EXERCISES

Exercise 2-1. Tracy and Amor formed a partnership on January 1, 2020. Tracy contributed
P500,000 while Amor P250,000. At the end of the year 2020 the partnership
earned a profit amounting to P1,500,000. During 2020, Tracy and Amor made
additional investments and withdrawals. The capital balances of Tracy and Amor
before the distribution of profits were P700,000 and P400,000 respectively.

Required: Prepare journal entries to record the distribution of profit using the following
independent assumption:

1. Profit and loss will be divided equally

Income Summary 1,500,000

Tracy Capital 750,000
Amor Capital 750,000

2. Profit and loss ratio: 60% and 40% to Tracy and Amor respectively.

Income Summary 1,500,00

Tracy Capital 900,000
Amor Capital 600,000

3. Profit and loss ratio: According to the original capital contribution.

Income Summary 1,500,00

Tracy Capital 1,000,000 (500,00/750000 x 1,500,000)
Amor Capital 500,000 ( 250,000/750000 x 1,500,000)

4. Profit and loss ratio: According to capital contribution (simple average)

Income Summary 1,500,00

Tracy Capital 972,973 (600,00/925,000 x 1,500,000)
Amor Capital 527,027 ( 325,000/925,000 x 1,500,000)
Tracy ( 500,000 + 700,000)/2 === 600,000
Amor ( 250,000 + 400,000)/2 ====325,000
925,000

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 5. Profit and loss ratio: According to ending capital balance.

Income Summary 1,500,00

Tracy Capital 954,545 (700,00/1,100,000 x 1,500,000)
Amor Capital 545,455 ( 400,000/1,100,000 x 1,500,000

Exercise 2.2

1. Amie and Benny are partners who shares profits and losses in the ratio of 70%: 30%,
respectively. Amie’s salary is P120,000 and P60,000 for Benny. The partners were
also paid for interest on their average capital balances. In 2020, Amie received
P15,000 of interest and Benny P6,000. The profit and loss allocation is determined
after deductions for the salary and interest payments. If Benny’s share in the
residual profit (profit after deducting salaries and interest) was P120,000 in 2020,
what was the total partnership profit?

Armie Benny Total

Salary 120,000 60,000 180,000
Interest 15,000 6,000 21,000
Balance 54,000 SF ?????
Total 120,000 ?????? 381,000

OR

Benny ( 120,000-60000-6000) = 54,000

= 54,000/30% = 180,000 Balance

Profit = Salary 180,00 + Interest 21,000 + Balance 180,000 = 381,000

2. The partnership has the following data:

1. Sales = P1,540,000
2. Cost of Goods Sold = P616,000
3. Operating Expenses = P150,000
4. Salary allocations to partners = P146,000
5. Interest paid to banks = P4,000
6. Partners’ withdrawals = 100,000

How much was the profit or loss of the partnership?

Profit = P624,000

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3. A,B,C and D own a publishing company that they operate as a partnership.
The partnership agreement includes the following:
* A receives a salary of P40,000 and a bonus of 3% of profit after all bonuses.
* B receives a salary of P20,000 and a bonus of 2% of profit after all bonuses.
* All partners will receive 10% interest on their average capital balances.

The average capital balances are as follows:

A P100,000
B 90,000
C 40,000
D 94,000
Any remaining profits and loss are to be divided equally among the partners.
Determine how a profit of P315,000 would be allocated among the partners.

Schedule of Profit Distribution

Schedule of Profit Distribution

  A B C D Total
Salary 40000 20000     60000
Interest 10% 10000 9000 4000 9400 32400
Bonus 6360 4240     10600
Balance
equally 53000 53000 53000 53000 212000
10936 315000
Total 0 86240 57000 62400 315000 profit
103000
212000
315,00
Total profit 0
Salary 60000
Interest 32400 92400
222,60 222600/105
After 0 %  
212000  

Bonus A 212000 x 3% 6360

B 212000 x 2% 4240
4. Partnership of partners Candy and Daisy has a loss of 75,000 for the year 2020.
If their profit and loss ratio is 2:3 to Candy and Daisy respectively, how will the loss
be distributed to Candy and Daisy?

Candy, Capital (2/5 x 75,000) 30,000

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Daisy Capital (3/5 x 75,000) 45,000
Income Summary 75,000
5. Apple, a partner in the Grand Partnership, has a 40% participation in partnership
profits and losses. Apple’s capital account has a net decrease of P160,000 during the
calendar year 2020. During 2020, Apple withdrew P420,000 and contributed
property valued at P200,000 to the partnership. How much was the net income of
Grand Partnership for the year 2020?

Net withdrawal (220,000) - 420,000+200,000

INCREASE 60,000 60,000/40% = 150,000 PROFIT(100%)
Net Decrease (160,000)

6. The partnership agreement of Rosa, Lenny, & Leah provides for the year-end
allocation of net income in the following order:
1. Rosa will receive 10% of net income up to P200,000 and 20% in excess of
P200,000.
2. Lenny and Leah, each of them will receive 10% of the remaining income over
P300,000.
3. The balance of income is to be allocated equally among the three partners.

The partnership’s 2020 income was P1,000,000 before any allocations to partners.
What amount should be allocated to Rosa?

Schedule of Profit Distribution

  Rosa Lenny Leah Total
10% of NI up to 200,000        

180,000.0
and 20% in excess of 200000 0      
      180,000
10% of the remaining income        
over 300000   70000 70000 140000
       
Balance equally 226667 226667 226666 680000

  406,667 296,667 296,666 1,000,000.00

7. Partner A first contributed P50,000 of capital into an existing partnership on March

1, 2019. On June 1, 2019, the partner contributed another P20,000. On
September 1, 2019, the partner withdrew P15,000 from the partnership.
Withdrawals in excess of P10,000 are charged to the partner’s capital account. The
annual weighted average capital balance is

a. P62,000 b. 51,667 c. P60,000 d. 48,333

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 Weighted average capital        
         
Peso
Date Capital Months Months  
         
March 1, 2019 50000 3 150000  
June 1, 2019 70000 3 210000  
September 1, 2019 55000 4 220000  
    10 580000  
      divide 12 annual
48333.333
      3  

Refer to Exercise 3
8-10. Leo, Nardo, Alex, and Lean own a publishing company that they operate as a
partnership. The partnership agreement includes the following:

Leo receives a salary of P20,000 and a bonus of 3% of income after all bonuses.
Nardo receives a salary of P10,000 and a bonus of 2% of income after all bonuses.
All partners are to receive 10% interest on their average capital balances.
The average capital balances are as follows:
Leo ………………………………….. P50,000
Nardo ………………………………… 45,000
Alex ………………………………….. 20,000
Lean ………………………………….. 47,000
Any remaining profits and loss are to be divided equally among the partners.
The net income for the year is P105,000..

8. The share of Leo in the net income for the year will be
a. P41,450 b. P28,000 c. P39,700 d. not given

9. The share of Nardo in the net income for the year will be
a. P29,200 b. P16,500 c. P29,950 d. not given

10. The share of Alex in the net income for the year will be
a. P2,000 b. P15,450 c. P16,700 d. not given

11. The share of Lean in the net income for the year will be
a. P18,150 b. 4,700 c. P19,400 d. not given

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