amount provided therein. Any partner who receive an amount equal.
or more than the minimum amount oþviouSly does not need an gdditional profit,

41. (a) AA BE CC Total

107% Interest on average Capita P47,250 P 23,865 P 16,235 P 87,350
Salaries .. 122,325 82,625 204,950
Balance: equally (139,308) (139,308) 99,308) (417,924)
Increase (decrease) P30,267 P(Il5,443) P(40,448) PU25.624) (a)
AA: 10% xP472,500 = P47,250
BB: 10% xP238,650 = P23,865
CC: 10% xPl62,350 = Pl6,235
 Chapter 1
78

42. (d) CC Total

AA BB
PI6,235 P 87,350
P47,250 P 23,865 204,950
10% Interest on average cap. 82,625
122,325 (125,624)
Salaries. (41,875)°(41,875)* (41,874)
Balance: Equally
P85.200 P(18,010) P56,985 Pi66,676 (d)

*Not rounded due to discrepancy of Pl.

43. (c) ZZ Total
XX YY
P120,000 PI20,000 P360,000
Copital, January 1, 20x5. P120,000
Add: Net Income P 30,000 P 45,000 P105,000
P30,000
Salaries 1,500 3,000
Bonus* 1,500 12,000
3,600 3,600 4,800
Balance: 30%: 30%: 40%
P 35,100 P 35,100 P49,800 P120,000
Share in Net Income ........sss.. 45,000 105,000
Less: drawings - personal .... 30,000 30,000
P 5,100 P 4,800 P 15,000
P 5,100
Capital, December 31, 20x5 . . . . P125,100 Pi25,100 P124,800 P375,000, (c)
*Bonus = 25% (NI Salaries - Bonus)
B=.25 (P120,000- P105,000 - B)
B= P3,750 -.25 B
1.25 B = P3,750
B= P3,000; P1,500 for XX and YY.

44. (b) PP AA Total

Salary ......o P28,000 P28,000
Balance (P84,000- P28,000), .5:3:2. P28,000 Pl6.800 11,200 56,000
Additional profit to PP (P21,000.- Pl6,800) ( 3,000) 4,200(1.200)
P25,000 P21,000 P38,00g P84,000 (b)
"Net Income Would be:

Fees P180,000
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 distoting 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 gdjustments of P4,200 should be
reflected to make it P84,000, and such adjustments will be shared aCcordingly by Co
and AA (5:2). Mathematically, the final results remain the some.
Partnership 79

45. (a)
Hunt Rob Turman Kelly Total
Salaries P20,000 P10,000 P30,000
Bonus 3,000 2,000 5,000
10% Interest on Average Cap. .. S,000 4,500 P 2,000 P 4,700 16,200
Balance (equallyl) ... 13450 13.450 13,450 13,450 53,800
PAl450 P29.950 P15,450 P18,150 Pi05.000, (a)
"Bonus = (3% + 2%) (Net Income - Bonus)
B= 5% (P105,000 - B)
B= P5,250- .05 B
1.05 8 = PS,250
B= P5,250 / 1.05
B=P5,000, therefore Hunt should receive P3,000 (P5,000 x 3/5), while Rotb will receive
P2,000 (P5,000 x 2/5).
46. (d)
Coecting the alocated net income:
RR PP Total
Comect allocation of net income, equally P 3,000 P3,000 P 6,000
AllocatBon of net income per books, equaly ... 9,750 9,750 19,500
Adjustnents increased (decreased) P(6.750) P6,750) P13,500 (d)
It should be noted that the P19,500 was erroneously recorded in the partnership
books: what we are simply looking for are adjustrments necessary to reflect the corect
allocation of net income.

The adjusted/coected net income for 20x5 would be:

Unadjusted Net Income (per books) .... P19,500
Add (deduct): adjustments:
Understatement of depreciation (2.100)
Overstatement of ending inventory (1400)
Adjusted net income P 6.000
47. (c)
20x5 20x6
Unadjusted net income Pl4,400 P13,600
Add (deduct): adjustments:
Prepaid expense - 20x5. 1,600 1,600)
Accrued expense - 20x5. (. 1,200) 1,200
Deferred income- 20x6... ( 1,400)
Accrued income- 2Ox6 . L000
Adjusted Net Income P14,800 P12,800
Total adjusted Net Income (P14,800 + P12,800) P27.600
Divided by,..
Average net inCome P13,800
Divided by (capitalized at) 20%
Aggregate capital P69.000, (c)