Activity 03: Partnership Operation

NAME: _______________________ ID No.: _______

Problem 01: (8 pts)

C and D agreed to form a partnership. C contributes cash amounting to P100,000 and an equipment with
a book value of P120,000 but has a fair value of P100,000. D has no money nor properties to contributes
but has an excellent entrepreneurial skill. They agreed to share profit 60:40 respectively. On their first
year of operation, they earned P 150,000 revenue but paid P225,000 for expenses. On their second year
of operation, they earned P250,000 revenue and paid P105,000 for expenses.
Requirements:
a. Prepare all necessary journal entries, including closing entries, on the partnership books for first
and second year. (10 pts)
b. Compute the following: (4 pts)
1. Ending capital balances of C and D at the end of first year of operation
2. Ending capital balances of C and D at the end of second year of operation

Problem 02:
E and F agreed to form a partnership with their contributions shown below:
E F
Book value Fair vale Book value Fair value
Cash 80,000 80,000 60,000 60,000
Furniture 100,000 80,000 80,000 80,000
Merchandise 60,000 50,000 90,000 60,000
They agreed to share loss 70:30 respectively.
Income summary account balances at the end of the year before closing to capital accounts are shown
below:
Year 1 10,000 credit profit
Year 2 5,000 debit loss
Year 3 15,000 credit profit
Requirements:
Prepare the closing entries of income summary from Year 1 to Year 3. (3 pts)

Problem 03: (8 pts)

The net income if A and B Partnership for 2020 amounted to P504,000. A is the managing partner.
Assume that the partners agreed on the allocation of net income as follows:
• Bonus of 20% to A
• Salaries to A, P48,000 and B, P72,000
• Interest on average capital balances – A, P14,400 and B, P9,600
• Residual balances in net income be allocated to A and B in the ratio of 2:1
Requirements: Prepare a schedule to allocate net income under each independent assumption:
a. Bonus is based on net income before deducting bonus, salaries and interest.
b. Bonus is based on net income after deducting bonus but before salaries and interest.
c. Bonus is based on net income after deducting bonus and salaries but before interest.
d. Bonus is based on net income after deducting bonus, salaries and interest.
e. Bonus is based on net income after deducting salaries but before bonus and interest.
f. Bonus is based on net income after deducting interest but before bonus and salaries.
g. Bonus is based on net income before deducting bonus but after income tax (tax rate is 35%).
Activity 03: Partnership Operation
NAME: _______________________ ID No.: _______

h. Bonus is based on net income after deducting bonus and income tax (tax rate is 35%).
Take note: Net income means income after deducting income taxes.

Problem 04:
G and H organized their partnership on 1/1/2020. The following entries were made into their capital
accounts during 2020:
G, capital
Debit Credit Balance
1/1 35,000 35,000
6/1 10,000 45,000
10/1 5,000 50,000

H, capital
Debit Credit Balance
1/1 25,000
3/1 10,000 35,000
9/1 10,000 25,000
11/1 5,000 20,000
12/1 8,000 28,000

Requirements: If partnership profits for the year equaled P66,000, indicate the allocations between the
partners under the following independent profit-sharing allocation conditions:
a. Interest of 10% is allocated on weighted average capital balance and the remainder is divided
equally.
b. A salary of P9,000 will allocated to H; 10% interest on ending capital is allocated to the partners;
remainder is divided 60/40 to G and H, respectively.
c. Salaries are allocated to G and H in the amount of P10,000 and P15,000, respectively and the
remainder is allocated on proportion to weighted average capital balances.
d. A bonus of 10% of partnership profits after bonus is credited to G, a salary of P35,000 is
allocated to H, a P20,000 salary is allocated to G, 10% interest on weighted average capital
balances is allocated, and remainder is split equally.