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Chapter 2
Partnership Operations

NAME: Date:
Professor: Section: Score:

QUIZ:
1. A and B formed a partnership on March 1, 20x1. The partnership agreement stipulates the
following:
 Monthly salary allowances of ₱10,000 for A and ₱6,000 for B. Salary allowances are to be
withdrawn by the partners throughout the period and are to be debited to their respective
drawings accounts.
 The partners share profits equally and losses on a 60:40 ratio.

During the period the partnership earned profit of ₱200,000 before salary allowances. How much is
the share of Partner B in the partnership profit?
a. 120,000
b. 100,000
c. 80,000
d. 76,000

2. A and B formed a partnership. The partnership agreement stipulates the following:

 Annual salary allowances of ₱100,000 for A and ₱70,000 for B.
 Bonus to A of 10% of profit after partner’s salaries and bonus.
 The partners share profits and losses on a 50:50 ratio.

During the period the partnership incurred loss of ₱500,000. How much is the share of A in the
partnership results of operations during the period?
a. (280,000)
b. (220,000)
c. (265,000)
d. (235,000)

3. Maxwell is trying to decide whether to accept a salary of ₱40,000 or a salary of ₱25,000 plus a
bonus of 10% of profit after salaries and bonus, as a means of allocating profit among partners.
Salaries traceable to the other partners are estimated to be ₱100,000. What amount of profit
would be necessary so that Maxwell would consider the choices to be equal?
a. 165,000
b. 265,000
c. 290,000
d. 305,000

4. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net
income in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.
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The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount
should be allocated to Axel?
a. 101,000
b. 103,000
c. 108,000
d. 110,000

5. A and B formed a partnership. The partnership agreement stipulates the following:

 Annual salary allowance of ₱40,000 for A.
 Interest of 10% on the weighted average capital balance of B.
 The partners share profits and losses in a 80:20 ratio.

During the period the partnership earned profit of ₱100,000.

The movements in B’s capital account are as follows:

B, Capital
60,000 beg.
Aug. 1 withdrawal 30,000 20,000 Mar. 31 additional investment
40,000 Oct. 1 additional investment
10,000 Dec. 1 additional investment
100,00
end. 0

How much is the share of A in the partnership profit?

a. 82,134
b. 82,200
c. 78,667
d. 83,167

6. Garcia and Henson formed a partnership on January 2, 2005 and agreed to share profits 90% and
10%, respectively. Garcia contributed capital of ₱25,000. Henson 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:
 Capital accounts are to be credited annually with interest at 5% of beginning capital.
 Henson is to be paid a salary of ₱1,000 a month.
 Henson is to receive a bonus of 20% of income calculated before deducting his salary, bonus
and interest on capital account.
 The partnership 2005 income statement as follows:

Revenues ₱ 96,450
Expenses (including salary, interest, and bonus) 49,700
Net income ₱ 46,750

What is Henson’s 2005 bonus?

a. 11,688
b. 12,000
c. 15,000
d. 15,738
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7. Partner A first contributed ₱50,000 of capital into an existing partnership on March 1, 2002. On
June 1, 2002, said partner contributed another ₱20,000. On September 1, 2002, he withdrew
₱15,000 from the partnership. Withdrawal in excess of ₱10,000 is charged to the partner’s capital
account. What is the annual weighted average capital balance of Partner A?
a. 32,500 c. 60,000
b. 51,667 d. 48,333

8. A and B formed a partnership. The partnership agreement stipulates the following:

 A and B shall maintain average investments of ₱400,000 and ₱600,000, respectively. Interest on
the excess or deficiency in a capital contribution is to be computed at 10% per annum.
 After interest allowances, the partners share profits and losses on a 60:40 ratio.

During the first six months of operations, the partnership incurred loss amounting to ₱240,000. The
average capital balances of the partners during this period were ₱480,000 and ₱440,000, respectively.

How much is the share of A in the partnership loss?

a. 137,600 c. 142,300
b. 102,400 d. 107,400

9. A and B formed a partnership and began operations on March 1, 20x1. A invested ₱400,000 cash
while B invested equipment with a book value of ₱1,200,000 and a fair value of ₱720,000. On
August 31, 20x1, A invested additional cash of ₱80,000. The partnership agreement stipulates the
following:
 Monthly salary allowances of ₱8,000 and ₱40,000 to A and B, respectively, recognized as
expenses.
 20% bonus on profit before salaries and interest but after bonus to B.
 12% annual interest on the beginning capital of A.
 Balance equally.

The monthly salaries are withdrawn by the partners at each month-end. The partnership earned
profit of ₱840,000 during the period before deductions for bonus and interest.

How much is the ending balance of B’s capital account?

a. 1,230,000 c. 910,000
b. 1,710,000 d. 1,630,000

10. A, a partner in the ABC Partnership, has a 30% participation in partnership profits and losses.
A’s capital account has a net decrease of ₱60,000 during the calendar year 20x1. During 20x1, A
withdrew ₱130,000 (charged against his capital account) and contributed property valued at
₱25,000 to the partnership. How much was the profit of ABC Partnership in 20x1?
a. 150,000 c. 350,000
b. 233,333 d. 550,000

“Do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your requests be made
known to God. And the peace of God, which surpasses all understanding, will guard your hearts and your minds in Christ Jesus.”
(Philippians 4:6-7)
- END -
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SOLUTIONS:

1. C
Solution:
A B Total
Amount being allocated 200,000
Allocation:
1. Salaries (10K x 10 mos.); (6K x 10 mos.) 100,000 60,000 160,000
2. Allocation of remaining profit
(200K profit – 160K salaries) = 40K
(40K x 50%); (40K x 50%) 20,000 20,000 40,000
As allocated 120,000 80,000 200,000

2. D
Solution:
A B Total
Amount being allocated (500,000)
Allocation:
1. Salaries 100,000 70,000 170,000
2. Bonus after bonus - -
3. Allocation of remaining profit
(-500K – 170K) = -670K
(335,000) (335,000) (670,000)
(-670 x 50%); (-670K x 50%)
As allocated (235,000) (265,000) (500,000)

3. C
Solution:

Let: X = profit after salaries and bonus

10%X = bonus after bonus

Choice #1 Choice #2
40,000 salary = 25,000 salary + 10%X

40,000 – 25,000 = 10%X

10%X = 40,000 – 25,000
X = 15,000 ÷ 10%
X = 150,000

150,000 profit after salaries and bonus + 25,000 salary of A + 15,000* bonus of A + 100,000 salaries of
other partners = 290,000 profit before salaries and bonus

*Bonus = 10% x 150,000 = 15,000

4. C
Solution:
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Axel Berg Cobb Total

Amount being allocated 250,000
Allocation:
1. Bonus to Axel
First 100K (100K x 10%) 10,000 10,000
Over 100K [(250K - 100K) x 20%] 30,000 30,000
2. Bonus to Berg and Cobb
(250K - 10K - 30K - 150K) x 5% 3,000 3,000 6,000
3. Allocation of bal. (204K / 3) 68,000 68,000 68,000 204,000
As allocated 108,000 71,000 71,000 250,000

5. A
Solution:
The weighted average balance of B’s capital account is computed as follows:
Months outstanding ÷ Weighted
Balances Total months in a year average
Beg. Balance 60,000 12/12 60,000
Mar. 31 additional investment 20,000 9/12 15,000
Aug. 1 withdrawal (30,000) 5/12 (12,500)
Oct. 1 additional investment 40,000 3/12 10,000
Dec.1 additional investment 10,000 1/12 833
Weighted average capital balance 73,333

A B Total
Amount being allocated 100,000
Allocation:
1. Salaries 40,000 - 40,000
2. Interest on weighted ave. capital
- 7,333 7,333
balance (73,333 x 10%)
3. Allocation of remaining loss
(100K – 40K – 7,333) = 52,667
42,134 10,533 52,667
(52,667 x 80%); (52,677 x 20%)
As allocated 82,134 17,866 100,000

6. C
Solution:
46,750 Net income + (1,000 monthly salary x 12 months) + (25,000 beg. capital x 5%) = 60,000 Profit
before salaries and interest but after bonus ÷ 80% = 75,000 Profit before salaries, interest and bonus x
20% = 15,000

7. B
Solution:
Mar. 1 50,000 10/12 41,667
Jun. 1 20,000 7/12 11,667
Sept. 1 -5,000 4/12 (1,667)
51,667

8. A
Solution:
The interest on the excess or deficiency on capital contribution is computed as follows:
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A B
Capital balance to be maintained 400,000 600,000
Actual average balance 480,000 440,000
Excess (deficiency) 80,000 (160,000)
Multiply by: Interest rate 10% 10%
Multiply by: Months outstanding 6/12 6/12
Interest to (from) 4,000 (8,000)

A B Total
Amount being allocated (240,000)
Allocation:
1. Interest to (from) 4,000 (8,000) (4,000)
2. Allocation of remaining loss
[-240K – (-4K)] = -236K
(141,600) (94,400) (236,000)
(-236K x 60%); (-236K x 40%)
As allocated (137,600) (102,400) (240,000)

9. A
Solution:
Profit (after deduction of monthly salaries) 840,000
Add back: Monthly salaries (8K x 10 mos.) + (40K x 10mos.) 480,000
Profit before salaries (Amount to be allocated) 1,320,000

The profit before salaries, interest and bonus is allocated as follows:

A B Total
Amount being allocated (see computation above) 1,320,000
Allocation:
1. Salaries 80,000 400,000 480,000
2. Bonus a 220,000 220,000
3. Interest (400K x 12% x 10/12) 40,000 - 40,000
4. Allocation of remaining profit
(1.320M - 480K - 220K - 40K) ÷ 2 290,000 290,000 580,000
As allocated 410,000 910,000 1,320,000

a
The “bonus after bonus” is computed as follows:
P
B = P -
1 + Br
1,320,000
B = 1,320,000 -
1 + 20%
B = 1,320,000 - 1,100,000
B = 220,000
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The ending balances of the partners’ respective capital accounts are computed as follows:
A B
Capital, beg. 400,000 720,000
Additional investment 80,000 -
Share in profit 410,000 910,000
Drawings (monthly salaries) (80,000) (400,000)
Capital, end. 810,000 1,230,000

10. A
A's Capital
60,000 beg.
withdrawal 130,000 25,000 contribution
45,000 sh. in profit – squeeze
end. -

45,000 ÷ 30% = 150,000