Part 1 - Review Questions:

1. After closing all nominal accounts, what does the debit balance of the Income & Expense Summary account represent? T
Closing entries are made at the end of a fiscal term, which is normally one year. All nominal accoun
account called "Income and Expense Summary," which is then linked to the partners' drawing accou
to remember: whereas the drawing account is finally closed to the capital account in a sole proprieto
closed but rather "left open" in a partnership for the reasons already explained. To summarize, nom
are debited, and the resulting credit is recorded in the Income & Expense Summary. On the other h
accounts are credited, with the income and expense summary account functioning as the debit.

2. An industrial partner shares in profit but not in losses. In case the partnership assets are not sufficient to pay partnership

The company's quarterly income or loss equals the company's net income or loss after all revenue
The primary goal of the income summary account is to keep the permanent owner's capital or retain
elements. The Articles of Co-Partnership, in general, include the partners' agreement on how profits
"profit and loss ratio" is the proportion in which partners split their profits and losses. If only the prof
share must be decided as well.

3. Journalize the following transactions:

a.Partner X extends a P5,000 loan to the partnership.

Cash 5,000.00
Loan Payable 5,000.00

b. The partnership pays its P5,000 loan to Partner X.

Loan Payable 5,000.00
Cash 5,000.00

c. Partner Y borrows P3,000 cash from the partnership.

Cash 3,000.00
Loan Receivable 3,000.00

d. Partner Y pays its account P3,000 to the partnership.

Loan Receivable 3,000.00
Cash 3,000.00
 Expense Summary account represent? The credit balance?
normally one year. All nominal accounts are initially linked to a temporary
n linked to the partners' drawing account. Again, this is a critical distinction
the capital account in a sole proprietorship, the drawing account is not
lready explained. To summarize, nominal accounts with positive balances
& Expense Summary. On the other hand, debit balances in nominal
y account functioning as the debit.

ssets are not sufficient to pay partnership obligations, what is the liability of the industrial partner?

s net income or loss after all revenue and expense accounts are closed.
he permanent owner's capital or retained earnings free of erroneous
he partners' agreement on how profits and losses will be shared. The
heir profits and losses. If only the profit share has been decided, the loss
1) Compute the share of each partner based on the agreed ratio.

Partners Ratio Profit

AA 30% 120,000
BB 20% 120,000
CC 50% 120,000
Profit distribute
2) Determine how much is the share of each partner assuming that they failed to
stipulate the profit and loss agreement.

Partners Profit Capital Contribution

AA 120,000 60,000
BB 120,000 80,000
CC 120,000 20,000
160,000

3) Prepare the journal entry to record profit distribution based on the agreed ratio.

Income Summary 120,000

AA, Drawing
BB, Drawing
CC, Drawing
Shares
36,000
24,000
60,000
120,000

Shares
45000
60000
15000
120000

36,000
24,000
60,000
1. Show how profit is distributed under the following ratios.
a) Beginning Capital Ratio
Profit
JJ, Capital 322,500
KK, Capital 322,500

b) Ending Capital Ratio

Profit
JJ, Capital 322,500
KK, Capital 322,500

c) Average Capital Ratio

JJ, Capital
Date Capital Account Balances
Jan.1 800,000
April 1 820,000
October 1 810,000
Average Capital

KK, Capital
Date Capital Account Balances
Jan 1 700,000
April 1 680,000
November 1 705,000
Average Capital

d) Arbitrary Ratio of 3:2

PARTNERS RATIO
JJ 30%
KK 20%

e) Equally
PARTNERS PROFIT
JJ 322,500
KK 322,500

2. Prepare journal entries to record the division of profit in each of the given cases.
A. Income Summary
JJ, Drawing
KK, Drawing
To record the division of beginning capital ratio profit

B. Income Summary
JJ, Drawing
KK, Drawing
To record the division of ending capital ratio profit

C. Income Summary
JJ, Drawing
KK, Drawing
To record the division of average capital ratio profit
Computation:
PARTNERS PROFIT
JJ 322,500
KK 322,500

D.
Income Summary
JJ, Drawing
KK, Drawing
To record the division of arbitrary ratio 3:2 profit

E. Income Summary
JJ, Drawing
KK, Drawing
To record the division of equal profit
 Beginning Capital
800,000 1,500,000 604,687.50
700,000 1,500,000 150,500.00

Ending Capital
810,000 1,515,000 172,425.74
705,000 1,515,000 150,074.26

Portion of the Year Uchanged Average Capital Balances

3 2400000
6 4920000
3 2430000
12 9,750,000.00
812500

Portion of the Year Uchanged Average Capital Balances

3 2100000
7 4,760,000.00
2 1410000
12 8,270,000.00
689166.666666667

TOTAL AVERAGE CAPITAL BALANCES 1501666.66666667

PROFIT Shares
322,500 96750 2
322,500 64500 2

Shares
2 161250
2 161250
322,500.00

profit in each of the given cases.

 755,187.50
604,687.50
150,500.00
vision of beginning capital ratio profit

322,500.00
172,425.74
150,074.26
division of ending capital ratio profit

1,501,666.67
812,500.00
689,166.67
vision of average capital ratio profit

AVERAGE CAPITAL TOTAL AVERAGE CAPITAL BALANCES

9,750,000.00 1501666.66666667 2,093,923.42
8,270,000.00 1501666.66666667 1,776,076.58
3,870,000.00

322,500.00
193,500.00
129,000.00
vision of arbitrary ratio 3:2 profit

322,500.00
161,250.00
161,250.00
vision of equal profit
193500
129000
322500
a) Annual salaries of P45,000 and P30,000; 8% interest based on the beginning capital balance of each partn

Interest on Beginning Capital

DD 8%
EE 8%
TOTAL

b) 20% interest is allowed to partners based on the ending capital balances; annual salaries to each partner

Interest on Ending Capital Balances

DD 20%
EE 20%

Balance to be Divided Equally

450,000
436,000.00

DD 50%
EE 50%
Share of Partners in Profits

c) Annual salaries of P120,000 and P100,000; Bonus to Deriquito of 25% o before salaries to both; the remai

Annual Salaries
Bonus to DD
Remainder Average Capital

DD, Capital
Date Debit
January 1
October 1 70,000
December 1

EE, Capital
Date Debit
January 1
 March 1
November 1 10,000
December 1

DD
EE
 beginning capital balance of each partner and remainders equally.

Annual Salaries
45,000 3600
30,000 2400
75,000 6,000.00

alances; annual salaries to each partner, P50,000 and P20,000; and balance for distribution according to the ratio of 50

Annual Salaries DD
50,000 10000
20,000
70,000

436,000.00 218000
436,000
228000

25% o before salaries to both; the remainder is divided based on an average capital ratio.

TOTAL DD
220,000 120,000
112,500 112500
107,500 53,400.58
440,000 285,901

Credit Capital Account Balances

752,000
682,000
50,000 732,000

Credit Capital Account Balances

680,000
 80,000 760,000
750,000
40,000 790,000

TOTAL AVERAGES CAPITAL BALANCES

738,666.67 1,487,000.00
748,333.33 1,487,000.00
 distribution according to the ratio of 50% - 50%.

EE TOTAL

4000
14,000.00

218000 436000
222000 450,000.00

apital ratio.

EE PROFIT BONUS
100,000
450,000 25%
54,099.42
154,099

Portion of the Year Uchanged Average Capital Balances

9 6,768,000.00
2 1,364,000.00
1 732,000.00
12 8,864,000.00
Average Capital 738,666.67

Portion of the Year Uchanged Average Capital Balances

2 1,360,000.00
 8 6,080,000.00
1 750,000.00
1 790,000.00
12 8,980,000.00
Average Capital 748,333.33

1,487,000.00

107,500 53,400.58
107,500.00 54,099.42
107,500.00
a) Bonus of 20% of Income before bonus to RR;
b) Interest of 10% of the average capital account balance to each partner.
c) Salary allowed to RR, P38,000,
d) Any remainder should be on the ratio of 2:3:5
BONUSAVERAGE CAPITAL ACC.
Salary to RR
20% Bonus to RR (20% X 100,000) 20% 100,000
Interest
10% 100,000
10% 300,000
10% 200,000
Remainder:

Balance to be Divided in a Ratio of 2:3:5

74,000.00

RR 20%
SS 30%
TT 50%
Share of Partners in Profits
 PROFIT RR SS
38,000
20000

10000
30000

250,000 68,000 30000

14,800
22200

e of Partners in Profits 150,800 82200

 TT TOTAL
38,000
20000

10000
30000
20000 20000
20000 118,000

37000 74,000
77000 250,000