PARTNERSHIP OPERATIONS

PROBLEM 4: MULTIPLE CHOICE-COMPUTATIONAL

Answers and Solutions
1. B
Solution:
RED WHITE TOTAL
Amount Being Allocated 80,000
Allocation:
1. Salaries 55,000 45,000 100,000
2. Allocation of (12,000) (8,000) (20,000)
Remaining
Loss
(20,000x60%);
(20,000x40%)
As allocated 43,000 37,000 80,000

2. A
Solution:
A B C TOTAL
Amount Being Allocated 560,000
Allocation:
1. Salaries 80,000 80,000
2. Bonus 48,000* 48,000
3. Allocation of 96,000 144,000 192,000 432,000
Remainder:
(432,000x2/9);
(432,000x3/9);
(432,000x4/9)
As allocated 224,000 144,000 192,000 560,000

*Bonus: 560,000-80,000= 480,000x10%= 48,000

3. A

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Solution:
A B TOTAL
Allocation: 528,000
1. Salaries 120,000* 48,000** 168,000
2. Allocation of 180,000 180,000 360,000
Remaining Profit
(360,000x 50%);
(360,000x 50%)
As allocated 300,000 228,000 528,000

*10,000x 12months= 120,000

**4,000x 12months= 48,000

4. C
Solution:
A B TOTAL
Amount Being Allocated 2,500,000
Allocation:
1. Salaries 100,000 100,000
2. Bonus 400,000* 400,000
3. Allocation of 750,000 1,250,000 2,000,000
Remaining
Profit
(2Mx 3/8);
(2Mx 5/8)
As allocated 1,250,000 1,250,000 2,500,000

*Bonus: 2,500,000-100,000= 2,400,000

B= P (P/1+Br)
B= 2,400,000 (2,400,000/ 1. 20)
B= 400,000

5. C
Solution:
A B TOTAL
Amount Being Allocated 100,000
Allocation:
1. Salaries 48,000 30,000 78,000
2. Bonus 2,000* 2,000

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 3. Allocation of 12,000 8,000 20,000
Remaining
Profit
(20,000x60%);
(20,000x40%)
As allocated 62,000 38,000 100,000

*Bonus: 100,000-78,000= 22,000

B= P (P/1+Br)
B= 22,000 (22,000/ 1. 10)
B= 2,000

6. B
Solution:
A B TOTAL
Amount Being Allocated (10,000)
Allocation:
1. Salaries 25,000 4,000 29,000
2. Allocation of (23,400) (15,600) (39,000)
Remaining
Loss
(39,000x60%);
(39,000x40%)
As allocated 1,600 (11,600) (10,000)

*No Bonus because the partnership incurred a loss. However, salaries are provided whether the
partnership earns a profit or incurs loss because salaries are compensation for services rendered

7. B
Solution:
Simm’s Capital Account
Balances Months Weighted Average
Outstanding ÷
Total Months In A
Year
January 1- Beg. Balance 140,000 12/12 140,000

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 July 1- Additional 40,000 6/12 20,000
Investment
August 1- Withdrawal (15,000) 5/12 (6,250)
Weighted Average 153,750
Capital Balance
Multiply By: Interest Rate 10%
Interest On Weighted 15,375
Average Capital

Or [140k + (40 x 6/12) – (15k x 5/12)]= 153,750 x 10% =15,375

8. C
Solution:
CLIFF BURTON TOTAL
Amount Being Allocated
Allocation:
1. Salaries 100,000 100,000
2. Bonus 148,000** 148,000
3. Allocation of 1,036,000 296,000 1,332,000*
Remaining Profit
(1,332,000x7/9);
(1,332,000x2/9)
As allocated 1,284,000 296,000 1,580,000

*296,000 ÷ 2/9 = 1,332,000 Remaining profit

Profit= 1,332,000 (Remaining Profit) + 100,000 (salaries) + Bonus
P= 1,432,000 + Bonus

**Bonus=B% (Profit- Salary)

Bonus=10% (1,432,000 + Bonus – 100,000)
Bonus=10% (1,332,000 + Bonus)
Bonus= (133,200 + .10 Bonus)
.10 Bonus- 1Bonus= 133,200
.90Bonus = 133,200
.90 . 90
Bonus= 148,000

Another way:
Profit after salary and bonus
Divide by 100-10 bonus before bonus scheme

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Profit salary
Multiply
Bonus

9. C
Solution:
A B TOTAL
Allocation:
3. Salaries 60,000 60,000 120,000
4. Bonus 60,000* 60,000
5. Allocation of 150,000 150,000 300,000**
Remaining Profit
(300,000x 50%);
(300,000x 50%)
As allocated 270,000 210,000 480,000

* Bonus= P (P/1+Br)
B= 360,000 (360,000/ 1. 20)
B= 60,000
** 360,000- 60,000 (bonus) = 300,000 (Remaining Profit)

Or profit before salaries and bonus: (Work back)

Profit after salaries but before bonus (net) 360k

Salaries (60k x 2) 120,000
Profit before salaries and bonus (gross) 480k

10. D
A’s Capital
Solution: 80,000 Contributions
Withdrawals 120,000
60,000 A’s share in
profit (squeeze)
End 20,000
Partnership
Profit= A’s share in profit ÷ A’s percentage participation
Partnership Profit= 60,000 ÷ 25%
Partnership Profit= 240,000