University of Cebu- Banilad Campus

College of Business and Accountancy

Banilad, Cebu City

Quiz 1: Partnership Operation

Name: ________________________________________Schedule: ________________Course & Year: ___________ Date: ________

Test I: Multiple Choice: Write the capital letter of the best answer beside each number.

1. The partnership contract Rodel and Kris Partnership provides “ net income or losses are to be distributed in the ratio of
partner’s capital account balances.” The appropriate interpretation of this provision is that the net income or losses should be
distributed in:
a. The ratio of beginning capital account balances.
b. The ratio of average capital account balances.
c. The ratio of capital account balances (before distribution of net income or loss).
d. One of the foregoing methods to be specified by partners Rodel and Kris.

2. Salaries to partners of a partnership typically should be accounted for as:

a. A device for sharing net income.
b. An operating expense of the partnership.
c. Drawings by partners from the partnership.
d. Reduction of the partner’s capital account balances.

3. The partnership agreement for the partnership of Brisbane and Ric provided for salary allowances of P450,000 to Brisbane
and P350,000 to Ric, and the residual profit was allocated equally. During 2007, Brisbane and Ric each withdraw cash equal
to 80 percent of their salary allowances. If during 2008, the partnership had profit in excess of P1,000,000 without regard to
salary allowances and withdrawals, Brisbane’s equity in the partnership would
a. Increase more than Ric’s c. Increase the same as Ric’s
b. Decrease more than Ric’s d. Decrease the same as Ric’s

4. Partners Lovelle and Carlo share income and loss equally after each has been credited in all circumstances with annual salary
allowances of P15,000 and P12,000, respectively. Under this arrangement, Lovelle will benefit by P3,000 more than Carlo in
which of the following circumstances?
a. Only is the partnership has earnings of P27,000 or more for the year.
b. Only if the partnership does not incur a loss for the year.
c. In all earnings or loss situations.
d. Only if the partnership has earnings of at least P3,000 for the year.

5. Partners Cora and Zon share income in a 2:1 ratio, respectively. Each partner receives an annual salary allowance of P6,000.
If the salaries are recorded in the accounts of the partnership as an expense rather than treated as an allocation of income, the
total amount allocated to each partner for salaries and net income would be
a. Less for both Cora and Zon. c. More for Cora and less for Zon
b. Unchanged for both Cora and Zon. d. More for Zon and less for Cora.

Test II: Problem Solving: Supply the requirements of each problem. Write your solutions, if necessary.

A. D and E entered into partnership on March 1, 2016, investing P62,500 and P37,500, respectively. It was agreed that D, the
managing partner was to receive a salary of P15,000 per year and also 10% of the net profit after adjustment for the salary,
the balance of the profit was to be divided in the ratio of original capitals. On December 31, 2016, account balances were as
follows:
Cash P35,000 Payable P30,000
Receivable 33,500 Sales 116,500
Fixtures 22,500 D, capital 62,500
Purchases 98,000 E, capital 37,500
Returns and allowances 2,500
Operating expenses 30,000
D, drawing 10,000
E, drawing 15,000 _______
P246,500 P246,500

Inventories on December 31, 2016, were: merchandise, P36,500; supplies, P1,250. Prepaid taxes and insurance were P475
and accrued liabilities totaled P775. Depreciation on fixtures is to be computed at 20% per year.

Required:
a) How much is the net income of the partnership for 2006? ____________________
b) How much is the share of D and E on the above computed net income: __________________
c) How much is the capital balance of partner D and E as of Dec. 31, 2006. __________________

B. Partners E, F and G have capital balances in a partnership of P70,000, P30,000, and P900,000, respectively. The losses for
the year are P120,000.
Required:
a) What will be the capital balance of F if the three partners share profits and losses at 2:2:6 ratio? ______________
 University of Cebu- Banilad Campus
College of Business and Accountancy
Banilad, Cebu City
b) What will F’s capital be if E gets a P140,000 salary, F gets a P50,000 salary, and G gets a 10% interest on her
beginning capital balance, with the remaining being divided at a 1:1:2 ratio? ________________

C. The partnership agreement of K and L provides that interest at 12% per year is to be credited to each partner on the basis of
weighted average capital balances. A summary of L’s capital account for the period ending December 31, 2013, is as
follows:
Beginning investment, January 1, 2013 P280,000
Additional investment, July 1, 2013 80,000
Withdrawal, September, 1, 2013 (30,000)
Ending balance, December 31, 2013 330,000
The amount of interest that should be credited to L’s capital account for 2013 is: __________________

D. O and M formed the KERN Partnership several years ago. Capital account balances on December 31, 2013, after closing
were as follows:
O P500,000
M 280,000
The partnership agreement provides O with an annual salary of P10,000 plus a bonus of 5% of partnership net income for
managing the business. M is provided an annual salary of P15,000 with no bonus. The remainder is shared evenly.
Partnership net income for 2013 was P30,000. O and M each invested additional P5,000 during the year to finance a special
purchase. Year- end drawing account balances were P15,000 for O, and P10,000 for M. The capital balances of O and M on
January 1, 2013 were: __________________ ___________________

E. A, B and C are partners sharing profit on a 7:2:1 ratio, respectively. On January 1, 2013, Lexus was admitted into the
partnership with a 15% share in profits. The old partners continue to participate in the profits in their original ratios. For the
year 2013, the partnership showed profits of P15,000. However, it was discovered that the following items were omitted
from the firm’s books:
Unrecorded at Year- end 2012 2013
Accrued expense P1,050
Accrued income 875
Prepaid expense P1,400
Unearned income 1,225
The share of B in the 2013 profits should be:_____________________

F. G and H formed a partnership on January 2, 2013, and agreed to share income 90% and 10%, respectively. G contributed a
capital of P25,000. H contributed no capital but has a specialized expertise and manages the firm full- time. There were no
withdrawals during the year. The partnership agreement provides for the following:
o Capital accounts are to be credited annually with interest at 5% of the beginning capital.
o H is to be paid a salary of P1,000 a month.
o H is to receive a bonus of 20% of income calculated before deducting his salary, bonus and interest on
both capital accounts.
The partnership’s 2013 income statement follows:
Revenues P96,450
Expenses (including salary, interest and bonus) 49,700
Net Income P46,750
What is H’s 2013 bonus?_________________

G. Partners R and S share profits 3:1 after annual salary allowances of P40,000 and P60,000, respectively; however, if profits
are not adequate to meet the salary allowances, the entire profit is to be divided in the salary ratio. Profits of P90,000 were
reported for the year 2003. In 2004, it is ascertained that in calculating net income for the year ended December 31, 2003,
depreciation was overstate by P36,000 and ending inventory was overstated by P8,000. The adjustment to the capital of R
and S amounted to: _____________________________ ___________________________

H. Roxanne Alvarez is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a bonus of 10% of the
net income after salaries and bonus as a means of allocating profit among the parties. Salaries traceable to the other partners
are estimated to be P100,000. What amount of income would be necessary so that Roxanne Alvarez would consider to be
equal? ___________________

I. Ric and Jason shares net income or losses 40% and 60%, respectively. On January 2, 2007, Gen was admitted to the Ric-
Gen Jason Partnership by the investment of the net assets of her highly profitable single proprietorship. The partners agreed
to the following current fair values of the identifiable net assets of Gen’s single proprietorship; Current assets P70,000, Plant
assets P230,000, Liabilities P200,000.
The balance sheet of the Ric and Jason partnership on December 31, 2006, follows:

Ric and Jason Partnership

Condensed Balance Sheet
December 31,2006

Current Assests P100,000 Liabilities P300,000

Plant assets (net) 500,000 Ric, Capital 200,000
Jason, Capital 100,000
P600,000 P600,000
 University of Cebu- Banilad Campus
College of Business and Accountancy
Banilad, Cebu City

Gen’s capital account was credited for P120,000, the partners agreed further that the carrying amounts of the net assets of the
Ric and Jason partnership were equal to their current fair values, and that the accounting records of the old partnership should
be used for the new partnership. The following income-sharing plan was adopted for the new partnership:
 A bonus of 10% of net income after deduction of the bonus to Gen as managing partner.
 Remaining net income or loss as follows: 30% to Ric; 40% to Jason and 30% to Gen.
For the year ended December 31, 2007, the Ric-Gen Jason Partnership had net income of P55,000 before the bonus Gen.

Compute:
a) the capital of Jason after Gen’s admission on January in the partnership, ______________
b) share of Jason in the net income: ________________

J. The income statement of Vita Plus Partnership for the year ended December 31, 2017 appear below:

Vita Plus Partnership

Income Statement
For the year ended December 31, 2017
Sales P300,000
Less: Cost of Goods Sold 190,000
Gross Profit P110,000
Less: Operating Expenses 30,000
Net Income P 80,000

Additional Information:
1. Melon and Dalandan began the year with capital balances of P40,800 and P112,000, respectively.
2. On April 1, Melon invested an additional P15,000 into the partnership and on August 1, Dalandan invested an
additional P20,000 into the partnership.
3. Throughout 2007, each partner withdrew P400 per week in anticipation of partnership net income. The partners
agreed that these withdrawals are not to be included in the computation of average capital balances for purposes of
income distribution.

Melon and Dalandan have agreed to distribute partnership net income according to the following plan:
MELON DALANDAN
1. Interest on average capital balances 6% 6%
2. Bonus of net income before the bonus but after interest
on average capital balances 10%
3. Salaries P25,000 P30,000
4. Residual (if positive) 70% 30%
5. Residual (if negative) 50% 50%
Required:
a. The share of Melon and Dalandan on the net income, respectively is:
Melon __________________ Dalandan ___________________
b. The ending capital balance of Dalandan is: _________________

K. A statement of the capital accounts of Roel and Bless follows:

ROEL BLESS
Balance, January 1 P 72,000 P 96,000
Add: Additional Investments, July 1 32,000 16,000
Net Income for the Year:
Salaries 12,000 14,400
Interest on Capital 5,280 6,240
Remainder 10,362 8,478
Totals P131,642 P141,118
Deduct Drawings:
Monthly Amounts P 9,600 P 10,800
Additional Drawings, Dec. 31 2,042 318
P 11,642 P 11,118
Balance, December 31 P120,000 P130,000

If the net income remains the same the following year, and if there is neither a change in the partnership agreement nor any
additional investments, how much more or less will Roel’s total share of the net income be than it was this year?
______________________

L. Lily, Susan, and Yen agreed to invite Lucy to join the partnership. Lucy was presently working as a marketing specialist of a
dynamic firm and presently receiving a salary of P35,000 per month. In order to encourage Lucy to join the partnership, the
partners agreed to the following profit distribution:
1) 12% interest on contributed capital is to be given to each partner.
 University of Cebu- Banilad Campus
College of Business and Accountancy
Banilad, Cebu City
2) Salaries of P20,000, P30,000, P40,000, and P35,000 per month is to be given to Lily, Susan, Yen, and Lucy respectively.
3) Lucy is to receive a minimum guaranteed share equal to her present salary and interest on her capital.
4) Lily is to receive an aggregate share of P300,000 per year.
5) Balance of profits is to be distributed in the ratio of 2:2:3:3 between Lily, Susan, Yen, and Lucy respectively.

The partners’ capital contributions are: Lily, P200,000; Susan, P150,000; and Yen, P100,000. Lucy is willing to invest
sufficient cash so that her capital interest in the partnership net assets will give her a ¼ interest. How much must the
partnership earned during the year so that Lily will receive the agreed aggregate amount and Lucy to receive at least the
minimum guaranteed share?________________________

M. On January 1, 2010, True and Orange formed a partnership by contributing cash of P450,000 and P300,000, respectively. On
February 1, 2010, partner True contributed an additional P150,000 cash to the partnership and on August 1, 2010, partner
True has permanent withdrawal of P75,000. On May 1, 2010 partner Orange contributed machinery with a fair market value
of P100,000 and a net book value of P75,000 when contributed. On November 1, 2010, partner Orange contributed an
additional P50,000 cash to the partnership. Both partners withdrew one-third of their salary allowances. The partnership
agreement of True and Orange has the following terms for the division of net income (loss) to the partners:
1) Interest of 12% is allowed on the average capital balance.
2) Salaries of P10,000 per month to each partner.
3) Bonus of True of 10% of net income after partners’ salaries.
4) Balance to be divided in the ratio of 6:4 to True and Orange, respectively.

Compute the share of income of both partners assuming profit is P286,875.

a. Orange _________________
b. True _________________
Compute the share of income of both partners assuming profit is (P375,000).
a. Orange _________________
b. True _________________

N. Several years ago Killough and Seago formed Hokie Partnership. The partnership agreement states that each partner is to
receive a salary of P10,000 per month and 5% interest on beginning-of-the-year capital balances; any remainder would be
divided between Killough and Seago in the ratio 2:3, respectively. The unadjusted trial balance of Hokie Partnership as of
December 31, 2016, appears as follows:
Debits Credits
Cash P 500,000 Accounts payable P 350,000
Accounts receivable 300,000 Notes payable 200,000
Inventory, January 1, 2016 400,000 Killough, capital 750,000
Furniture & fixtures, net 150,000 Seago, capital 620,000
Building, net 300,000 Sales 800,000
Killough, drawing 100,000
Seago, drawing 120,000
Purchases 600,000
Operating expenses 250,000 ______
Total P2,720,000 Total P2,720,000

Additional information:
1. December 31, 2016, inventory was P550,000. 2016 purchases of P600,000 were recorded using the periodic inventory
method.
2. Depreciation for 2016 on furniture and fixtures and building is determined to be 10% and 20% respectively, of net
valuation.
3. On July 1, 2016, the partnership recorded a P100,000 additional capital contribution by Seago. Killough made no
additional capital contributions during the year.

Required:
a. Determine the share of partner Killough on the net income of 2016. _______________
b. Determine the ending capital balance of partner Seago on December 31, 2016. _________________
 University of Cebu- Banilad Campus
College of Business and Accountancy
Banilad, Cebu City

Key:
Corrections:
A. a. 23,750
b. D – 19,953.125 / 19.953.13 / 19,953.12
E – 3,796.875 / 3,796.87 / 3,796.88
c. D – 72,453.125 /72,453.13 / 72,453.12
E – 26,296.875 / 26,296.87 / 26,296.88
F. 15,000

H. 290,000 : ( 15,000 = 10%(NI – 25,000 – 10,000 – 15,000))

 University of Cebu- Banilad Campus
College of Business and Accountancy
Banilad, Cebu City

J. A. Melon P40,473 /40,472.61

Dalandan P39,527 / 39,527.39
B. P150,727 / 152,327.39
K. (P6.00) Less
L. P1,752,000
M. 1. A. 137,175
B. 149,700
2. A. (125,700)
B. (249,300)
 University of Cebu- Banilad Campus
College of Business and Accountancy
Banilad, Cebu City
N. A. P46,100
B. P478,900

Corrections:
Agreements Killough Seago Total
Salaries 120,000 120,000 240,000
Interest 37,500 26,000 63,500
Remainder (111,400) (167,100) (278,500)
Total 46,100 (21,100) 25,000