Multiple Choice Problems

1. c
Capital, Beg 45,000
Additional Investment 50,000
Withdrawal (800 x 12) (96,000)
Net income (?) 31,000
Capital, Ending P 30,000

2. b
A B Total
Salaries 20,000 25,000 45,000
Bonus 8,000 0 8,000
Interest (20% x average capital) 8,000 10,000 18,000
Balance - equally 8,500 8,500 17,000
Total 44,500 88,000

*Bonus= 10% (NI - B)

B= .10 (8,800 - B)
B= 8,800 - .10B
1.10B= 8,800
B= 8,000

3. b The net income of P80,000 is allocated to Blue and Green in the following manner:
Blue Green Net Income
P 80,000
Salary allowances P 55,000 P45,000 (100,000)
Remainder P (20,000)
Allocation of the negative
remainder in the
60:40 ratio (12,000) (8,000) 20,000
Allocation of net income P 43,000 P37,000 P -0-

4. a
A B Total
Salaries 30,000 P 45,000 P 75,000
Bonus* 3,600 3,600
Interest: 10% x Ave. capital 5,000 6,500 11,500
1:3 4,625 18,500
Total P 43,225 P 108,600

*Bonus = 12% (NI – S – B)

B = .12 (108,600 – 75,000 – B)
B = .12 (33,600 – B)
B = 4,032 - .12B
1.12B = 4,032
B = 3,600

5. a
A B Total
Salaries P 40,000 P 45,000 P 85,000
Bonus (refer to Note) 0
Interest on average capital (15%) 6,000 9,000 15,000
 Balance (2:1) (32,000) (16,000) (48,000)
Total P 14,000 P 38,000 P 52,000
Note:
1. The basis of the bonus is negative, so there’s no bonus at all.
2. It should be noted that the order of priority is of no significance when it comes to
allocation of net income. When there is a resulting residual loss, wherein the residual loss
should be allocated based on their agreement. In this case, there is no such agreement,
so the allocation would still be to satisfy completely all provisions of the profit and loss
agreement and use the profit and loss ratios to absorb any deficiency or additional loss
caused by such action.

6. d
A B C Total
Salaries P 40,000 P 40,000 P 80,000
Bonus* P 1,000 1,000
3:4:3 __3,000 4,000 _3,000 10,000
Total P 43,000 P 4,000 P 91,000

*Bonus = 10% (NI – S – B)

B = .10 (91,000 – 80,000 – B)
B = .10 (11,000 – B)
B = 1,100 - .10B
1.10B = 1,100
B = 1,000

7. c
A B Total
Salaries P 41,600 P 38,400 P 80,000
Bonus (refer to Note) 0
Interest on average capital (10%) 2,000 3,500 5,500
Balance (1:2) (16,500) (49,500)
Total P 27,100 P 52,000
Note:
1. The basis of the bonus is negative, so there’s no bonus at all.
2. It should be noted that the order of priority is of no significance when it comes to
allocation of net income. When there is a resulting residual loss, wherein the residual loss
should be allocated based on their agreement. In this case, there is no such agreement,
so the allocation would still be to satisfy completely all provisions of the profit and loss
agreement and use the profit and loss ratios to absorb any deficiency or additional loss
caused by such action.

8. b
2/1/20x4: P20,000 x 4 = P 80,000
6/1/20x4: P40,000 x 3 = 120,000
9/1/20x4: P30,000 x 4 = 120,000
P 320,000 / 12 months = P26,667
Note: Annual is 12 months.

9. c
Mack Ruben Total
Salaries P 90,000 P 60,000 P 150,000
6:4 _30,000 __20,000 50,000
Total P120,000 P 80,000 P 200,000
10. c – Robbie, P50,000 x 90/150 = P30,000; Ruben, P50,000 x 60/150 = P20,000
11. c - B = .05(P180,000 - P150,000)
12. d - B = {[(P540,000 - P500,000)/P500,000] - .05} P120,000
13. d - (P60,000 - P50,000)(.60) + (P80,000 - P60,000)(.70)
14. b - (P300,000 - P200,000)(.75) + (P380,000 - P300,000)(.60)
15. c - (P300,000 - P100,000)(.35) + (P450,000 - P300,000)(.55)
16. d - (P120,000 - P50,000)(.40)
17. a - (P600,000 - P350,000)(.40 - .30)

18. b
XX YY ZZ Total
Salary 60,000 48,000 36,000 144,000
Interest: 10% x average capital 7,500 48,750
Balance: equally 5,000 5,000 5,000 15,000
207,750

X: P100,000 x 6 = P600,000
P160,000 x 6 = 960,000 P1,560,000 / 12 = P 130,000

Y (same with beginning since no additional

investments or withdrawals were made) 150,000

Z: P225,000 x 9 = P2,025,000
P155,000 x 3 = 465,000 P2,490,000/12 = 207,500
P 487,500 x 10% = P48,750

19. d - ASSIGNMENT OF INCOME

ARTHUR BAXTER CARTWRIGHT TOTAL
Interest—10% of
beginning capital ............................. P 6,000 P 8,000 P10,000 P24,000
Salary ....................................................... 20,000 20,000
Allocation of remaining income
(P6,000 divided on a 3:3:4 basis) ........... 1,800 1,800 2,400 6,000
Totals ............................................ P 7,800 P29,800 P12,400 P50,000

STATEMENT OF CAPITAL
ARTHUR BAXTER CARTWRIGHT TOTAL
Beginning capital ..................................... P60,000 P80,000 P100,000 P240,000
Net income (above) ................................ 7,800 29,800 12,400 50,000
Drawings (given) ....................................... (5,000) (5,000) (5,000) (15,000)
Ending capital ........................................... P62,800 P104,800 P107,400 P275,000

20. a
ASSIGNMENT OF INCOME—YEAR ONE
WINSTON DURHAM SALEM TOTAL
Interest—10% of
beginning capital ............................. P11,000 P 8,000 P11,000 P30,000
Salary ....................................................... 20,000 -0- 10,000 30,000
Allocation of remaining loss
(P80,000 divided on a 5:2:3 basis) .......... (40,000) (16,000) (24,000) (80,000)
Totals ............................................ P(9,000) P (8,000) P (3,000) P (20,000)

STATEMENT OF CAPITAL—YEAR ONE

WINSTON DURHAM SALEM TOTAL
 Beginning capital ..................................... P110,000 P80,000 P110,000 P300,000
Net loss (above) ....................................... (9,000) (8,000) (3,000) (20,000)
Drawings (given) ....................................... (10,000) (10,000) (10,000) (30,000)
Ending capital ................................... P 91,000 P62,000 P 97,000 P250,000

ASSIGNMENT OF INCOME—YEAR TWO

WINSTON DURHAM SALEM TOTAL
Interest—10% of
beginning capital ............................. P 9,100 P 6,200 P 9,700 P25,000
Salary ....................................................... 20,000 -0- 10,000 30,000
Allocation of remaining loss
(P15,000 divided on a 5:2:3 basis) ......... (7,500) (3,000) (4,500) (15,000)
Totals ............................................ P21,600 P3,200 P15,200 P40,000

STATEMENT OF CAPITAL—YEAR TWO

WINSTON DURHAM SALEM TOTAL
Beginning capital (above) ..................... P 91,000 P62,000 P 97,000 P250,000
Net income (above) ................................ 21,600 3,200 15,200 40,000
Drawings (given) ....................................... (10,000) (10,000) (10,000) (30,000)
Ending capital ................................... P102,600 P55,200 P102,200 P260,000
21. a
Capital, Beginning
Additional investment 25,000
Withdrawals (130,000)
Net income 45,000 / 30% = P 150,000
Net Decrease (60,000)

22. a
F G H Total
10% interest a Average capital 12,000 6,000 4,000 22,000
Salaries 30,000 20,000 50,000
Equally (35,000) ________ _________ (105,000)
7,000 (33,000)

23. d, P66,200; E, P34,100; F, P29,700

D E F Total
Salaries 25,000 20,000 25,000 70,000
Bonus on income (10% x P130,000) 13,000 13,000
Remainder (6:3:1) 28,200 14,100 _4,700 47,000
66,200 34,100 29,700 130,000
24. a
C W N Total
Capital, 1/1/x4 100,000 150,000 200,000 450,000
Net Income – 20x4 29,000 63,000 58,000 150,000
Withdrawal – personal (12,000) (12,000) (12,000) (36,000)
Capital, 12/31/x4 117,000 20,100 24,600 564,000

Net income – 20x4 C W N Total

10% interest on beginning capital 10,000 15,000 20,000 45,000
Salary - 10,000 - 10,000
20% : 40% : 40% 19,000 38,000 38,000 95,000
29,000 63,000 58,000 150,000

Capital, 1/1/x5 117,000 201,000 246,000 564,000

Net income 34,420 75,540 70,040 180,000
Withdrawals – personal (12,000) (12,000) (12,000) (36,000)
Capital, 12/31/x5 139,420 264,540 304,040 708,000

Net income – 20x5 117,000 201,000 246,000 564,000

10% interest a beginning capital 34,420 75,540 70,040 180,000
Salary (12,000) (12,000) (12,000) (36,000)
20% : 40% : 40% 139,420 264,540 304,040 708,000

25. d - refer to No.24

26. b - refer to No.24

27. c - refer to No.24

28. b
Y E I Total
Capital, 1/1/YearI 143,000 104,000 143,000 390,000
Net income (loss) (11,700) (10,400) (3,900) (26,000)
Withdrawals – personal (13,000) (13,000) (13,000) (39,000)
Capital, 12/31/ Year I 118,300 80,600 126,100 325,000

Year I Net loss

Salary 26,000 - 13,000 3,900
Interest – 10% x beginning capital 14,300 10,400 14,300 3,900
5:2:3 (52,000) (20,800) (31,200) (10,400)
Total (11,700) (10,400) (3,900) (2,600)

Capital, 1/1/Year2 118,300 80,600 126,100 325,000

Net income (loss) 28,080 76,700 19,760 52,000
Withdrawals – personal (13,000) (13,000) (13,000) (3,900)
Capital, 12/31/ Year 2 133,380 144,300 132,860 338,000

Year 2 Net loss 26,000 - 13,000 3,900

Salary 11,830 8,060 12,610 32,500
Interest – 10% x beginning capital (9,750) (3,900) (5,850) (19,500)
 5:2:3 28,080 76,700 19,750 52,000

29. d - refer to No.28

30. c - refer to No.28
31. a - refer to No.28

32. d
Because both partners have equal capital balances, NN's capital has to be increased to
equal that of MM's. Since MM's capital balance is P60,000 and NN's is P20,000, an additional
P40,000 has to be credited to NN's capital to make it equal MM's capital. This additional
amount credited to NN's capital is the goodwill that NN is bringing to the partnership.

33. a - MM's share of the net income of P25,000 is 60%, or P15,000.

34. b
2/1/20x4: P20,000 x 4 = P 80,000
6/1/20x4: P40,000 x 3 = 120,000
9/1/20x4: P30,000 x 4 = 120,000
P 320,000 / 12 months = P26,667

Note: Annual - 12 months.

35. b
Interest: (P500,000 x 10%) = P50,000
Salary: (P10,000 + P20,000) = P30,000
Bonus: Condition not met = P0

Total allocations = P80,000 and over-allocations =

P80,000 - P60,000 = P20,000

36. b
Bloom:
Interest allocation: P20,000
Salary allocation: P10,000

Carnes:
Interest allocation: P30,000
Salary allocation: P20,000

There is a total of P80,000 for positive allocations. To bring them down to a P20,000 loss, a
residual adjustment of (P100,000) is needed which is allocated (P40,000) to Bloom and
(P60,000) to Carnes. After these amounts are assigned to the partners, each partner’s
capital account will be reduced by a net P10,000.

37. c
J P B Total
Salaries P 50,000 P 60,000 P 30,000 P140,000
Bonus* 16,000 8,000 16,000 40,000
Remainder (3:4:3) (6,000) (8,000) (6,000) (20,000)
Total P 60,000 P 60,000 P 40,000 P160,000
*since problem is silent it should be based on net income before any deductions.

38. c
 A P B Total
Salaries P 30,000 P 10,000 P 40,000 P 80,000
Bonus (10% of average capital) 5,000 3,000 2,000 10,000
Remainder (4:4:2) _ 24,000 __24,000 _12,000 60,000
Total P 59,000 P 37,000 P 54,000 P150,000

39. c
A P B Total
Salaries P 30,000 P 10,000 P 40,000 P 80,000
Bonus (10% of average capital) 5,000 3,000 2,000 10,000
Remainder (4:4:2) (16,000) (16,000) ( 8,000) (40,000)
Total P 19,000 (P3,000) P 34,000 P 50,000

40. b
Total agreed capital = total contributed capital*
(P200,000 + P100,000 + P100,000) P 400,000
Multiplied by: Capital interests of May _____35%
P 140,000
*No goodwill or asset adjustment
41 d
P60,000, salary = P25,000, salary + [.20 (NI – B)]
P60,000 = P25,000 + P35,000, bonus
Therefore, bonus would be P35,000
B = .20 (NI – B)
P35,000 = . 20 (NI – P35,000)
P35,000 = .20NI – P7,000
P35,000 + P7,000 = .20NI
P42,000 = .20NI
NI = P210,000

42. c - P30,000 + P40,000 = P70,000, annual salary to allocate net income.

43. b
[P70,000 – (P40,000 + P10,000 +P2,000)]
- Salary to partners is an allocation of net income (they are not expenses)
- Partner’s withdrawals are deduction to capital accounts.

44. c
Bonus = 20% (NI before deduction on salaries, interests and bonus)
B = 20% (NI after deduction of salaries, interests and bonus + salaries + interests + bonus)
B = 20% [P46,750 + (P1,000 x 12 months) + (.05 x P25,000) + B]
B = .20 [P60,000 + B]
B = P12,000 + .20B
1.20 B = P12,000
B = P15,000

45. a
Allocation/Distribution of Net Income
DD EE Total
Salaries 18,000 24,000 42,000
Interest (10% of Ave. Cap.) 15,000 20,000 35,000
Balance/Remainder (60%:40%) 25,800 17,200 __43,000
Share in Net Income 58,800 61,200 120,000*
*P 500,000 – P100,000 (excluding salaries and int. – P100,000
 Statement of Partners’ Capital
DD EE Total
Capital, March 1, 2011 150,000 180,000 330,000
Additional Investments 60,000 60,000
Net Income 58,800 61,200 1240,000
Personal Withdrawals (18,000) (24,000) ( 42,000)
Capital, March 1, 2012 190,800 277,200 468,000

Allocation/Distribution of Net Income

DD EE Total
Interest on Average Capital – 10% P 15,000 P20,000 P 35,000
Balance/Remainder – 60%:40% 51,000 34,000 85,000
Share in Net Income P 66,000 P54,000 P 120,000

Statement of Partners’ Capital

DD EE
Capital balance, 2/28/20x4 P 150,000 P 180,000
Additional Investment 60,000
Share in Net Income 66,000 54,000
Salaries 18,000 24,000
Salary withdrawals ( 18,000) ( 24,000)
Capital balance, March 1, 20x5 P 216,000 P 294,000

46. a – refer to No. 45

47. b – refer to No. 45

48. c – refer to No. 45

49. a
NN OO Total
Salary allowances P180,000 P - P180,000
Balance/Remainder: Equally 15,000 15,000 30,000
Net Income for 20x5 P195,000 P 15,000 P 210,000
Adjustment of net income for 20x4 – 60% : 40% 24,000 16,000 40,000
Total P219,000 P31,000 P250,000
Note: Any adjustments related to a particular year, the profit and loss ratio existing on that year
should be used as a basis for allocating the required adjustments.

50. b
Old P & L Interests Acquired New P & L
Abe 70% 59.50%
Bert 20% 85% 17.00%
Carl 10% 8.50%
Dave 15% 15.00%
Total 100% 100% 100%

51. b
Unadjusted net income, 20x5 P 15,000
Add (deduct): adjustments -
Accrued expense – 20x5 (1,050)
 Accrued income – 20x5 875
Prepaid expense – 20x4 (1,400)
Deferred or unearned income – 20x4 __1,225
Adjusted net income, 20x5 P 14,650
Multiplied by: P& L of Dave _____17%
Share in net income – 20x5 P2,490.50