Partnership Operations 73 2-1: 2-2: +23: The partnership contract forthe Lebron and James Partnership provided that Lebron is to receive and annual salary of P120,000, James is to receive an annual salary of P80,000, and the remaining profit or loss is to be divided equally between the two partners. Net income of the Lebron and James Partnership for the year ended December 31, 2013 was P180,000. The closing entry for net income on December 31, 2013 is a debit to Income Summary for P180,000 and credits to Lebron Capital and James Capital, respectively of: a. P108,000 and P72,000 b. P 90,000 and P90,000 c.. P120,000 and P80,000 d. P110,000 and P70,000 ‘The partnership contract of the JJ, KK and LL Partnership provided for the division of net income or losses in the following manner: 1. Bonus of 20% of income before the bonusto JJ. 2. Interest at 15% on ayerage cdpital account balances to each partner. 3. Remaining income or loss, equally to each partner. Net income of the JJ, KK and LL Partnership for 2013 was P90,000, and the average capital account balances for that year were JJ, P100,000; KK, P200,000; and LL, P300,000. How much of the P90,000 partnership profit for 2013 should be distributed to mw a. P27,000 b. P 6,000 c. -P33,000 d. P39,000 The partnership agreement for the partnership of May and Jun provided for salary allowances of P45,000 to May and P35,000 to June, and residual profit was allocated equally. During the year 2013. May and Jun each withdraw cash equal to 80 percent of their salary allowances. If during 2013 the partnership had profits in excess of P100,000 without regard to salary allowances and withdrawals, May’s capitalin the partnership would:74 Chapter 2 No. 2-3: Continued 2-4: 2-5: Increase more than Jun’s Decrease more than Jun’s Increase the same as Jun’ Decrease the same as Jun’s RO SR Allan and Michael are partners. Their capital accounts during 2013 were as follows: Allan, Capital Michael, Capital 828 P6,000 1/1 P40,000 US P9,000 V1 P60,000 413 8,000 6 7,000 1031 18,000 1077 12,000 Net income of the partnership is P39,500 for the year 2013. The partnership agreement provides for the division of incomeas follows: 1. Each partner is to be credited 10 percent interest on his simple average capital. . 2. Anyremaining income or loss is to be divided equally. What is Michael's share of profit forthe year? 20,500 P14,000 P16,500 P19,000 RO SR Fred, Greg and Henry are partners with average capital balances during 2013 of P120,000, and P60,000, and P40,000, respectively. Partners reccive 10 percent interest on their average capital balances. A fter deducting salaries of P30,000 to Fred and P20,000 to Henry, the remaining profit or loss is divided equally. In 2011, the partnership sustained a P33,000 loss before interest and salaries to partners. By what amount should Fred’s capital account change? “a P7,000 increase 5. PU,000 decrease . ‘P35,000 decrease d. P42,000 increasePartnership Operations 75 2-6: 2-8: The partnership agreement of Rey and Serg provides that interest at 10 percent is to be credited to each partner on the basis of average capital balances. A summary of Serg Capital account for the year ended December 31, 2013 is as _follows: Balance, Janu:ry 1 P140,000 Additional investment, July 1 40,000 Withdrawal, August 1 15,000 What amount of interest should be credited to Serg capital account for 2013 a PI5,250 b. P15,375 c. P16,500 a d. P17,250 ; JRandhis very close friend AJ forineda partnership on January 1, 2013 with IR contributing P16,000 cash and AJ contributing equipment with a book value of P6,400 and a fair value of P4,800 and inventory items with a book value of 2,400 and fair value of P3,200. During 2013, JR made additional investment of , , P1,600 on April ! and P1,600 on June 1, and on September 1, he withdrew ‘ P4,000. AJ had noadditional investments nor withdrawals during the year. The average capital balance atthe end of 2013 for JR is: a. P16,000 b. P 8,000 c. P16,800 d. P 7,200 The partners of RJ and AG, share profits 3:2. However, RJ is toreceivea yearly bonus of 20 percent of the net profits after deducting said bonus, in addition to his profit share. The partnership made a net income for the year of P24,000 before the bonus. How much profit share will RJ receive? 16,000 P10,000 PI5,200 14,400 ROR76 2-9: [TandAM have capital account balan 2-10: Peter and Paul form Chapter 2 ces atthe beginning of the year of P40,000 and P45,000, respectively. They share net income and losses as follows: 1. 8 percent interest on beginning capital balances 2. a pery allowance of P15,000 to LT and P7,500 toAM 3. remainder in3:2 ratio for the year, before interest and rted net income of P10,000 hare of LT and AM, The ership repo! ia allowances to partners. What are the profit s respectively? a. P6,620, and P3,380 b. P6,630, and P3,380 c P6,500, and P3,500 d. P6,000, and P4,000 ed a partnership on January 2, 2013, and agreed to share net income and losses 90 percent and 10 percent, respectively. Peter invested cash of P250,000. Paul invested no assets but had a specialized expertise and managed the firm full time. The partnership contract provided for the following: Partners’ capital accounts are to be credited annually with interest at 5 percent 1 of beginning capital account balances. 2. Paul isto be paid a salary of P10,000 a month. 3. Paul is to receive a bonus of 20 percent of income before deduction of salary, bonus and interest on partners’ capital account balances. 4. Bonus, interest, and Paul salary are considered expenses. The statement of comprehensive income. for the ded 20) ene oe year ent 13 for the Revenue . : ' . Py Expenses (including salary, interest, and bonus to Paul) 757000 Net income : 467,500 What is Paul’s bonus for 2013? a. P120,000 b. P150,000 c P130,000 d. P 93,750Partnership Operations 77 -]——$ —(C 2-11: 2-12: 2-13: cc, DD, and EE, doctors, agree to form a partnership and to share profits in the ratio 5:3:2. They also agreed that EE is to beallowed a salary of P14,000, and that DD is to be guaranteed P10,500 as his share of the profits. During the first year of operation, income from fees are P90,000, while expenses total P48,000. ‘What amount of net income should be credited to each partners’ capital account? cc. DD EE a. P14,000 =P 8,400 P 5,600 b. P12,500 —-P 10,500 P19,000 c P12,000 P11,000 P19,000 @ P12,500 ——P10,500 P19,500 LL, MM, and PP are partners with capitals of P40,000, P25,000, and P15,000 respectively. The partnership agreement provides that each partner shall be allowed 5 percent interest on his capital, that LL shall be allowed an annual salary of P8,500, and that MM shall be entitled to a minimum of P14,000 per annum including amounts allowed as interest on capital and as share of profit. Profit after interest and salary allowances is tobe divided between LL, MM, and PP 5:3:2 respectively. What amount must be earned by the partnership during 2013 before charges for interest or salary if LL is to receive an aggregate of P20,000 toinclude interest, salary, and share of profit? a. P38,000 b. P50,000 c. P38,550 d. P35,880 RR, SS, and TT, lawyers, decide to form a partnership and agree to divide profits in the ratio 4:3:1. Itis agreed, however, that RR and SS shall guarantee fees from their own clients of P80,000 and P50,000, respectively, that any deficiency is to be charged directly against the account of the partner failing to meet his guarantee and that any excess is to be credited directly to theaccount of the partner exceeding his guarantee. Fees earned by the partnership during the first year of operation were P200,000 which included fees from clients of RR, 95,000, and fees from clients of SS, P40,000. Operating expenses for the year were P100,000, By what amount should the partners’ capital account increase? RR ss IT a. P62,500 P25,625 P11,875 b. P62,500 P25,000 P11,800 c. P47,500 P35,625 P11,875 d. P47,500 P25,625 PI1,87578 2-14: Chapter 2 The partnership agreement of AA, BB, and CC provides for the year-end allocation of net income in the following order: First, AA is to receive 10 percent of net income up to P100,000 and 20 percent . over P100,000. Second, BB and CC each are to receive 5 percent of the remaining income over P150,000. The balance of income is tobe allocated equally among the three partners. The partnership's 2013 net income was P250,000 before any allocations to. Partners. What amount should be allocated to AA? a. P101,000 b. P108,000 c P110,000 d@, P103,000 : AJ, BJ and CJ are partners in an accounting firm. Their capital account balances at December 31, 2013 were: AJ, P90,000; BJ, P110,000; CJ, P50,000. They share profits and losses in a4:4:2 ratio, after the following special terms: 1. Partner CJ is to receive a bonus of 10 percent of the net income after the bonus. 2. Interest of 10 percent shall be paid on that portion of partners’ capital in excess of P100,000. 3. Salaries of P10,000 and P12,000 shall be paid to partners AJ and CJ, respectively. The income summary account for the year 2013 shows a credit balance of P44,000. What is the profit'share of partner CJ? P19,400 P16,800 - P17,800. . P19,800 RARPartnership Operations 79 —e..]4< 2-16: 2-17: Jose and Pedro are partners who share profits and losses in the ratio of 6:4, respectively. Jose’s salary is P100,000 and Pedro is P50,000. The partners also are paid interest on their average capital balances. In 2013, Jose received P50,000 of interest and Pedro, P20,000. The profit and loss allocation is determined after deductions for the salary and interest payments. IfPedro's total share of, partnership income was P200,000 in 2013, what was the total partnership income? a. P475,000 5. P500,000 c. P545,000 d. P750,000 JJ. and RR formed the JR partnership on January 3, 2013 with cash investments of: JJ, P120,000, and RR, P180,000. On December 31, 2013 the net income of the JR parmership was P69,600: The net income included an extraordinary gain of P12,000. Whats the share of JJ in the net income of P69,600, if i income before extraordinary items is shared equally between JJ andRR after allowance ofa 20 percent bonus to RR based on income before extraordinary items after the bonus, Exttaordinary ‘items are shared on the basis of original investments. a. P27,840 b. P32,640 © - P28,800 d. P24,000 : Mel and Jay are partners with capitals of P200,000 and P120,000, Tespectively. ‘The partnership agreement provided the following: 1. 10 percent interest on their capital investments. 2. Annual salary of P36,000 to Mel. 3. Remainder in 60:40 ratio to Mel and Jay. What is the profit to be earned by the partnership before charges for interest, salary and the balance, so that Jay will received P40,000 in the remainder of the profit after salary and interest? a. ~-P168,000. . - ' b. P138,000 _c. P136,000 d. P132,000@o Chapter 2 ater 2 19: 2-21: DV, JE and FR forma parmership and agree to maintain average investments of P2,500,000, P1,250,000, and P 1,250,000 respectively. The partners agree to divide profits and losses as follows; 1 Interest of6 percent on the excess of deficiency in the ca ital investments. 2. Remainder to shared in the ratio of 5:3:2 to DV, JEand Tespectively. Average investments made during the first six months were as follows: DV, P3,000,000; JE, P1,375,000; FR, Pl :000,000. A loss from operations of P62,500 was incurred for the first six months. How is this loss distributed among the partners? DV JE FR @, P21,875 P18,375 P22,250 b. 12,500 10,000 48,500 & 31,250 18,750 12,500 d. 18,375 21,875 . 22,250 : Pete and Rico share profits after the provision of annual salary allowances of ‘P14,400 and P13,200, respectively in the ratio of 3:2. However, if partnership’s net incomes insufficient to provide for said allowances in full amount, the net income shall be divided equally between the partners. In 2013, the following errors were discovered: Depreciation for 2013 is understated by P2,100, and the inventory on December 31, 2013 is overstated by P11,400. The partnership net income for 2013 was reported to be P19,500. ‘The capital accounts of the parmers should be increased (decreased) by: a. Pete, P6,540; Rico; P(6,960) b. Pete, (6,540); Rico, 6,960 Pete, (6,750); Rico, (6,750) Pete, (6,960); Rico, 6,540. RP ‘Tiger and Woods are partners operating a chain of retail stores. The partnership agreement in dividing profits and losses provides for the following: Tiger ~ Woods Salaries P64,000 100,000 Interest on average capital balances 10% 10%: Bonus 25% of net income before “None Salaries and bonus but Gfter interest on capital Remainder 30% é. 10%Partnership Operations al No. 2-213 Continued 2-22: The Income Summary account for the year 2013 shows a credit balance of 360,000 before any allocations. Average capital balances for Tiger and Woods are P240,000 and P300,000, respectively. How much profit share would Tiger be entitled toreceive? a. P184,150 b. P181,300 ce. P178,700 @. P 42,700 Clotty and Cotto are partners operating a grocery store. Their partnership ~ agreement requires that profits and losses be divided as follows: . Clotty Cotto Salaries 20,000 None Commission on gross sales ‘None 2 percent Interest on average capital balances 8 percent 8 percent Boms 20% of net income before None commission, and interest but after salaries and bonus. Remainder 60% 40% Gross sales for 2013 were P1,250,000. Income before deducting amounts for salary, commission, intérest, and bonus were P200,000. Average capital balances of Clotty and Cotto are P400,000 and P420,000 respectively. What ar are the profit share of Clotty and Cotto, respectively? a. P117,640 and P82,360 b. P 35,460 and P23,760 c. P110,640-and P89,360 d, P117,460 and P82,540=-23: Mike and Tyson are partners in a trading company. During2013, they withdrew their salary allowances of P200,000and P3: (00,000, Tespectively. Profits and losses are shared in the ratio of 3:2. The income. ‘Summary account before any Profit allocation has a credit balance of 600,000. The partner's capital accounts show the following: . Mike Tyson Beginning balances 600,000 400,000 Additional investments 100,000 200,000 Withdrawals other than sa lary allowances (200,000) (100,000) What are the capital balances of the Partners for the year 2013 after closing Income Summary and the Withdrawals accounts? . @. Mike, P560,000; Tyson, P540,000. 4. Mike, P360,000; Tyson, P240,000, & Mike, P460,000; Tyson, P340,000. 4. Mike, P760,000; Tyson, P840,000. : The Statement of ‘Comprehensive Income of. King and Queen Partnership for the year ended December 3 1, 2013 show a net income of P80,000. The capital accounts of the partners for 2013 shows the following: 1. King began the year witha capital balance of P40,000. 2. Queen began the year with a capital balance of P100,000. 3. OnApril 1, King invested an additional P15,000 into the Partnership, 4. On August 1, Queen invested an additional P30,000 into the Partnership. 5. Throughout 2013, 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 distributions. 5Partnership Operations 83 No. 2-24: Continued 2-25: Kingand Queen have agreed to distribute partnership net income according to the following plan. King Queen Interest on average capital balances 10% 10% Bonwses on net income before salaries, but after interest and bonuses 25% None Salaries P25,000 P30,000 Residual (if positive) 10% 30% Residual (if negative) 50% 50% ‘Whatare the capital balances of the partners on December 31, 2013? King Queen a P94,800 P168,200 b. P43,800 P117,200 ce P9S5,800 P169,200 @ 75,000 P148,400 ‘The Red and Blue are Certified Public Accountants who have been operating their own separate practices as sole proprietors. They have decided to combine the two firms as a partnership on January 2, 2013, contributing P100,000 cash each: plas other assets from their existing firms, and to move to a new location. The following assets were contributed by each: Red Blue Cash P100,000 P100,000 Accounts receivables 225,000 190,000 Furniture and equipment 35,000 38,000 Computer and printer 46,000 When the partnership was first organized, Red executed a P 100,000 promissory note at China Bank to get the P100,000 he needed to contribute to the business Bluestill owed P50,000 on the furniture, equipment, computer, and printer hi contributed to the firm. The partners agreed to split profits on the basis of ‘gro: Cash collections from billing generated. During 2013, Red's clients paid the fi a total of P1,500,000 and Blue’s clients paid P1,625,000. The cash expense - for the year were P 1,080,000 of which P480,000 were attributable to Red an’ P600,000 to Blue. During 2013 Blue withdrew P750,000 cash for persone needs and contributed an additional computer valued at P22,000.84 Chapter 2 No, 2-25: Continued ‘The profit share of Red for the year and the capital balance of Blue on December 31,2013 are: a. P1,020,000 and P576,000, respectively b. P 981,600 and P839,400, respectively c. P1,063,400 and P889,400, respectively d. P 981,600 and P709,400, respectively 2-26: Ray and Sam was organized and began operations on March 1, 2012. On that date, Ray invested P150,000, and Sam invested computer equipments with current fair values of P180,000. Sam also invested P60,000 cash in the partnership on November 1, 2012, because ofits shortage of cash. The partnership contract includes the following remuneration plan: Ray Sam ‘Annual salary (recognized as operatingexpense) P18,000 24,000 Annual interest on average capital 10% 10% Remainder 60% 40% _ Theannual salary was to be withdrawn by each partner in 12 monthly installments. During the year ended February 28, 2013, The partnership had net sales of P500,000, cost of goods sold of P280,000, and total operating expenses of ‘100,000 (including partners’ salaries expense but excluding interest on partners’ average capital account balances). Each partners made monthly cash drawings in accordance with the partnership contract. ‘What are the capital balances of the partners on February 28, 2013. Ray Sam P216,000 294,000 P198,000 P270,000 P234,000 P318,000 P180,000 246,000 APSR