PARTNERSHIP OPERATIONS 7

PROBLEM 1
KARLO and JERRY formed a partnership on January 1, 20x9. KARLO
contributes cash of P120,000 and JERRY contributed land with a
fair value of P160,000. The partnership assumed the mortgage on
the land which amounted to P40,000. Jerry originally paid P90,000
for the land. On July 1, 20x9, the partnership sold the land for
P190,000. KARLO and JERRY share profits on a 1:4 ratio.

How much of the gain from the sale of land be credited to KARLO
for financial accounting purposes?

PROBLEM 2
The following balance sheet for the partnership One, Two and Three
were taken from the books on September 30, 20x8:

ASSETS LIABILITIES & EQUITY

Cash 40,000 Liabilities 100,000
Other Assets 360,000 One, Capital 74,000
Two, Capital 130,000
Three, Capital 96,000

The partners agreed to distribute the profits as follows:

1. Allow annual salaries to One and Two of P3,000 each;
2. Allow interest of 6% on beginning capital;
3. Allow a bonus of 10% to Two as an expense after salaries
and interest;
4. Remainder will be distributed on a 4:4:2 ratio to One,
Two and Three, respectively.

1. If the net income of the partnership was P61,000 during

the period ending December 31, 20x8, what was the total
share of TWO in the net income?
2. If THREE’s share in the net income on December 31, 20x8 is
P3,440, how much was the share of TWO in the net income?
3. If THREE’s share in the net income on December 31, 20x8 is
P3,440, how much is the partnership’s net income?

PROBLEM 3
LORD and GEN are partners in a firm sharing profits equally. Their
capital accounts as of December 31, 20x8 showed balances of P60,000
and P50,000 respectively. Each partner also contributed P10,000
each. Net income for the year amounts to P20,000 and is to be
distributed to the partners as follows:
a. The partners are entitled to a 6% interest on beginning
capital.
b. The drawings of LORD and GEN for the year were P8,000 and
P6,000 respectively.
 PARTNERSHIP OPERATIONS 8

c. LORD and GEN are entitled to annual salaries of P5,000 and

P2,000 each respectively.
d. The remaining profits are to be divided equally.

Determine the share of LORD and GEN in the net income.

PROBLEM 4
JOSEPH and SAWI share profits and losses on a 4:6 ratio. JOSEPH
and SAWI receive salary allowances of P10,000 and P20,000 each
respectively. The partners also receive a 10% interest on their
beginning capital. The partners further agree that if the net
income after deducting the interest and salary allocations is
greater then P20,000, SAWI receives a bonus of 5% of the original
net income. Net income for 2018 amounts to P60,000.

JOSEPH SAWI
December 31, 20x8 182,000 282,000
Yearly Drawings @ P1,500 a 18,000 18,000
month

What is the total amounts for the allocation of interest, salary

and bonus for the year, and how much is the over-allocation for
the year?

PROBLEM 5
Partners Pang, Average and Computation, had the following capital
balances as of January 1, 20x9:

Pang 100,000
Average 150,000
Computation 225,000

The partnership agreement states that the profits and losses are
to be shared equally by the partners after consideration is made
for the following:
- Salaries allowed to partners: P60,000 for Pang; P48,000
for Average and P36,000 for Computation;
- Average partners’ capital balance during the year shall be
allowed 10%;
- 10% interest to Pang after partners salaries and his
interest.

Additional information:
- On June 30, 20X9, Pang invested additional P60,000;
- Computation withdrew P70,000 from the partnership on
September 30, 20X9;
 PARTNERSHIP OPERATIONS 9

- Share in the remaining partnership profit was P5,000 for

each partner;
- Partners withdrew 1/12 of their respective salaries at the
end of each month.

What is the total interest on the average capital balances of the

partners?
What is the total partnership capital on December 31, 20x9?

PROBLEM 6
On January 1, 20x8, DAPAT, KO, ARALIN and TO formed a partnership
with capital contributions as follows: DAPAT-P50,000; KO-P25,000;
ARALIN-P25,000 and TO-P20,000. The partnership agreement
stipulates that each partner shall receive a 5% interest on capital
contributed and DAPAT and KO shall receive salaries of P5,000 and
P3,000, respectively. The agreement further provides that ARALIN
shall receive a minimum of P2,500 per annum and TO, a minimum of
P6,000 which is inclusive of amounts representing interest and
their respective shares in partnership profits. KO is also to
receive a 10% interest on the net income after bonus and salaries.
The balance of the profits shall be distributed to the partners in
a 3:3:2:2 ratio.

What amount must be earned by the partnership in 20x8, before any

charge for interest, partners’ salaries and bonus, in order for
DAPAT to receive an aggregate P12,500 including interest, salary
and share of profits?

PROBLEM 7
One, Two and Three are engaged in a merchandising business. Their
capital accounts in the partnership by the end of 20x6 are as
follows:

One Two Three

January 1 100,000 150,000 120,000
April 1, withdrawal 5,000
May 1, Investment 10,000 15,000
August 1, Investment 15,000
December 1, withdrawal 6,500 30,000

The partners agreed on the following terms: 8% interest on their

average capital balances. Quarterly salaries of 75,000; 55,000
and 68,000 for them respectively. Bonus is given to Two, 5% of
income before tax after his interest, his salary, and bonus. For
the year ended, the partnership has a credit balance in the income
summary account of 550,000. The relevant tax rate during the year
is 20%. The remainder will be divided in the ratio 2:3:4.
 PARTNERSHIP OPERATIONS 10

How much is the share of partner Two in the net income?

How much is the capital balance of partner One at December 31,
20x6?

PROBLEM 8
WALANG and FOREVER formed a partnership on January 2, 20x8, WALANG
and FOREVER contributed capital of 350,000 and 50,000
respectively. They agreed to share profits and losses in the ratio
of 80:20, respectively. FOREVER is given a monthly salary of
5,000, 15% bonus based on income before salaries, interest and
bonus. Both partners are given an interest of 5% of beginning
capital. The income statement for the year ended prepared by the
company’s bookkeeper is as follows:

Net Sales 1,750,000

Cost of Sales 1,400,000
Gross Profit 350,000
Expenses (including salary, interest 286,000
and bonus)
Net Income 64,000

What is the amount of bonus to FOREVER in 20x8?

PROBLEM 9
Edmund, Harry and Vincent formed a partnership on January 1, 20x8.
Each contributed P120,000.

Salaries were to be allocated as follows:

Edmund- P30,000
Harry- P30,000
Vincent- P45,000

Drawings were equal to salaries and be taken out evenly throughout

the year.

With sufficient partnership net income, Edmund and Harry could

split a bonus equal to 25% of partnership net income after salaries
and bonus (in no event could the bonus go below zero).

Remaining profits were to be divided as follows: 30% for Edmund;

30% for Harry, and 40% for Vincent.

For the year, partnership net income was P120,000.

Compute the ending capital for each partner:

PROBLEM 10
 PARTNERSHIP OPERATIONS 11

On April 1, 20x7, Kevin, Steph and Klay formed a partnership with

respective capital contributions of P2,000,000, P5,000,000 and
P3,000,000. The articles of co-partnership provides that profit
or loss shall be distributed as follows:
• 20% annual interest on original capital contributions.
• P30,000 monthly salary for Kevin and P50,000 monthly salary
for Klay.
• 5% bonus to Kevin after salaries and bonus.
• The remainder shall be distributed on the basis of original
capital contribution ratio.

On December 31, 20x7, Kevin and Steph made withdrawals of P500,000

and P1,000,000 each respectively. The statement of financial
position of the partnership shows that Steph’s capital on December
31 is P6,000,000.
What is the capital balance of Kevin on December 31, 20x7?
If Steph and Klay receive a total of 3,000,000, how much will Kevin
receive?

PROBLEM 11
EC Partnership began operations on June 1, 20x4. On that date,
Ester and Charlie have capital credits of P175,000 and P240,000
each, respectively. The partnership has the following profit-
sharing plan:
a. 10% interest on partner’s capital balances at the end of
the year.
b. P60,000 and P75,000 annual salaries for Ester and Charlie,
respectively.
c. Remaining profit will be divided to Ester and Charlie on a
3:2 ratio, respectively.
During the year, Ester invested P150,000 worth of merchandise and
withdrew P40,000 cash, while Charlie invested P120,000 cash. The
partnership earned a profit of P266,375 during the year.
How much is Ester’s capital balance at the end of 20x4?

PROBLEM 12
Partner You and Me share profits 3:1 after annual salary allowances
of P 36,000 and P 54,000 respectively; however if profits are not
adequate to meet the salary allowances, the entire profit is to be
divided in the salary ratio. Profits of P81,000 were reported for
the year 20x0. In 20x1 it is ascertained that in calculating net
income for the year ended December 31, 20x0, depreciation was
overstated by P32,400 and ending inventory was understated by
P7,200.
 PARTNERSHIP OPERATIONS 12

What adjustments should be made on the capital of You and Me?

Adjusting entry needed to correct the partner’s capital balances.

PROBLEM 13
The income statement of Mitch-Cecil Partnership for the year ended
Dec. 31, 20x4 appear below:
Sales P 300,000
Less: Cost of Goods Sold 190,000
Gross profit P 110,000
Less: Operating Expenses 30,000
Net Income P 80,000
Additional Information:
1. Mitch and Cecil began the year with a capital balance of P40,800
and P112,000, respectively.
2. On April 1, Mitch invested an additional P15,000 into the
partnership and on August 1, Cecil invested an additional
P20,000 into the partnership.
3. Throughout 20x4, each partner withdrew P400 per week in
anticipation of partnership net income. The partners agreed
that these withdrawals are not to be included in the
computation of average capital balances for purposes of income
distributions.
Mitch and Cecil have agreed to distribute partnership net income
according to the following:
MITCH CECILE
Interest on average capital balances 6% 6%
Bonus on net income before the bonus but
after interest on average capital balances 10%
Salaries 25,000 30,000
Residual (if positive) 70 30
Residual (if negative) 50 50
Required:
a. The share of Mitch and Cecil on the net income:
b. The ending capital balance of Cecil:

PROBLEM 14
Partnership ABC has net income of P100,000. The partnership is to
pay salaries and interest to the partners amounting to P10,000 and
P20,000 each respectively. In addition, the partnership is also
to pay a 25% bonus.
 PARTNERSHIP OPERATIONS 13

Compute the bonus to be paid to the partners under the following:

a. Bonus is 25% of the partnership net income.
b. Bonus is 25% of the partnership net income after interest.
c. Bonus is 25% of the partnership net income after salaries and
interest.
d. Bonus is 25% of the partnership net income after bonus.
e. Bonus is 25% of the partnership net income after salaries and
bonus.