Partnership Operations

Jerico Almario
AC 303

QUIZ 1

Multiple Choice Questions

1. Which of the following interest component calculation bases is least susceptible to

manipulation when allocating when allocation profit and losses to partners?
a. Beginning capital account balance
b. Average of beginning and ending capital account balances
c. Weighted average capital account balance
d. Ending capital account balance

2. Which component of the partnership profit and loss allocation compensates partners for
the routine time and effort expensed in the business?
a. Interest on capital balance
b. Bonus
c. Salary
d. Residual interest

3. Which component of the partnership profit and loss allocation is most commonly offered to
the partner who manages the business?
a. Interest on capital balance
b. Bonus
c. Salary
d. Residual interest

4. Which of the following statement is true with regard to partnership residual profit and loss
ratio?
a. A partner’s residual profit must be the same as the loss ratio
b. Residual profit and loss ratios can be changed by agreement
c. The residual profit and loss must always be applied
d. All of the above are true statement

5. Which of the following should be done when the partnership profit and loss ratios are
changed?
 a. The book and market value of assets and liabilities should be evaluated
b. The capital accounts should be modified to reflect the new profit and loss ratios
c. The creditors should be informed that the profit and loss ratios have been changed
d. The partners must draft new articles of partnership

6. A ad B are partners who share profit and losses in the ratio of 60%:40% respectively. A
salary is P60,000 and P30,000 for B. The partners are also paid interest of average capital
balances. In 2019, A received P30,000 of interest and B of P12,000. The profit and losses
allocation is determined after deductions or the salary and interest payments If B’ share in
the residual income was P60,000 in 2019, what was the total partnership income?
a. P192,000
b. P345,000
c. P282,000
d. P387,000

SOLUTION:
A B Partnership
Salaries P 60,000 P 30,000 P 90,000
Interest 30,000 12,000 42,000
Balance Income 60,000 150,000
(60,000/40% ratio of B)
Total Partnership Income P 282,000

7. The Partnership has the following accounting amounts:

Sales P70, 000
Cost of goods sold 40,000
Operating expenses 10,000
Salary allocations to partners 13,000
Interest paid to banks 2,000
Partner’s withdrawals 8,000

The partnership net income (loss) is:

a. P20,000
b. P18,000
c. P5,000
d. (P3,000)
 SOLUTION:
Sales P70, 000
Less: Cost of goods sold 40, 000
Gross Margin 30, 000
Less: Operating expenses 10, 000
Amount 20, 000
Less: Interest paid to banks 2,000
Net Income P18, 000

8. Lancelot is trying to decide whether to accept a salary of P40, 000 or a salary of P25, 000
plus a bonus of 10% of net income after salary and bonus as a means of allocating profit
among the partners. Salaries traceable to the other partners are estimated to be P100, 000.
What amount of income would be necessary so that Lancelot would consider the choice to
be equal?
a. P165,000
b. P290,000
c. P265,000
d. P305,000

9. Peter and Ronald are partners. They have shared profits and losses 65/35 for a number 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 the change in the profit and loss ratio, the land sold for
P450,000. How much of the gain is allocated to peter?
a. P157,500
b. P197,500
c. P227,500
d. P287,500
SOLUTION:

10. Jennifer and Robert are partners who are changing their profit and loss ratios from 60/40 to
45/55. At the date of the change, the partner chooses to revalue the assets with market
value different from book value. One asset revalued is land with a book value of P50,000
and a market value of P120,000. Two years later 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 account at
the date the land is sold?
a. P32,000
b. P44,000
c. P60,000
d. 82,500

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