QUIZ 1 PARTNERSHIP OPERATION PROF Z VC MANUEL

THEORY- True or False and Multiple Choice.

_____1. In the fluctuating capital method, the ending capital account in the general ledger is
also the partner’s capital shown in the statement of financial position.
_____2. There is no need to prepare the statement of changes in partners’ equity if the
company is using the fluctuating capital method.
_____3.The statement of changes in partners’ equity should present regular salaries
withdrawn by the partners which should be the same as the salaries provided in their
profit sharing agreement.
_____4. An industrial partner may receive salary profit, bonus, residual profit but not interest
profit.
_____5 Reggie is a partner in Timely Co. An analysis of the profit allocation table showed
her residual share was a loss of P6,000 after a salary allowance of P20,000. If the
actual salary withdrawn during the year was only P15,000, Reggie’s equity will
increase by P14,000
_____ 6. Refer to no. 5. If there are two partners and Bessie’s salary allowance is
only half as much, and profit sharing ratio is equally, then total profit (loss)
for distribution is
A. P18,000 B. (P18,000) C. (32,000) D. 3,000
_____ 7. Duran and Vera formed a professional partnership with capital contributions of
P150,000 and P200,000, respectively. Their partnership agreement called for Duran
to receive a P40,000 annual salary allowance and a 20% bonus on net income after
interest and salaries. A 10% interest is to be given on initial capital investment.
Residual profit is to be divided equally. Tax rate is 30%. If the net income for the
current year is P100,000, there will be a
A. residual loss of P5,000. C. residual profit of P13,000
B. residual profit of P20,000 D. residual loss of P11,000
8.  If the drawing account of a partner becomes a credit balance at year end,
which of the following statements is incorrect? 

A. Profit share must be a higher amount than withdrawals made during the year.
B. Share in net loss is lesser than the withdrawals made during the year.
C. Drawing account will be credited to the partner's capital account using the
fluctuating capital method.

D. It will increase the partner’s equity at year end.
 9.  Ben Tan contributed to the TC Partnership P14,000 in cash plus office
equipment valued at P9,000 last year and P7,000 at investment date. He is also
the managing partner. Which of the following statements is incorrect?
A. He can get a share in interest profit as a capitalist partner.
B. He can get a share in profit based on service and contribution made.
C. He can get a salary allowance as an industrial partner.
D. He does not have to share in the losses of the partnership. 
10. In a partnership agreement, if the partners agreed to a 10% interest profit
on investments made, the interest profit 

1. Is ignored when earnings are insufficient for the interest profit amount.

2. can make up for unequal capital contributions.

3. is an expense of the business.

4. can be withdrawn by the capitalist partner.
Which of the above is incorrect?
A. No 2 B. No. 3 C. 1 and 3 D. 1,3, 4

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PROBLEMS: A and B should be on the left side of the worksheet, C and D on the right side.
A. Popeye invited Olive to join him in forming a partnership. The capital account of Popeye’s
consultancy firm has a balance of P1,500,000: P250,000 in current assets, P1,000,000 in
land and P250,000 in depreciable properties (just revalued). Olive will invest land
P1,500,000 (just appraised), building and improvements P1,240,000 (book value). The
following are the information to be considered:
1) The receivables has a net realizable value of P80,000 (allowance for doubtful
accounts of P20,000) . It was found out that an account of a customer for P15,000
will not be collected anymore and has to be written off. Estimated uncollectible will
be based on the same percentage as before.
2) To be included in Olive’s investment is a prepaid insurance of P24,000 paid on June
1, 2016 covering annual insurance on the building.
3) Investment date is January 1, 2017. With asset revaluation, the capitalization will
become P4,500,000 and Popeye’s equity ratio will be 40%.
Required: a) Compute for adjusted capital of the partners
b) Compute for the asset revaluation needed for Popeye’s contribution.
Identify if an upward or downward adjustment.
c) Compute for the asset revaluation needed for Ollive’s contribution.
Identify if an upward or downward adjustment.
B. Refer to problem A. The partners agreed also on the following profit sharing:
12% interest based on capital; monthly salaries of P15,000 and P10,000 for Popeye and Olive;
10% charge on drawings in excess of agreed salaries; residual profit of 1:1.

Profit after the first quarter ending March 31, 2017 was P350,000 after closing
the revenue and expense accounts excluding adjustments for bad debts, depreciation and
insurance . Accounts receivable stood at P120,000 at the end of the quarter. Properties did
not change except for the revaluations made on January 1. Partners agreed on a 12%
depreciation rate. Tax rate is 30%. Cash withdrawals made by Popeye and Olive amounted
to P40,000 and P50,000, respectively.
Required: 1. Give the profit share of each partner.
2. Entry to comply with the agreement on fluctuating capital.
3. Give Olive’s equity at the end of the quarter.
C. Ben, Lyn and Ada established an internet shop and agreed to divide profit and loss in the ratio of
2:1:1 respectively, after receiving a monthly salary of P10,000 each and bonus of 20% to Ben.
What is the profit share of Ben based on the following independent situations?
1. Net taxable income earned is P450,000 after six months of operation. Bonus is based
on net income after salaries but before bonus. Tax rate is 30%.
2. Net income at year end after salaries but before tax and bonus is P480,000. Bonus is based on
net income after tax, salaries and bonus. Tax rate is 30%.
3. Net income at year end is P480,000 including tax, salaries and bonus. Bonus is based on net
income before salaries but after bonus. Tax rate is 30%.
4. Residual profit at year end was P450,000. Bonus is based on net income before salaries
and bonus. Tax rate is 30%.
5. Lyn received a total profit of P25,000 at the end of the quarter. Bonus is based on net
income before salaries and bonus.
D. Marcy and Leah are partners in a real estate business in 2015 with Marcy contributing
P3,000,000 and Leah P2,000,000. Profit and loss agreement was based on contributions.
In 2016, Leah was actively managing the business for a salary of P120,000 and a 20%
bonus based on net income after salaries and interest. Revised profit sharing includes 10%
interest on contributions, remaining profits to be distributed equally to the capitalist
partners. Profit for the year 2015 and 2016 were P545,000 and P750,000, respectively.
Tax rate is 30%, It was only in 2016 that an error was discovered in that an accrued
expense of P24,000 in 2015 was not recognized for a 150-day note that matured and was
paid on March 31, 2016.
Question: What is the correcting entry in 2016 assuming profit has not been distributed
for 2016. Remember the tax provision.
Question: What is the profit distribution entry for 2016?

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SOLUTION

THEORY
1.True 2.False 3.False 4.True 5. False 6.A 7.B 8. B 9. D 10. C

PROBLEMS
A. Popeye Olive Total
Contributions P1,500,000 P2,740,000
Write Off covered by allowance
Shd be allow 85,000 x .2=17,000
Allow balance 5,000 ( 12,000)*
Prepaid insurance 24,000 x 5/12 10,000
Adjusted P1,488,000 P2,750,000 P4,230,000
Agreed 1,800,000 2,700,000 4,500,000
Upward for land (downward for P 320,000 (P 50,000) P 270,000
buildings and improvements)
B.
Popeye Olive Total
3% interest 54,000 81,000 135,000
Salaries 45,000 30,000 75,000
10% charge on P20,000 (2,000) ( 2,000)
Remainder (1,170) (1,170) ( 2,340)
97,830 107,830 205,660*
Profit 350,000
250,000 and 1,190 x .03 deppreciation (43,200)
Expired insurance 2,000 x 3 ( 6,000)
Additional provision 120 x .2=24-17 ( 7,000)
Profit before Tax 293,800 x .7= P 205,660* NIAT
Olive, Equity (2,700,000 + 107,830 – 50,000)= P2,757,830
C.
1. Net taxable income earned is P450,000 after six months of operation. Bonus is based
on net income after salaries but before bonus. Tax rate is 30%.
450,000 x .7 = P315,000
Ben Total
Salary 60,000 180,000
Bonus 27,000* 27,000
Remainder 54,000 108,000
141,000 315,000
*315-180 x .2= 27,000
2. Net income at year end after salaries but before tax and bonus is P480,000. Bonus is based on
net income after tax, salaries and bonus. Tax rate is 30%.
Net income after tax (480 + 360 x .7) = 588,000
Ben Total
Salary 120,000 360,000
Bonus 38,000* 38,000
Remainder 95,000 190,000
253,000 588,000
588-360 / 1.2 x .2= 38,000*

3. Net income at year end is P480,000 including tax, salaries and bonus. Bonus is based on net
income before salaries but after bonus. Tax rate is 30%.
Ben Total
Salary 120,000 360,000
Bonus 56,000 56,000
Remainder (40,000) (80,000)

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 136,000 336.000
480 x .7=336,000 NIAT
336/1.2 0 x .2= 56,000*

4. Residual profit at year end was P450,000. Bonus is based on net income before salaries
and bonus. Tax rate is 30%.

Ben Total
Salary 120,000 360,000
Bonus 202,500 202,500
Remainder 225,000 450,000
547,500 1,012,500
450 + 360= 810 / .8= 1,012,500 x .2= 202,500

5. Lyn received a total profit of P25,000 at the end of the quarter. Bonus is based on net
income before salaries and bonus.

Ben Lyn Total

Salary 30,000 30,000 90,000
Bonus 17,500 17,500
Remainder (10,000) (5,000) (20,000)
37,500 25,000 87,500

90-20= 70 / .8= 87,500 x .2= 17,500

Problem D
2015 profit is overstated. Correcting entry in 2016:
Marcy, Drawing (3/5) 10,080
Leah, Drawing (2/5) 6,720
Income Tax Payable 7,200
Income and Expense S 24,000

2016 750,000 +24,000= 774,000 x .7=541,800

Marcy Leah Total

Interest 300,000 200,000 500,000
Salary 120,000 120,000
Remainder ( 39,100) ( 39,100) (78,200)
260,900 280,900 541,800

Income and Expense S 232,200

Income Tax Payable 232,200

Income and Expense S 541,800

Marcy Drawing 260,900
280,900

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