Problem 9 (CRC-ACE)

NEGOSYO TO Company a partnership was formed on January 1, 2018, with four

partners, C, P, A and S. Capital contributions were as follows: C- P1,000,000; P-
P500,000; A- P500,000; and S- P400,000. the partnership agreement provides
that each partner shall receive 5%interest on the amount of his capital
contribution. In addition, C is to receive a salary of P100,000 and P a salary of
P60,000 which are to be charged as expenses of the business. The agreement
provides that A shall receive a minimum of P50,000 per annum from the
partnership and S a minimum of P120,000 per annum, both including amounts
allowed as interest on capital and their respective shares of profits. The balance
of the profits to be shared in the following proportions: C- 30%; P- 30% A- 20%
and S-20%.

Calculate the amount that must be earned by the partnership during 2018, before
any charge for interest on capital or partners ‘ salaries, in order that C may
receive an aggregate of P250,000, including interest, salary and share of profits.

Solution:

C P A S TOTAL

INTERES
T 50,000 25,000 25,000 20,000 120,000

SALARIE
S 100,000 60,000 160,000

BALANCE 100,000 100,000 66,667 66,666 333,333

250,000 185,000 91,667 86,666 613,333

33,334 33,334

250,000 185,000 91,667 120,000 646,667

50,000 25,000 25,000 20,000 120,000

Problem 10 (CRC-ACE)

The following account balances appear in the ledger for the firm of X and Y at the
end of 2018 before the profit for the year has been transferred to the partner’s
accounts:

X, drawing 72,000.00
Y, drawing 125,000.00
X, loan 175,000.00
X, capital 500,000.00
Y, capital 500,000.00
Profit and loss 302,250.00
The following information is to be considered in closing the profit and loss account
and the drawing accounts:
 The cost of installing equipment at the beginning of 2018, P27,000, was
charged to expense. The installation relates to equipment with a 10-year
life.
 The loan to the firm was made by X on March 1, 2018. No entry has been
made for interest on the loan, which is 6% and is to be paid to X at the
time the loan is prepaid.
The partnership agreement permits X and Y to withdraw weekly sums of P1,500
and P2,250, respectively, these amounts to be regarded as salaries. Actual
withdrawals by partners differed from allowed amounts and are summarized in
the drawing accounts.

Y, the managing partner, is entitled to special bonus of 25% of the net profit after
deduction of all special allowances to partners (including the bonus), and any
remaining profit is to be distributed equally.

1. How much should be the Dec. 31 ending capital balance of each partner?

Solution:

302,5
X Y TOTAL PROFIT AND LOSS 00
SALARIE 7 11 19 27,0
S 8,000 7,000 5,000 INSTALLATION 00
2 2 -
B 4,610 4,610 ACCUP. DEP. 2,700
BALANC 4 4 9 326,8
E 9,220 9,220 8,440 00
12 19 31 -
7,220 8,830 8,050 INTEREST 8,750
DRAWIN - - 318,0
G 72,000 125,000 ADJUSTED PROFIT 50
5 6
5,220 5,830
50 50
CAPITAL 0,000 0,000
55 56
5,220 5,830

Problem 11 (PRTC)
Linda and Mario created a partnership to own and operate a health-food store.
The partnership agreement provided that Linda receives an annual salary of
P10,000 and Mario a salary of P5,000 to recognize their relative time spent in
operating the store. Remaining profits and losses were divided 60:40 to Linda and
Mario, respectively. Income of P13,000 for 2017, the first year of operations, was
allocated P8,800 to Linda and P4,200 to Mario. On January 1, 2018, the
partnership agreement was changed to reflect the fact that Mario could no longer
devote any time to the store’s operations. The new agreement allows Linda a
salary of P18,000, and the remaining profits and losses are divided equally. In
2018, an error was discovered such that 2017 reported income was understated
by P4,000. The partnership income of P25,000 for 2018 included this P4,000
related to 2017.
1. In the reported new income of P25,000 for the year 2018, Linda would have
A. P21,900 B. P17,100
B. P0 D. P12,500
Solution:
2018 income to allocate (25,000-4000=21,000)

Linda Mario Total

Salary 18,000 18,000
Remainder to divide
1,500 1,500 3,000
income
2017
2,400 1,600 4,000
understatement
21,900 3,100

Problem 12 (PRTC)

Derha, a senior partner in a law firm, has a 30% participation in the firm’s profit
and losses. During 2018, Derha withdrew P130,000 against her capital but
contributed property with a fair value of P25,000. Derha’s capital increased by
P15,000 during 2018.
2. The net income of the partnership for 2018 is
A. P150,000 C. P.350,000
B. P400,000 D. P550,000

Solution:
Increase in Capital P 15,000
Contributed Property (25,000)
Withdrawal 130,000
Share in Net Income 120,000
Ratio 30%
Net Income of Partnership 400,000

Problem 13 (PRTC)

Elmo, Fred and Greg invest P40,000, P30,000 and P25,000 respectively, in a
partnership on June 30, 2017. They agree to divide net income or loss as follows:
A. Interest at 10% on beginning capital account balances
B. Salaries of P10,000, P8,000 and P6,000, respectively to Elmo, Fred and Greg,
respectively.
C. Remaining net income or loss is divided equally
D. A minimum of P18,000 of income is guaranteed to Greg regardless of the
result of operations.
3. If the net income for the year ended June 30, 2018 before interest and salaries
allowances to partners was P44,000, the amount of the net income credited to
Elmo is:

A. P21,875 C. P18,334
B. P20,000 D. P14,500
Solution:

Elmo Fred Greg Total

Interest 4,000 3,000 2,500 9,500
Salaries 10,000 8,000 6,000 24,000
Unallocated 3,500 3,500 3,500 10,500
Unadjusted
17,500 14,500 12,000 44,000
share
Guarantee to
(3,000) (3,000) 6,000 -
Greg
Net Income 14,500 11,500 18,000 44,000

Problem 14 (PRTC)

X, Y and Z are partners with average capital balances during 2018 of P120,000,
P60,000 and P40,000, respectively. Partners receive 10% interest on their
average capital balances. After deducting salaries of P30,000 to X and P20,000 to
Y, the residual profit or loss is divided equally. In 2018 the partnership sustained
a P33,000 loss before interest and salaries to partners.
4. By what amount should X’s capital account change?
A. P7,000 increase C. P11,000 decrease
B. P35,000 decrease D. P42,000 increase

Solution:
X Y Z Total
Interest 12,000 6,000 4,000 22,000
Salaries 30,000 20,000 - 50,000
Unallocated (35,000) (35,000) (35,000) (105,000)
Total 7,000 (9,000) (31,000) (33,000)

Problem 15 (PRTC)

Partners Joyce and Marie share profits 3:1 after annual salary allowances of
P4,000 and P6,000 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
P9,000 were reported for the year 2017. in 2018, it is ascertained that in
calculating net income for the year ended December 31, 2017, depreciation was
overstated by P3,600 and the ending inventory was understated by P800.
5. The amount of the net adjustments in the books of Joyce and Marie are:
Joyce Marie
A P(3,699) P(1,813)
B P2,950 P1,450
C P8,188 P8,563
D P2,300 P3,475