DRILL 2

Partnership Operation

Problem 1
DD and EE was organized and began operations on March 01, 2006. On that date, DD invested P
300,000 and EE invested land and building with current fair value of P 160,000 and P 200,000,
respectively. EE also invested P 120,000 in the partnership on November 01, 2006 because of its
shortage of cash. The partnership contract includes the following remuneration plan:

DD EE
Annual salary P 36,000 P 48,000
Annual interest on average capital account balances 10% 10%
Remainder 60% 40%
The annual salary was to be withdrawn by each partner in 12 monthly installments. During the fiscal year
ended, February 28, 2007, DD and EE had net sales of P 1,000,000, cost of goods sold of P 560,000,
and total operating expenses of P 200,000 (excluding partners’ salaries and interest on average capital
account balances).
Each partner made monthly cash drawings in accordance with partnership contract.

Requirement:
1. Share in net income of each partner for the fiscal year ended February 28, 2007?
2. The capital balance of each partner on March 01, 2007?

Problem 2
On January 02, 2010, JT Partnership begins its operations with the following investments:
Joe 80,000
Tom 40,000
According to the partnership agreement, all profits will be distributed as follows:
 Joe will be allowed a monthly salary of P 8,000 with P 4,000 assigned to Tom.
 The partners will be allowed with interest equal to 10% of the capital balances as of the first day
of the year.
 Joe will be allowed a bonus of 10% of the net income after bonus.
 The remainder will be divided on the basis of the beginning capital for the first year and equally
for the second year.
 Each partner is allowed to withdraw up to P 4,000 a year.
Partnership’s operation results in a net loss of P 6,000 in 2010 and a profit of P 22,000 in 2011. Each
partner withdraws the maximum amount each year.

1. Share in net loss of each partner for the year 2010?

2. Share in net income of each partner for the year 2011?
3. What is the capital balance of the partners on December 31, 2011?