Unit II Lab Drill On Partnership Operations 1

AC 42 (Lab) Unit Drill on Partnership Operations
Problem 1
Fah, Fei, and Fou are partners. Entries in the capital accounts during 2021 are as follows:
Fah, Capital Fei, Capital Fou, Capital
Jan 1 Cr. P100,000 Jan 1 Cr. P150,000 Jan 1 Cr. P120,000
May 1 Cr. 20,000 Feb 28 Dr. 30,000 Mar 31 Cr. 30,000
July 31 Dr. 10,000 May 31 Dr. 40,000 May 1 Cr. 50,000
Aug 31 Cr. 30,000 Sept 30 Cr. 50,000 Aug 31 Dr. 30,000
Nov. 30 Dr. 20,000 Oct 31 Cr. 10,000 Dec 31 Dr. 10,000
Case 1
The Partnership Agreement provides for the following:
a. Fah receives a salary of P20,000 and receives 4% bonus after all bonus but before tax
b. Fei receives a salary of P10,000 and receives a 3% bonus before bonus but after tax
c. Fou receives a 5% bonus after Fei’s bonus, but before Fah’s bonus and tax.
d. All partners are to receive 4% interest on their average balances.
e. Remaining balance is to be shared 40:25:35
f. Income tax rate is 30%
g. Profit for the year is P67,500
h. Salaries, interest, and bonus are not partnership expenses
How much is the bonus given to Fah?

How much is the bonus given to Fei?
How much is the bonus given to Fou?
How much is the total share of Fah in the profit?
How much is the total share of Fei in the profit?
How much is the total share of Fou in the profit?
Case 2
a. Fah receives a salary of P20,000 and receives 4% bonus after all salaries, interest, and bonus but
before tax
b. Fei receives a salary of P10,000 and receives a 3% bonus after all salaries, interest, and tax but
before all bonus
c. Fou receives a 5% bonus after all salaries, interest, and Fei’s bonus, but before Fah’s bonus and
tax.
d. All partners are to receive 5% interest on their ending balances.
e. Remaining balance is to be shared 20:30:50
g. Profit for the year is P97,800

Case 3
d. All partners are to receive 6% interest on their beginning balances.
e. Income tax rate is 30%
f. Profit before salaries, interest, bonus, and tax for the year is P124,300
g. Salaries and interest are treated as partnership expenses and are considered as such for tax
purposes. Salaries and Interest are also given to partners in cash, that is, they are not provided
as a method of profit distribution. On the other hand, bonus is not a partnership expense but a
means to distribute profit.
h. Remaining balance is to be shared equally among partners.

How much was the profit for distribution?
Case 4
d. All partners are to receive 7% interest on their moving average balances.
e. Remaining balance is to be shared equally among partners
g. Loss for the year is P13,200

How much is the ending capital balance of Fah after loss distribution?
How much is the ending capital balance of Fei after loss distribution?
How much is the ending capital balance of Fou after loss distribution?
Solution:
CASE 1
Note here that the bonus calculation for Fah is dependent on all the bonus calculations. Thus, we have
to compute for Fei’s bonus first.
Calculation of Fei’s bonus (3% of profit before bonus but after tax)
FeiB = % (Profit) = 3% (67,500) = P2,025
Next, we can proceed to calculating Fou’s bonus as follows:

Calculation of Fou’s bonus (5% after Fei’s Bonus but before Fah’s bonus and tax)
𝑃𝑟𝑜𝑓𝑖𝑡 𝑃67,500
𝐹𝑜𝑢𝐵 = % ( − 𝐹𝑒𝑖𝐵) = 5% ( − 𝑃2,025) = 𝑃4,720.18
1 − 𝑇𝑅 1 − 30%
With Fei’s and Fou’s bonuses now calculated, we can now proceed to calculating Fah’s bonus as follows:
Calculation of Fah’s bonus (4% after all bonus but before tax)
𝑃𝑟𝑜𝑓𝑖𝑡 𝑃67,500
𝐹𝑎ℎ𝐵 = % ( − 𝐹𝑒𝑖𝐵 − 𝐹𝑜𝑢𝐵 − 𝐹𝑎ℎ𝐵) = 4% ( − 𝑃2,025 − 𝑃4,720.18 − 𝐹𝑎ℎ𝐵)
1 − 𝑇𝑅 1 − 30%
𝐹𝑎ℎ𝐵 = 4%(𝑃89,683.39 − 𝐹𝑎ℎ𝐵) = 𝑃3,587.34 − 4%𝐹𝑎ℎ𝐵

𝐹𝑎ℎ𝐵 + 4%𝐹𝑎ℎ𝐵 = 𝑃3,587.34
𝑃3,587.34
𝐹𝑎ℎ𝐵 = = 𝑃3,449.37
1.04
Now for the calculation of interests

Ending balance:
Fah = P100,000 + P20,000 – P10,000 + P30,000 – P20,000 = P120,000
Fei = P150,000 – P30,000 – P40,000 + P50,00 + P10,000 = P140,000
Fou = P120,000 + P30,000 + P50,000 – P30,000 – P10,000 = P160,000
Beginning Capital Beginning Capital Ending Capital Average Capital Interest rate Interest
Fah 100,000 100,000 120,000 110,000 4% 4,400
Fei 150,000 150,000 140,000 145,000 4% 5,800
Fou 120,000 120,000 160,000 140,000 4% 5,600
Total 395,000 15,800
Profit distribution is then calculated as follows:
Fah Fei Fou Total

Interest: 4,400 5,800 5,600 15,800
Salary 20,000 10,000 30,000
Bonus 3,449.37 2,025 4,720.18 10,194.55
Remainder: 40:25:35
Fah – (67,500 – 55,994.55) x 40/100 4,602.18
Fei – (67,500 – 55,994.55) x 25/100 2,876.36
Fou – (67,500 – 55,994.55) x 35/100 4,026.91 11,505.45
Total 32,451.55 20,701.36 14,347.09 67,500
Summary of Answers:
1. How much is the bonus given to Fah?
3,449.37
2. How much is the bonus given to Fei?
2,025
3. How much is the bonus given to Fou?
4,720.18
4. How much is the total share of Fah in the profit?
32,451.55
5. How much is the total share of Fei in the profit?
20,701.36
6. How much is the total share of Fou in the profit?
14,347.09
CASE 2
Note that in this case, the bonus of all partners are calculated after all salaries and interest. With that,
we first have to determine these as follows:
Total Salary (Fah and Fei only)

Total Salary = FahS + FeiS = P20,000 + P10,000 = P30,000
Total Interest
Ending Capital Interest rate Interest
Fah 120,000 5% 6,000
Fei 140,000 5% 7,000
Fou 160,000 5% 8,000
Total 420,000 21,000
We can now proceed to the calculation of bonus. Note here that the bonus calculation for Fah is
dependent on all the bonus calculations. Thus, we have to compute for Fei’s bonus first.
Calculation of Fei’s bonus (3% of profit before bonus but after salaries, interest and tax)
FeiB = % (Profit – Salaries - Interest) = 3% (97,800 – P30,000 – P21,000) = P1,404

Calculation of Fou’s bonus (5% after salaries, interest, Fei’s Bonus but before Fah’s bonus and tax)
𝑃𝑟𝑜𝑓𝑖𝑡
𝐹𝑜𝑢𝐵 = % ( − 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 − 𝐹𝑒𝑖𝐵)
1 − 𝑇𝑅
𝑃97,800
𝐹𝑜𝑢𝐵 = 5% ( − 𝑃30,000 − 𝑃21,000 − 𝑃1,404) = 𝑃4,365.51
1 − 30%
Calculation of Fah’s bonus (4% after all salaries, interest, and bonus but before tax)
𝐹𝑎ℎ𝐵 = % ( − 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 − 𝐹𝑒𝑖𝐵 − 𝐹𝑜𝑢𝐵 − 𝐹𝑎ℎ𝐵)
1 − 𝑇𝑅
𝑃97,800
𝐹𝑎ℎ𝐵 = 4% ( − 𝑃30,000 − 𝑃21,000 − 𝑃1,404 − 𝑃4,365.51 − 𝐹𝑎ℎ𝐵)
1 − 30%
𝐹𝑎ℎ𝐵 = 4%(𝑃82,944.78 − 𝐹𝑎ℎ𝐵) = 𝑃3,317.79 − 4%𝐹𝑎ℎ𝐵

𝐹𝑎ℎ𝐵 + 4%𝐹𝑎ℎ𝐵 = 𝑃3,317.79
𝑃3,317.79
𝐹𝑎ℎ𝐵 = = 𝑃3,190.18
1.04
Fah Fei Fou Total

Interest: 6,000 7,000 8,000 21,000
Salary 20,000 10,000 30,000
Bonus 3,190.18 1,404 4,365.51 8,959.69
Remainder: 20:30:50
Fah – (97,800 – 59,959.69) x 20/100 7,568.06
Fei – (97,800 – 59,959.69) x 30/100 11,352.09
Fou – (97,800 – 59,959.69) x 50/100 18,920.16 37,840.31
Total 36,758.24 29,756.09 31,285.67 97,800
Summary of Answers
3,190.18
1,404
4,365.51
36,758.24
29,756.09
31,285.67
Case 3
Note that in this case, salaries and expense are treated as normal partnership expenses. Thus, entries
for these are to be made in the partnership books, not as profit distribution, but as expenses. We
calculate and journalize these as follows:
Total Salary (Fah and Fei only)

Total Salary = FahS + FeiS = P20,000 + P10,000 = P30,000
Salaries Expense P30,000

Cash P30,000
Income and Expense Summary P30,000

Salaries Expense P30,000
Total Interest
Beginning Interest rate Interest
Capital
Fah 100,000 6% 6,000
Fei 150,000 6% 9,000
Fou 120,000 6% 7,200
Total 370,000 22,200
Interest Expense P22,200

Cash P22,200
Income and Expense Summary P22,200

Interest Expense P22,200
NOTE: These entries are only done when it is explicitly stated that salaries to partners and interest on
their capital balances are treated as normal partnership expenses
Before calculating for the bonus, we first have to determine what amount of profit is the basis for
bonus.
Profit before tax = Profit before salaries, interest, bonus and tax – Salaries – Interest
= P124,300 – P30,000 – P22,200
= P72,100
Profit (after tax) = P72,100 x (1 – 30%) = P50,470
With the profit calculated, we can now proceed to the calculation of bonus. Note here that the bonus
calculation for Fah is dependent on all the bonus calculations. Thus, we have to compute for Fei’s bonus
first.
Calculation of Fei’s bonus (3% of profit before bonus but after tax)
FeiB = % (Profit) = 3% (P50,470) = P1,514.10
Calculation of Fou’s bonus (5% after Fei’s Bonus but before Fah’s bonus and tax)
𝐹𝑜𝑢𝐵 = % ( − 𝐹𝑒𝑖𝐵)
1 − 𝑇𝑅
𝑃50,470
𝐹𝑜𝑢𝐵 = 5% ( − 𝑃1,514.10) = 𝑃3,529.30
1 − 30%
Calculation of Fah’s bonus (4% after all bonus but before tax)
𝐹𝑎ℎ𝐵 = % ( − 𝐹𝑒𝑖𝐵 − 𝐹𝑜𝑢𝐵 − 𝐹𝑎ℎ𝐵)
1 − 𝑇𝑅
𝑃50,470
𝐹𝑎ℎ𝐵 = 4% ( − 𝑃1,514.10 − 𝑃3,529.30 − 𝐹𝑎ℎ𝐵)
1 − 30%
𝐹𝑎ℎ𝐵 = 4%(𝑃67,056.60 − 𝐹𝑎ℎ𝐵) = 𝑃2,682.26 − 4%𝐹𝑎ℎ𝐵

𝐹𝑎ℎ𝐵 + 4%𝐹𝑎ℎ𝐵 = 𝑃2,682.26
𝑃2,682.26
𝐹𝑎ℎ𝐵 = = 𝑃2,579.10
1.04
Profit for distribution id Profit (after tax) amounting to P50,470 and is distributed as follows:
Fah Fei Fou Total

Bonus 2,579.10 1,514.10 3,529.30 7,622.50
Remainder: Equally
Fah – (50,470 – 7,622.50) / 3 14,282.50
Fei – (50,470 – 7,622.50) / 3 14,282.50
Fou – (50,470 – 7,622.50) / 3 14,282.50 42,847.50
Total 16,861.60 15,796.60 17,811.80 50,470
Summary of Answers:
2,579.10
1,514.10
3,529.30
16. How much was the profit for distribution?
50,470
16,861.60
15,796.60
17,811.80
CASE 4
In this case, there will be no bonus given to the partners as the partnership has incurred a loss.
We proceed directly to the calculation of interest as follows:

Moving average of Fah
Amount Number of Months Equivalent
Outstanding value
Beginning Capital 100,000 12/12 100,000.00
May 1 Credit (Additional Investment) 20,000 8/12 13,333.33
July. 31 Debit (Permanent Withdrawal) (10,000) 5/12 (4,166.67)
Aug 31 Credit (Additional Investment) 30,000 4/12 10,000.00
Nov 30 Debit (Permanent Withdrawal) (20,000) 1/12 (1,666.66)
Moving Average 117,500.00
Moving average of Fei

Outstanding value
Feb 28 Debit (Permanent Withdrawal) (30,000) 10/12 (25,000.00)
May 31 Debit (Permanent Withdrawal) (40,000) 7/12 (23,333.33)
Sept 30 Credit (Additional Investment) 50,000 3/12 12,500.00
Oct 31 Credit (Additional Investment) 10,000 2/12 1,666.67
Moving average of Fou

Outstanding value
Mar 31 Credit (Additional Investment) 30,000 9/12 22,500.00
May 1 Credit (Additional Investment) 50,000 8/12 33.333.33
Aug 31 Debit (Permanent Withdrawal) (30,000) 4/12 (10,000.00)
Dec 31 Debit (Permanent Withdrawal) (10,000) 0/12 (0.00)
Moving Average Interest Interest

Capital Balance rate
Fah 117,500.00 7% 8,225.00
Fei 115,833.34 7% 8,108.33
Fou 165,833.34 7% 11,608.33
Total 399,166.68 27,941.66
Fah Fei Fou Total

Interest: 8,225 8,108.33 11,608.33 27,941.66
Salary 20,000 10,000 30,000
Bonus 0 0 0 0
Remainder: Equally
Fah – (-13,200 – 57,941.66) / 3 (23,713.89)
Fei – (-13,200 – 57,941.66) / 3 (23,713.89)
Fou – (-13,200 – 57,941.66) / 3 (23,713.89) (71,141.67)
Total 4,511.11 (5,605.56) (12,105.56) (13,200.01)
Fah Fei Fou Total

Ending Capital, before distribution 120,000 140,000 160,000 420,000
Share in Profit (Loss) 4,511.11 (5,605.56) (12,105.56) (13,200.01)
Ending Capital, after distribution 124,511.11 134,394.44 147,894.44 406,799.99
Summary of answers:
0
0
0
23. How much is the ending capital balance of Fah after loss distribution?
124,511.11
24. How much is the ending capital balance of Fei after loss distribution?
134,394.44
25. How much is the ending capital balance of Fou after loss distribution?
147,894.44
Summary of Journal Entries

Case 1
Income and Expense Summary 67,500
Fah, Capital 32,451.55
Fei, Capital 20,701.36
Fou, Capital 14,347.09
Case 2
Case 3
To illustrate the entries for salaries and interest treated as expense, and the recording of tax, see journal
entries below:
Salaries Expense 30,000

Cash 30,000

Interest Expense 22,200

Cash 22,200

Income tax expense (72,100 x 30%) 21,630

Income tax payable 21,630

Income tax expense 21,630
Note here that before these entries, the balance of the in the Income and Expense account is P124,300.
After these entries, the balance of in the Income and Expense account is
124,300 – 30,000 – 22,200 – 21,630 = 50,470 which is equal to the profit distributed.
Case 4
Fah, Capital 4,511.12*
*the adjustment of .01 is due to rounding off.
As you may have noticed in this case, despite the partnership incurring a loss, Fah’s Capital still
increased. This is because his share in the form of salary and interest has exceeded his share in the total
loss.

Unit II Lab Drill On Partnership Operations 1

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AC 42 (Lab) Unit Drill on Partnership Operations

How much is the bonus given to Fah?

How much is the bonus given to Fah?

How much is the bonus given to Fah?

How much is the bonus given to Fah?

Next, we can proceed to calculating Fou’s bonus as follows:

𝐹𝑎ℎ𝐵 = 4%(𝑃89,683.39 − 𝐹𝑎ℎ𝐵) = 𝑃3,587.34 − 4%𝐹𝑎ℎ𝐵

Now for the calculation of interests

Profit distribution is then calculated as follows:

Fah Fei Fou Total

Total Salary (Fah and Fei only)

Next, we can proceed to calculating Fou’s bonus as follows:

𝐹𝑎ℎ𝐵 = 4%(𝑃82,944.78 − 𝐹𝑎ℎ𝐵) = 𝑃3,317.79 − 4%𝐹𝑎ℎ𝐵

Profit distribution is then calculated as follows:

Fah Fei Fou Total

Total Salary (Fah and Fei only)

Salaries Expense P30,000

Income and Expense Summary P30,000

Interest Expense P22,200

Income and Expense Summary P22,200

Profit (after tax) = P72,100 x (1 – 30%) = P50,470

𝐹𝑎ℎ𝐵 = 4%(𝑃67,056.60 − 𝐹𝑎ℎ𝐵) = 𝑃2,682.26 − 4%𝐹𝑎ℎ𝐵

Fah Fei Fou Total

We proceed directly to the calculation of interest as follows:

Moving average of Fei

Moving average of Fou

Moving Average Interest Interest

Fah Fei Fou Total

Fah Fei Fou Total

Summary of Journal Entries

Salaries Expense 30,000

Income and Expense Summary 30,000

Interest Expense 22,200

Income and Expense Summary 22,200

Income tax expense (72,100 x 30%) 21,630

Income and Expense Summary 21,630

*the adjustment of .01 is due to rounding off.

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