ACC 121C- Financial Accounting & Reporting II

DRILLS (Partnership Formation)

NAME: Score:
Professor: Vergil Joseph I. Literal, DBA, CPA Course/Yr/Sec: Date:

Drill 1 (12 marks)

Rem, Ram and Puck formed a commercial partnership on May 13, 2021. Rem invested P150,000
Ram, P180,000 and Puck, P270,000. Rem will be the managing partner. Ram will work in the store
half of the time while Puck will be a silent partner.
a. Loss is P429,000 and the partners have no written partnership agreement. (3 marks)

b. Loss is P600,000. The articles of partnership states that partners Rem, Ram and Puck agreed
that profits would be shared in the ratio of 40:25:35, respectively. The agreement did not
mention the manner of sharing of losses. (3 marks)

c. Profit is P920,000. The first P400,000 is shared on the basis of salary allowances, with Rem
receiving P280,000 and Ram receiving P120,000. The remainder is allocated on the basis of
their capital contributions. (3 marks)

d. Profit is P1,800,000. The first P750,000 is shared on the basis of their capital contributions;
and the next P360,000 is based on service, with Rem receiving P280,000 and Ram receiving
P80,000. Any remainder is shared equally. (3 marks)

Required:
Determine the partners’ share in the profit or loss for each of the situations above.
Solution:
Rem Ram Puck Total
a. Share in Loss: P429,000
(P429,000) x 15/60* P107,250
(P429,000) x 18/60* P128,700
(P429,000) x 27/60* P193,250
*this is actually P150,000/P600,000; P180,000/P600,000;
P270,000/P600,000. Zeros were dropped

b. Share in Loss- 40:25:35 P240,000 P150,000 P210,000 P600,000

c. Salaries P280,000 P120,000 P400,000

Balance based on capital contributions-
(P920,000 – P400,000 = P520,000)
Rem: P520,000 x 15/60 130,000
Ram: P520,000 x 18/60 156,000
Puck: P520,000 x 27/60 P234,000 520,000
Share in Profit P410,000 P276,000 P234,000 P920,000

d. Based on capital contribution-

Rem: P750,000 x 15/60 P187,500
Ram: P750,000 x 18/60 P225,000
Puck: P750,000 x 27/60 P337,500 P750,000
Based on service 280,000 80,000 360,000
Balance, equally-
(P1.8M – P750,000 – P360,000 = P690,000) 230,000 230,000 230,000 690,000
Share in Profit P697,500 P535,000 P567,500 P1,800,000

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 ACC 121C- Financial Accounting & Reporting II

Drill 2 (12 marks)

Beatrice, Otto and Garfiel are partners in Re:Zero Company, with average capital balances for the
year of P300,000, P400,000, and P200,000, respectively. They share the remaining profits and losses
in a 2:5:3 ratio, respectively, after each receives a P150,000 salary and 10% interest on his/her
average capital balances.

Required:
Prepare the journal entries to close the income summary, assuming-
1. Profit of P740,000 (4 marks)
2. Profit of P140,000 (4 marks)
3. Loss of P60,000 (4marks)

Solution:
1.
Beatrice Otto Garfiel Total
Interest on ave. capital bal. @ 10%
Beatrice: P300,000 x 10% P30,000
Otto: P400,000 x 10% P40,000
Garfiel: P200,000 x 10% 20,000 P90,000
Salary allowances 150,000 150,000 150,000 450,000
Balance-2:5:3 (P740T – P90T – P450T = P200,000)
Beatrice: P200,000 x 2/10 40,000
Otto: P200,000 x 5/10 100,000
Garfiel: P200,000 x 3/10 60,000 200,000
Share in Profit P220,000 P290,000 P230,000 P740,000

Income Summary 740,000

Beatrice, Drawing 220,000
Otto, Drawing 290,000
Garfiel, Drawing 230,000
To record division of profits.

2.
Beatrice Otto Garfiel Total
Interest on ave. capital bal. @ 10%
Beatrice: P300,000 x 10% P30,000
Otto: P400,000 x 10% P40,000
Garfiel: P200,000 x 10% 20,000 P90,000
Salary allowances 150,000 150,000 150,000 450,000
Balance-2:5:3 [P140T – P90T – P450T = (P400,000)]
Beatrice: (P400,000) x 2/10 (80,000)
Otto: (P400,000) x 5/10 (200,000)
Garfiel: (P400,000) x 3/10 (120,000) (400,000)
Share in Profit (Loss) P100,000 (P10,000) P50,000 P140,000

Income Summary 140,000

Otto, Drawing 10,000
Beatrice, Drawing 100,000
Garfiel, Drawing 50,000
To record division of profits.

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 ACC 121C- Financial Accounting & Reporting II

3.
Beatrice Otto Garfiel Total
Interest on ave. capital bal. @ 10%
Beatrice: P300,000 x 10% P30,000
Otto: P400,000 x 10% P40,000
Garfiel: P200,000 x 10% 20,000 P90,000
Salary allowances 150,000 150,000 150,000 450,000
Balance-2:5:3 [(P60T) – P90T – P450T = (P600,000)]
Beatrice: (P600,000) x 2/10 (120,000)
Otto: (P600,000) x 5/10 (300,000)
Garfiel: (P600,000) x 3/10 (180,000) (600,000)
Share in Profit (Loss) P60,000 (P110,000) (P10,000) (P60,000)

Otto, Drawing 110,000

Garfiel, Drawing 10,000
Beatrice, Drawing 60,000
Income Summary 60,000
To record division of losses.

Drill 3 (24 marks)

A summary of changes in the capital accounts of Satella, Echidna and Minerva Partnership for 2021,
before closing, follows:
Satella Echidna Minerva Total
Balance, Jan. 1 P80,000 P80,000 P90,000 P250,000
Investment, Apr. 1 20,000 20,000
Withdrawal, May 1 (15,000) (15,000)
Withdrawal, July 1 (10,000) (10,000)
Withdrawal, Sep.1 (30,000) (30,000)
P90,000 P65,000 P60,000 P215,000

Required:
Prepare the Profit or Loss Distribution Schedule under each of the following independent
assumptions:
1. Profit is P48,000 and profit is divided on the basis of average capital balances. (6 marks)
2. Profit is P50,000. Satella receives a bonus of 10% of profit for managing the business, and
the balance to be divided on the basis of beginning capital balances. (6 marks)
3. Loss is P35,000, each partner is allowed 10% interest on beginning capital balances, and the
balance to be divided equally. (6 marks)
4. Profit is P70,000. Satella to receive a salary allowance of P13,000 and each partner is
allowed 5% interest based on average capital balances. Satella is also entitled to a bonus
based on 20% after salaries, interest and bonus. Any remainder will be allocated on a 2:4:4
ratio. (6 marks)

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 ACC 121C- Financial Accounting & Reporting II

Solution:
Satella, Capital
Date Capital Average
Portion of the Year
Account Capital
Unchanged
Balances Balances
Jan. 1 P80,000 x 3/12 = P20,000
Apr. 1 100,000 x 3/12 = 25,000
July 1 90,000 x 6/12 = 45,000
Average Capital P90,000

Echidna, Capital
Jan. 1 85,000 x 4/12 = P26,667
May 1 65,000 x 8/12 = 43,333
P70,000

Minerva, Capital
Jan. 1 P90,000 x 8/12 = P60,000
Sept. 1 60,000 X 4/12 = 20,000
Average Capital P80,000

Total Average Capital Balances P240,000

1.
Satella Echidna Minerva Total
Based on ave. capital balances- 9:7:8*
Satella: P48,000 x 9/24 P18,000
Echidna: P48,000 x 7/24 P14,000
Minerva: P48,000 x 8/24 P16,000
Share in Profit P18,000 P14,000 P16,000 P48,000
*this comes from P90,000, P70,000 and P80,000 computed ave.
capital balances of partners. See computation above.

2.
Satella Echidna Minerva Total
Bonus (P50,000 x 10%) P5,000 P5,000
Balance based on beg. bal- 8:8:9 (P50T – P5T = P45T):
Satella: P45,000 x 8/25 14,400
Echidna: P45,000 x 825 P14,400
Minerva: P45,000 x 8/25 P16,200 45,000
Share in Profit P19,400 P14,400 P16,200 P50,000
*this comes from P80,000, P80,000 and P90,000 beginning
capital balances of partners

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 ACC 121C- Financial Accounting & Reporting II

3.
Satella Echidna Minerva Total
Interest (10% based on beg. balance):
Satella: P80,000 x 10% P8,000
Echidna: P80,000 x 10% P8,000
Minerva: P90,000 x 10% P9,000 P25,000
Balance, equally [(P35,000) – P25,000 = (P60,000)] (20,000) (20,000) (20,000) (60,000)
Share in Loss (P12,000) (P12,000) (P11,000) (P35,000)

4.
Satella Echidna Minerva Total
Salary allowance P13,000 P13,000
Interest based on average cap. Balance @ 10%-
Satella: P90,000 x 10% 9,000
Echidna: P70,000 x 10% P7,000
Minerva: P80,000 x 10% P8,000 24,000
Bonus* 5,500 5,500
Balance- 2:4:4 (P70T – P13T – P24T – P5.5T = P27.5T)
Satella: P27,500 x 2/10 5,500
Echidna: P27,500 x 4/10 11,000
Minerva: P27,500 x 4/10 11,000 27,500
Share in Profit P33,000 P18,000 P19,000 P70,000

B = 20% (P – S – I – B)
B = .20 (P70,000 – P13,000 – P24,000 - B)
B = P14,000 – P2,600 – P4,800 – .20B
1.20B = P6,600
1.20 1.20
B = P5,500

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