Problem 1

Thomas, John and Peter are partners of Palo Grocerette. The capital contributions of each
partners are shown below:

Peter 100,000
Thomas 150,000
John 150,000

The net income of the partnership is P800, 000.

Required:
A. Compute the profit sharing and journal entries, using the following assumptions:
i. Partners agreed to share profits equally.

Cash 100,000 Cash 150,000 Cash 150,000

Peter, Capital 100,000 Thomas, Capital John, Capital 150,000

Peter- P800, 000 ÷ 3 = 266, 667

Thomas- P800, 000 ÷ 3 = 266, 667
John P800, 000 ÷ 3 = 266, 667

Income Summary 800, 000

Peter, Drawing 266, 667
Thomas, Drawing 266, 667
John, Drawing 266, 667

ii. Partners agreed to share profits based on the following ratios, John –
30%, Thomas – 35%, Peter – 35%.
Peter- P800, 000 * 35%= 280, 000
Thomas- P800, 000 * 35%= 280, 000
John- P800, 000 * 30%= 240, 000

Income Summary 800, 000

Peter, Drawing 280, 000
Thomas, Drawing 280, 000
John, Drawing 240, 000

iii. Assuming no agreements was stipulated in the articles of co-

partnership.
Peter- P800, 000 * (100÷400) = 200, 000
Thomas- P800, 000 * (150÷400) = 300, 000
John- P800, 000 * (150÷400) = 300, 000

Income Summary 800, 000

Peter, Drawing 200, 000
Thomas, Drawing 300, 000
John, Drawing 300, 000
Problem 2

Jessica, Maria and Leah formed a partnership and contributes the following:

Jessica – cash of P1,000,000

Maria – cash of P600,000
Leah – contributes services for a 10% share in profit.

The partners failed to stipulate in their agreement on how profit or loss distribution.

Required:
A. Assuming the profits earned by the partnership is P100, 000, compute the amount
of profits received by each partner.
Profit P100, 000
Leah- 100, 000 * 10% = (10, 000) -profit received by Leah
P 90, 000
Jessica - 90, 000 * (1000/1600) = (56,250) -profit received by Jessica
Maria - 90, 000 * (600/1600) = (33,750) -profit received by Maria
0

B. Assuming partnership incurred losses of P250, 000 , compute the amount of losses
received by each partner.

Loss (250, 000)

Jessica 250, 000 * (1000/1600) = (156, 250) -loss received by Jessica
Maria 250, 000 * (600/1600)= (93, 750) -loss received by Maria
0
Leah does not share in the losses because she is only contributing services making her an
industrial partner.

Problem 3

The condensed statement of comprehensive income for the first year of operation shows a net
income of P430, 000. In addition, below are the partners’ capital balances:

Landa Noel
Jan. 1 800,000 Jan. 1 700,000
Apr. 1 20,000 Apr.1 (20,000)
Oct. 1 (10,000) Nov. 1 25,000
Dec. 31 (?) 810, 000 Dec. 31 (?) 705, 000

Required:
Compute the distribution of profits under the following agreements and prepare
journal entries:
A. Beginning Capital Balances

Ratio of Beg. Capital Balances (800k : 700k) 1,500k

Landa 430, 000 * (800/1,500) = 229, 333

Noel 430, 000 * (700/1,500) = 200, 667

Income Summary 430, 000

Landa, Drawing 229, 333
 Noel, Drawing 200, 667
B. Ending Capital Balances
Ratio of End. Capital Balance (810:705) 1, 515k

Landa 430, 000 * (810/1,515) = 227, 900

Noel 430, 000 * (705/1,515) = 202, 100

Income Summary 430, 000

Landa, Drawing 227, 900
Noel, Drawing 202, 100

C. Average Capital Balances

Landa
Date Investment Withdrawals Balance No. of Months Unchanged Amount
1/1 800, 000 3 2, 400, 000
4/1 20, 000 820, 000 6 4, 920, 000
10/1 (10, 000) 810, 000 3 2, 430, 000
12/31 810, 000 0 0
12 9, 750, 000
Ave. Cap. Balance of Landa = 9, 750, 000 ÷ 12 = 812, 500

Noel
Date Investment Withdrawals Balance No. of Months Unchanged Amount
1/1 700, 000 3 2, 100, 000
4/1 (20, 000) 680, 000 7 4, 760, 000
11/1 25, 000 705, 000 2 1, 410, 000
12/31 705, 000 0 0
12 8, 270, 000
Ave. Cap. Balance of Noel = 8, 570, 000 ÷ 12 = 689, 167

Ratio of Ave. Capital Balance (812.5k: 689.167k) 1,501.667

Landa 430, 000 * (812.5/1,501.667) = 232, 200

Noel 430, 000 * (689.167/1,501.667) = 197, 800

Income Summary 430, 000

Landa, Drawing 232, 200
Noel, Drawing 197, 800

SIMPLE AVERAGE
Landa
Ave. Capital Balance= (800, 000 + 810, 000) ÷ 2 = 805, 000
Noel
Ave. Capital Balance= (700, 000 + 705, 000) ÷ 2 = 702, 500

Ratio of Ave. Capital Balance (805k: 702.5k) 1,507, 500

Landa 430, 000 * (805/1,507.5) = 227, 900

Noel 430, 000 * (702.5/1,507.5) = 202, 100

Income Summary 430, 000

Landa, Drawing 227, 900
Noel, Drawing 202, 100
 D. Arbitrary ratio of 3:2 (3:2=5)

Landa = 60% Noel = 40%

Landa 430, 000 * 60% = 258, 000

Noel 430, 000 * 40% = 172, 000

Income Summary 430, 000

Landa, Drawing 258, 000
Noel, Drawing 172, 000

E. Equally

Landa 430, 000 ÷ 2 = 215, 000

Noel 430, 000 ÷ 2 = 215, 000

Income Summary 430, 000

Landa, Drawing 215, 000
Noel, Drawing 215, 000

Problem 4

On January 1, 2018, FF and GG decided to form a partnership. At the end of the year, the
partnership made a net income of P120, 000. The capital accounts of the partnership show the
following transactions:

FF, Capital GG, Capital

Debit Credit Debit Credit
January 1 - 40,000 - 25,000
April 1 5,000 - - -
June 1 - - - 10,000
August 1 - 10,000 - -
September 1 - - 3,000 -
October 1 - 5,000 1,000 -
December 1 - 4,000 - 5,000

Dec. 31 54, 000 36, 000

Assuming that interest of 20% per annum is given on average capital and the balance of the
profits is allocated based on beginning capital balance.

Required:
A. Compute the allocation of profits between FF and GG?

FF Average Capital = (40, 000 + 54, 000) ÷ 2 = 47, 000

GG Average Capital = (25, 000 + 36, 000) ÷ 2 = 30, 500

Interest per annum of FF = 47, 000 * 20% = 9, 400 Net Income 120, 000
Interest per annum of GG = 30, 500 * 20% =6, 100 Interest (15, 500)
Total Interest 15, 500 Balance 104, 500
Ratio on Beg. Balances (40:25) 65

FF 104, 500 * (40/65) = 64, 790

GG 104, 500 * (25/65) = 39, 710

Net Income 120,000

FF GG Total
Interest 9, 400 6,100 15, 500
Balances 64, 790 39, 710 104, 500
TOTAL 74, 190 45, 810 120, 000

B. Assuming the partnership incurred P120, 000 loss, how much FF and GG should
receive from the operation?

FF Average Capital = (40, 000 + 54, 000) ÷ 2 = 47, 000

GG Average Capital = (25, 000 + 36, 000) ÷ 2 = 30, 500

Interest per annum of FF = 47, 000 * 20% = 9, 400 Net Loss (120, 000)
Interest per annum of GG = 30, 500 * 20% =6, 100 Interest (15, 500)
Total Interest 15, 500 Balance 135, 500

Ratio on Beg. Balances (40:25) 65

FF 135, 500 * (40/65) = (84, 010)

GG 135, 500 * (25/65) = (51, 490)

Net Income 120,000

FF GG Total
Interest 9, 400 6,100 15, 500
Balances (84, 010) (51, 490) (135, 500)
TOTAL 74, 610 45, 390 (120, 000)

Problem 5

On January 2, 2017, Chenee and Erwin formed a partnership. Chenee contributed capital of
P175, 000 and Erwin, P25, 000. They agreed to share profits and losses 80% and 20%,
respectively. Erwin is the general manager and works in the partnership full time and is given
salary of P5, 000 a month; an interest of 5% of the beginning capital for both partner and bonus
of 15% of income before salary, interest and the bonus.

The net income of the partnership for the year ended December 31, 2017 is P32, 000. The net
income computed included the salary, interest and bonus to partners.
Required:
A. Compute for the share of each partner related to the operation of the partnership.

Net Income (included the salary, interest and bonus) = 32, 000
80% 20%
Chenee Erwin Total
Salaries 60, 000 60, 000
Interest 8, 750 1, 250 10,
000
Bonus 13, 304 13, 304 26, 608
Balances (51,686) (12, 922) (64, 608)
Total (29, 632) 61, 632 32, 000

Problem 6

Espina, Boco, Tabor and Sales own a publishing company that they operate as a partnership. The
partnership agreement includes the following:

• Espina receives a salary of P20,000 and a bonus of 3% of income after all bonuses.
• Boco receives a salary of P8,000 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:

Espina 50,000 * 10% = 5, 000

Boco 45,000 * 10% = 4, 500
Tabor 20,000 * 10% = 2, 000
Sales 47,000 * 10% = 4, 700
16, 200

Any remaining profits and losses shall be divided equally among the partners.

Required:
A. Determine how a profit of P105, 000 would be allocated among the partners.

Net Income = 105, 000

Espina Boco Tabor Sales Total

Salaries 20, 000 8, 000 28, 000
Interest 5, 000 4, 500 2, 000 4, 700 16, 200
Bonus 1, 711 1, 192 2, 903
Balances 14, 474.25 14, 474.25 14, 474.25 14, 474.25 57, 897
Total 41, 185.25 28, 166.25 16, 474.25 19, 174.25 105, 000

B. Determine how a net loss of P105,000 shall be distributed among the partners.

Net Loss = (105, 000)

Espina Boco Tabor Sales Total
Salaries 20, 000 8, 000 28, 000
Interest 5, 000 4, 500 2, 000 4, 700 16, 200
Bonus 1, 711 1, 192 2, 903
Balances (38, 025.75) (38, 025.75) (38, 025.75) (38, 025.75) (152, 103)
Total (11, 314.75) (24, 333.75) (36, 025.75) (33, 325.75) (105, 000)
C. Determine how a net income of P25,000 shall be distributed among the partners.

Net Income = 25, 000

Espina Boco Tabor Sales Total
Salaries 20, 000 8, 000 28, 000
Interest 5, 000 4, 500 2, 000 4, 700 16, 200
Bonus - - - - -
Balances (4, 800) (4, 800) (4, 800) (4, 800) (19, 200)
Total 20, 200 7,700 (2, 800) (100) 25, 000

D. Assuming a net income of P45,000 was earned, then bonus shall be computed
based on net income after interest, salaries and bonus, how the net income shall be
distributed among the partners?

Net Income = 45, 000

Espina Boco Tabor Sales Total

Salaries 20, 000 8, 000 28, 000
Interest 5, 000 4, 500 2, 000 4, 700 16, 200
Bonus 23 16 39
Balances 190.25 190.25 190.25 190.25 761
Total 25, 213.25 12, 706.25 2, 190.25 4, 890.25 45, 000

Problem 7

Shiela Marie Tan and Sushiela Ong, partners of Universal Dry Cleaning Services showed to you
their partnership agreements as follows:

a. Shiela is allowed to a monthly salary of P5,000 while Sushiela P4,500.

b. Both are allowed to a 15% interest on their beginning capital balance of P200,000 and
P100,000, respectively.
c. Any remainders divided equally.

Required:
A. Show how profit or loss is distributed to partners under the following separate
cases: I. Case 1 – Profit P160,000
Net Income =160, 000
Tan Ong Total
Salaries 60, 000 54, 000 114, 000
Interest 30, 000 15, 000 45, 000
Balances 500 500 1, 000
Total 90, 500 69, 500 160, 000

II.Case II – Profit P130,000

Net Income =130, 000
Tan Ong Total
Salaries 60, 000 54, 000 114, 000
Interest 30, 000 15, 000 45, 000
Balances (14, 500) (14, 500) (29, 000)
Total 75, 500 54, 500 130, 000
 III. Case III – Loss is P10,000

Net Loss =10, 000

Tan Ong Total
Salaries 60, 000 54, 000 114, 000
Interest 30, 000 15, 000 45, 000
Balances (84, 500) (84, 500) (169, 000)
Total 5, 500 (15, 500) (10, 000)

B. Journal Entry to close the income and expense summary account under each of the
following cases.

Case I. Journal Entries

Income Summary 160, 000

Tan, Drawing 90, 500
Ong, Drawing 69, 500

Case II. Journal Entries

Income Summary 130, 000

Tan, Drawing 75, 500
Ong, Drawing 54, 500

Case III. Journal Entries

Ong, Drawing 15, 500

Tan, Drawing 5, 500
Income Summary 10, 000

Problem 8

AA, BB and CC formed a partnership on January 1, 2017, and contributed P150,000, P200,000
and P250,000, respectively. Their articles of co-partnership provide that the operating income be
shared among the partners as follows: as salary, P24,000 for AA, P18,000 for BB and P12,000
for CC; interest of 12% on the average capital during 2017 of the three partners; and the
remainder in the ratio of 2:4:4, respectively.

The operating income for the year ending December 31, 2017 amounted to P176,000. AA
contributed additional capital of P30,000 on July 1 and made drawing of P10,000 on October 1;
BB contributed additional capital of P20,00 on August 1 and made drawing of P10,000 on
October 1; and CC P35,000, made a drawing on November 1.

Required:
A. Compute the partners’ capital balances on December 31, 2017.
AA BB CC
Debit Credit Debit Credit Debit
Credit
1/1 150, 000 200, 000 250, 000
7/1 30, 000
8/1 20, 000
10/1 10, 000 10,000
11/1 35, 000
12/31 170, 000 210, 000 215, 000
B. Assuming, the net income is P50,000, how much each partner shall receive from
the net income?
Ave. Capital Balances:
AA= (150, 000 +170, 000) ÷ 2 = 160, 000
BB= (200, 000 +210, 000) ÷ 2 = 205, 000
CC= (250, 000 +215, 000) ÷ 2 = 232, 500
Interest
AA= 160, 000 * 12% = 19,200
BB= 205, 000 * 12% = 24, 600
CC= 232, 500 * 12% = 27, 900

Net Income = 50, 000 Ratio- (2:4:4) 10

20% 40% 40%
AA BB CC Total
Salaries 24, 000 18, 000 12, 000 54, 000
Interest 19,200 24, 600 27, 900 71, 700
Balances (15,140) (30, 280) (30, 280) (75, 700)
Total 28, 060 12, 320 9, 620 50, 000

C. Assuming, the partnership incur net loss of P100,000, what would be the capital
balances of each partner on December 31, 2017.

Net Loss = 100, 000 Ratio (2:4:4) 10

20% 40% 40%

AA BB CC Total
Salaries 24, 000 18, 000 12, 000 54, 000
Interest 19,200 24, 600 27, 900 71, 700
Balances (45,140) (90, 280) (90, 280) (225, 700)
Total (1, 940) (47, 680) (50, 380) (100, 000)