Chapter 3 Exercises - Partnership Operations (Answers)

Bachelor of Science in Accountancy (BSA)

EXERCISES

3-1 The capital accounts of Jose and Andres at the end of the calendar of 2019 are as follows:
Jose, Capital
January 1 Balance P 63,000
May 1 Investment 27,000
October 1 Withdrawal P 18,000

Andres, Capital
January 1 Balance P 45,000
April 1 Withdrawal P 9,000

The partnership profit for the year ended December 31, 2019 is P 90,000.

Instructions: Give the journal entries to record the sharing of the partnership income under each
of the following independent cases:

1. Profit is divided 2:1 to Jose and Andres respectively.

Date Description P/R Debit Credit

Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 60,000.00
Andres, Capital 30,000.00
Jose = 90,000 x 2/3 =
60,000
Andres = 90,000 x 1/3=
30,000

2. Profit is divided in the ratio of capital balances at the beginning of the period.
Date Description P/R Debit Credit
Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 52,500.00
Andres, Capital 37,500.00
Jose = 90,000 x 63/108 =
52,500
Andres = 90,000 x 45/108=
37, 500

3. Profit is divided in the ratio of average capital.

Date Description P/R Debit Credit

Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 60,000.00
Andres, Capital 30,000.00
Jose share in profits: 90,000 x 76,500/114,750 = 60,000
Andres share in profits: 90,000 x 38,250/114,750 = 30,000 90,000

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 Jose, Capital
Number of
Date (2019) Capital Balance Months Peso Months Average Capital
(B) Unchanged (Col. B x C)
(C)
Jan. 1, 63,000.00 4 252,000.00
May. 1 90,000.00 5 450,000.00
Oct. 1 72,000.00 3 216,000.00
12 918,000.00 76,500.00

Andres, Capital
Number of
Date (2019) Capital Balance Months Peso Months Average Capital
(B) Unchanged (Col. B x C)
(C)
Jan. 1 45,000.00 3 135,000.00
Apr. 1 36,000.00 9 324,000.00
12 459,000.00 38,250.00

TOTAL: P 1,377,000 114,750.00

4. Interest of 8% is allowed on average capital and the balance of profit divided equally.
Journal entry:
Date Description P/R Debit Credit
Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 46,530.00
Andres, Capital 43,470.00

Computation:
Jose, Andres Total
Interest Allowance: P 6,120.00
J= 76,500 x 0.08=6,120
A= 38,250 x 0.08= 3060 P 3,060.00 P 9,180.00
Balance: 80,830
Equally= P80,830/2 40,410.00 40,410.00 80,830.00
TOTAL P46,530.00 P43,470.00 90,000.00

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5. Salaries of P 24,000 and P 19,000 are allowed to Jose and Andres, respectively, the balance
of profit is divided in the ratio of capital balances at the end of the period.
Journal entry:
Date Description P/R Debit Credit
Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 55,333
Andres, Capital 34,667

Computation:
Jose, Andres Total
Salaries: P24,000 P 19,000 P 43,000
Balance: 47,000
Jose,Capital= 47,000 x 72/108 31,333
Andres, Capital =47,000 x 36/108 15,667 47,000
TOTAL P55,333 P34,667 90,000.00

6. Andres is allowed a bonus of 20% of profit after bonus, the balance of the profit divided in
the ratio of the average capital.
Journal entry:
Date Description P/R Debit Credit
Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 50,000
Andres, Capital 40,000

Computation:
Bonus (B) = 20% (90,000 - B); B= (18,000 - .20B); B + .20B/1.20 = 18,000/1.2= 15,000
Jose, Andres Total
Bonus: 15,000 P 15,000
Balance: 75,000
J= 75,000 x 76500/114750 50,000
A= 75,000 x 38250/114750 25,000 75,000
TOTAL 50,000 40,00 90,000.00

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3-2 The partnership agreement of Justin and Kyle provides that interest at 10% per annum is to be
credited to each partner on the basis of average capital balances. A summary of Kyle’s capital
accounts for the year ended December 31, 2019 is as follows:

Balance, January 1 P 280,000

Additional investment, June 30 80,000
Withdrawal, July 31 30,000
Balance, December 31 ?

P 307,500 1. How much is the average capital of Kyle?

Kyle, Capital
Number of
Date Capital Months Peso Months Average
(2019) Balance Unchanged (Col. B x C) Capital
(B) (C)
Jan. 1 280,000 6 1,680,000
June 30 360,000 1 360,000
July 31 330,000 5 1,650,00
Dec. 31 330,000 0 0
12 3,690,000 307,500

P 30,750 2. What amount of interest should be credited to Kyle for the year
2019?
Sol= 307,500 x 0.10= 30,750

3-3 The partnership agreement of Malik, Michael and Marco provides for the year-end allocations of
profit in the following manner:
 First, Malik is to receive bonus of 10% of profit for the first P 100,000, and 20% of profit in
excess of P 100,000;
 Second, Michael and Marco each will receive 5% of remaining profit after the above
bonus to Malik;
 Balance of profit to be divided equally.

The partnership’s 2019 profit was P 360,000 before any allocation to partners.

P62,000 1. How much is the bonus of Malik?

• Malik= 10% (100,000)=10,000
20% (360,000-100,000)=52,000
52k + 10k = 62,000

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 • Remaining profit after Malik’s bonus = 298,000 (360,000-62,000)
Michael= 298,000 x 0.05=14,900
Marco= 298,000 x 0.05=14,900

Malik Michael Marco TOTAL

Bonus: 62,000 14,900 14,900 91,800
Balance: 268,200
Equally= 268,200/3 89,400 89,400 89,400 268,200
TOTAL 151,000 P104,300 P104,300 360,000
P151,000 2. How much is the share of Malik in the partnership profit?
P104,300 3. How much is the share of Michael in the partnership profit?
P104,300 4. How much is the share of Marco in the partnership profit?

3-4 Daquis and Dionela are partners who share profits and losses in the ratio of 60% and 40%,
respectively. Daquis’ salary is P 60,000 and P 30,000 for Dionela. The partners are also paid
interest on their average capital balances. In 2019, Daquis received P 30,000 of interest and
Dionela, P 12,000. The profit and loss allocation is determined after deductions for the salary and
interest payments. Dionela’s share in the residual income (balance after deducting salaries and
interest) was P 78,000 in 2019.

P327,000 1. What was the total partnership profit?

Annulment;
Other sol: Daquis Dionela Total
78,000 (40%), Salary: 60,000 30,000 P 90,000
therefore Interest: 30,000 12,000 42,000
78k/.40=195,000 Arbitrary: 6:4 117,00
PP= 195K + Balance= 195,000 (78,000/0.4)
90,000 + Da=195,000x0.6
42,0000 = Di= 195,000x0.4 78,000 195,000
327,000 TOTAL 207,000 120,000 327,000

3-5 Carter, Vince and Wayne are partners with beginning capital balances of P 100,000, P 200,000
and P 300,000, respectively. The partnership agreement provides for the following division of
profits and losses:
a. Salaries to Carter, Vince and Wayne amounting to P 30,000, P 40,000 and P 50,000,
respectively;
b. 10% interest on beginning capital balances;
c. Partner Carter is to receive a bonus of 20% of profit after deducting salaries, interest,
and bonus;
d. Any remainder of profit is divided equally.

If the profit before deducting salaries, interest, and bonus amounted to P 300,000, how much is
the share of each partner in the partnership profit?

Carter P 93,333.33 Vince P 93,333.33 Wayne P 113,333.33

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 Sol:
Carter Vince Wayne Total
Salary Allowance 30,000 40,000 50,000 120,000
Interest Allowance 10,000 20,000 30,000 60,000
Bonus 20,000 20,000
B= 20% (30
0,000-(180,000+B)
B= 20% (120,000-B)
B=24,000/1.20
=20,000
Balance: 100,000 33,333.33 33,333.33 33,333.33 100,000
Equallt= 100,000/3
TOTAL P 93,333.33 P 93,333.33 P 113,333.33 P300,00.00
3-6 Using the same profit and loss agreement as in exercise 3-5, assume the profit after deducting
salaries, interest, and bonus is P 200,000, how much is the share of each partner in the
partnership profit? (take note that salaries, interest, and bonus are not operating expenses but
used only as part of profit distribution)

Carter P 60,000 Vince P 60,000 Wayne P 80,000

Sol:
Carter Vince Wayne Total
Salary Allowance 30,000 40,000 50,000 120,000
Interest Allowance 10,000 20,000 30,000 60,000
Bonus 20,000 20,000
TOTAL P 60,000 P 60,000 P80,000 P200,000
CORRECT ANSWER;
Carter Vince Wayne Total
Salary Allowance 30,000 40,000 50,000 120,000
Interest Allowance 10,000 20,000 30,000 60,000
Bonus (200,000 x .2) 40,000 40,000
Remainder 66,666.67 66,666.66 66,666.67 200,000
200,000/3
TOTAL P 146,666.67 P 126,666.66 P 146,666.67 P420,000

Carter 146,666.67 Vince 126,666.67 Wayne 146,666.67

3-7 Still using the same profit and loss agreement as in exercise 3-5, assume that the residual profit
after deducting salaries and interest is a loss or negative figure of P 100,000, how much is the
partnership profit for the period? P 80,000
Sol:
P - (120,000+60,000)= -100,000
P - 180,000 = -100,000
P= 180,000 - 100,000
P= 80,000

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 Carter Vince Wayne Total
Salary Allowance 30,000 40,000 50,000 120,000
Interest Allowance 10,000 20,000 30,000 60,000
Balance: -100,000 -33,333.33 -33,333.33 -33,333.33 -100,000
Equallt= 100,000/3
TOTAL P 6,666.67 P 26,666.67 P 46,667.67 80,000

3-8 As of December 31, 2019, King, Jolly and Donald Partnership has the following data before
effecting distribution of income summary account with a debit balance of P 300,000 from
operation beginning January 1, 2019.

ASSETS LIABILITIES CAPITAL

Cash P 400,000 Accounts Payable P 100,000 King, Capital P 500,000
Non-Cash Assets ? King, Loan 500,000 Jolly, Capital 500,000
Donald, Capital 500,000

The partners have the following profit and loss agreement:

a. All partners shall have a monthly salary of P 10,000;
b. Mr. King shall have a 10% bonus on the profit before salary, interest and bonus;
c. Interest on beginning capital would be 6% annually; and
d. Balance divided equally.

Date Description P/R Debit Credit

Dec. 31, 2019 King, Capital 100,000
Jolly, Capital 100,000
Donald, Capital 100,000
Income Summary 300,000

Bonus is not allowed for insufficient income or Net Loss

King Jolly Donald Total
Salary Allowance 10,000 10,000 10,000 30,000
Interest Allowance 30,000 30,000 30,000 90,000
500,000 x 0.06=30,000
Remainder divided equally (140,000) (140,000) (140,000) (420,000)
TOTAL (100,000) (100,000) (100,0000) (300,000)
Upon distribution of P 300,000 debit balance of income summary account:

100,000 - decreased 1. By how much will the capital balance of Mr. King increased
(decreased)?

400,000 2. How much is the adjusted capital of Mr. Jolly after distributing their
respective share?
Sol:

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 Adjusted Capital: Jolly, capital 500,000
+ (100,000) - loss’ share
P 400,000

P1,800,000 3. How much is the total partnership assets after distribution of the
income summary account?
Sol:
Adjusted Capital, each = 500,000 - 100,000 = 400,000
Assets (Cash+Non-cash) = Liabilities + Capital
400,000 + N = 600,000 + 1,200,000
400,000 + N = 1,800,000
N = 1,400,00

ASSETS = Cash + Non-cash

= 400,000 + 1,400,000
= 1,800,000

3-9 The partnership has the following accounting amounts: Sales, P 70,000; Cost of Sales, P 40,000;
Operating expenses, P 10,000; Salary allocations to partners, P 13,000; Partners’ withdrawals,
P 8,000. What was the profit (net loss) of the partnership? P 1,000 - Net Loss
Sol:
Sales P 70,000
Cost of Sales - 40,000
Gross Profit 30,000
Operating Expenses -10,000
Profit for the year 20,000

3-10 Noel, Burkes and Ariza are partners of NBA Partnership. During 2019, their average capital
balances are as follows: Noel – P 280,000; Burkes – P 200,000; Ariza – P 120,000
The partnership agreement includes the following:

1. 6% interest is allowed on average capital balances.

2. Salary allowances to Burkes and Ariza are P 48,000 and P 40,000, respectively.
3. Burkes is the managing partner and is to receive a bonus of 25% of profit in excess of P
72,000 after partners’ interest and salary allowances.
4. Remaining profit or loss will be divided in the ratio of 5:3:2

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 Required: Prepare schedules showing how profit or loss will be distributed among the three
partners under each of the following independent assumptions.

a. ) P 25,000 loss
Bonus is not allowed for insufficient income or Net Loss:
Neol Burkes Ariza Total
Salary Allowance 48,000 40,000 88,000
Interest Allowance 16,800
280,000 x 0.06=
200,000 x 0.06= 12,000
120,000 x 0.06= 7,200 36,000
Remainder: 5:3:2 (74,500) (44,700) (29,800) (149,000)
TOTAL (57,700) 15,300 17,400 (25,000)

b) P 60,000 profit
Neol Burkes Ariza Total
Salary Allowance 48,000 40,000 88,000
Interest Allowance 16,800
280,000 x 0.06=
200,000 x 0.06= 12,000
120,000 x 0.06= 7,200 36,000
Bonus= 25% (60,000 - (34,000) (34,000)
72,000 - (88,000 +
36,0000))
= 25% (-12,000 - (124,000)
= 25 % (-136,000)
= - 34,000
Remainder: 5:3:2 (15,000) (9,000) (6,000) (30,000)
TOTAL 1,800 17,000 41, 200 60,000

c) P 250,000 profit
Neol Burkes Ariza Total
Salary Allowance 48,000 40,000 88,000
Interest Allowance 16,800
280,000 x 0.06=
200,000 x 0.06= 12,000
120,000 x 0.06= 7,200 36,000
Bonus= 25% (250,000 - 13,500 13,500
72,000 - (88,000 +
36,0000))
= 25% (178,000 -124,000 )
= 25 % (54,000)
= 13,500
Remainder: 5:3:2 56, 250 33, 750 22, 500 112,500
TOTAL 73, 050 107, 250 69,700 250,000

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3-11 Dick, Jane, Jack and Jill formed a partnership with the following profit or loss agreement:

1. Dick receives a salary of P 400,000 and a bonus of 3% of profit after all bonuses;
2. Jane receives a salary of P 200,000 and a bonus of 2% of profit after all bonuses;
3. All partners are to receive a 10% interest on their beginning capital balances. The
partners’ beginning capital balances are as follows: Dick – P 1,000,000; Jane – P 900,000;
Jack – P 400,000; and Jill – P 940,000;
4. Any remaining profits or losses are to be divided equally among the partners.

Required: Prepare schedules showing how profit or loss will be distributed among the three
partners under each of the following independent assumptions.

1. Prepare a schedule how a profit of P 2,100,000 would be allocated among the partners.
Dick Jane Jack Jill Total
Salary Allowance 400,000 200,000 600,000
Interest Allowance 100,000
1,000,000 x 0.1=
900,000 x 0.1= 90,000
400,000 x 0.1= 40,000
940,000 x 0.1= 94,000 324,000
Bonuses 60,000 100,000
All bonuses = 3% (2,100,000 - B) +
2% (2,1000,000 - B)
B = 63,000 - .03B + 42,000 - 0.02B
B = 105,000 - 0.05B
B + 0.05B = 105,000
1.05 1.05
Total Bonuses = 100,000
D = 3% (2,100,000 -100,000)=
J = 2% (2,100,000 - 100,000)= 40,000
Remainder: 1,076,000 269,000 269,000 269,000 269,000 1,076,000
Equally: 1.076M/4
TOTAL 829,000 599,000 309,000 363,000 2,100,000

2. Prepare a schedule how a loss of P 800,000 would be allocated among the partners.
Bonus is not allowed for insufficient income or Net Loss
Dick Jane Jack Jill Total
Salary Allowance 400,000 200,000 600,000
Interest Allowance 100,000
1,000,000 x 0.1=
900,000 x 0.1= 90,000
400,000 x 0.1= 40,000
940,000 x 0.1= 94,000 324,000

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 Remainder: Equally (431,000) (431,000) (431,000) (431,000) (1,724,00)
1,724,000/4
TOTAL 69,000 (141,000) (391,000) (337,000) (800,000)
3. Prepare a schedule how a profit of P 800,000 would be allocated among the partners assuming the
following priority system. Profit should be allocated by first giving priority to interest on beginning
capital balances, then bonuses, then salary, and then according to the profit or loss percentages.
Dick Jane Jack Jill Total
Interest Allowance 100,000
1,000,000 x 0.1=
900,000 x 0.1= 90,000
400,000 x 0.1= 40,000
940,000 x 0.1 = 94,000 324,000
Bonus 22,857 15,238 38,095
Salary: 291, 937 145, 968 437,905
TOTAL 414,794 251,206 40,000 94,000 800,000
4.

Comp:
Bonus = 5% (800,000-B)
=40,000 - 0.05B
=40,000/1.05
B=38,095

3% = 22,857
2% = 15, 238

Note: There is no remainder na pinaghatian, instead yung remainder after interest and bonus will
represent the salary agreement which ia then allocated/appropriated based on salary ratio.

Dick salary 400,000

Jane salary 200,0000
Total salary: 600,000
Ratio: 4:2

The balance after deducting interst and bonus is 437, 905.

Dick = 437,905 x 4/6 = 291, 937
Jane = 437, 905 x 2/6 = 145, 968

3-12 Stew and Peed entered into a partnership on March 1, 2019 investing P 2,000,000 and

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 P 1,000,000 respectively. They agreed that Stew is the managing partner and is to receive a
salary allowance of P 240,000 per year and a bonus of 10% of the net profit after deducting
salary but before bonus. The balance is to be divided in the ratio of their original capital.

Selected ledger account balances as of December 31, 2019 before adjustments showed the
following:

Stew, Capital P 2,000,000

Stew, Drawing 200,000
Peed, Capital 1,000,000
Peed, Drawing 100,000
Sales 3,000,000
Sales returns and allowances 30,000
Purchases 1,800,000
Operating expenses 480,000

Inventories on December 31, 2019 were as follows: Office supplies, P 8,100; merchandise,
P 500,000. Prepaid insurance of P 12,000 and accrued expenses of P 4,000 were recognized.
Depreciation expense of P 40,000 was also provided.

Required:

1. Determine the profit or loss of the partnership. Assuming 30% income tax rate.

Sales 3,000,000
Less: Sales Return and Allowances (30,000)
Net Sales 2,970,000
Purchases 1,800,000
Less: Ending Inventory (500,000) - 1,300,000
Gross Pofit 1,670,000
Less: EXPENSES
Operating Expense 480,000
Accrued Expense 4,000
Depreciation Expense 40,000
Less: Office Supplies (8,100)
Prepaid Insurance (12,000) (503,900)

INCOME BEFORE TAX 1,166,100

30% Income tax rate (expense) ( 349, 830)

PROFIT FOR THE YEAR P 816,270

2. Prepare a schedule showing the distribution of partnership profit or loss.

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 Division of Profit Stew Peed Total
Salary Allowance (240,000 x 10/12) 200,000 200,000
Bonus (10% after deducting salary, but before bonus) 61,627 61, 627
Remainder - Ratio of Orig. Cap
554 643 x 2/3 369, 762
554 643 x 1/3 184 881 554 643
TOTAL 631,389 184,881 816, 270

Computation for Bonus:

Net Profit P816,270
Less: Salary 200,000
Remainder 616, 270
Bonus Rate 10%
Bonus: 61, 627

Note: The salary of Stew should be computed only for 10 months since the partnership only started
March 1.

3. Prepare a Statement of Changes in Partners’ Equity for the period ended December 31, 2019.
STEW and PEED PARTNERSHIP
Statement of Changes in Partners’ Equity
For the period ended Dec. 31, 2019

Stew Peed Total Partnership

Equity, March 1 0 0 -
Add: Investments 2,000,000 1,000,000 3,000,000
Add: Profit for 2019
Salaries 200,000 200,000
Bonus 61,627 62,627
Balance: 2.1 9518, 643)
554, 643 x 2/3 369, 762
554, 643 x1/3 184, 881 554, 643
Total share in profit 631, 389 184, 881 816, 270
Total 2,631, 389 1, 184, 881 3, 816, 270
Less: Withdrawals (200,000) (100,000) (300,000)
Capital balances, December 31 P 2,431,389 P 1,064,881 P 3,516,270

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