CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN

PARTNERSHIP OPERATION

Part I: Theory of Accounts

1. Partnership law provides that profits and losses of the partnership are to be divided
a. Equally
b. In accordance with their agreement
c. Depending on the capital contribution
d. First to the partner with the highest contribution then to the partner with the lowest contribution

2. If no agreement was made as to distribution of profits and losses, how will the profits and losses be
divided?
a. Equally
b. No distribution of profits and losses
c. In accordance to their original capital contribution
d. Profits and losses will be carried over to the next year

3. If there is no agreement as to distribution of profit, but there is an agreement as to distribution of

losses, how shall the partners divide the profits and losses?
a. Profits will be divided using the original capital contribution, while losses will be divided using
the agreed loss ratio
b. Profits and losses shall be divided equally
c. Profits and losses shall be divided using the agreed loss ratio
d. No distribution of profits, only the loss shall be divided using the agreed loss ratio

4. If there is an agreement as to distribution of profit, but there is no agreement as to distribution of

losses, how shall the partners divide the profits and losses?
a. Profits and losses shall be divided equally
b. Profits will be divided using the original capital contribution, while there will be no distribution
of losses
c. Profits will be divided using the agreed profit ratio, while losses will be divided using the
original capital contribution
d. Profits and losses will be divided using the agreed profit ratio

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Part II: Partnership Operation

1. On January 1, 2020, A, B and C formed ABC Partnership with total agreed capitalization of
P1,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio
is 3:2:5, respectively for A, B and C.

During 2020, A and B made additional investments of P200,000 and P500,000, respectively. At the
end of 2020, B and C made drawings of P300,000 and P100,000, respectively. On December 31,
2020, the partnership had a net income of P800,000.

1. What is the share in the net income of partner B for the year ended December 31, 2020?
a. 80,000
b. 240,000
c. 160,000
d. 400,000

2. What is the capital balance of partner A on December 31, 2020?

a. 940,000
b. 740,000
c. 900,000
d. 1,100,000

2. Partners A, B, and C already established a business and they want to distribute the profits or losses
that were generated at the end of the year. The capital accounts during the year were as follows:

A B C
January 1 135,000 180,000 75,000
March 1, withdrawal - (36,000) -
April 1, investment - - 30,000
May 1, investment 72,000 - -
June 1, investment - 27,000 -
August 1, withdrawal - - (9,000)
October 1, withdrawal (54,000) - -
December 1, investment - 18,000 -

The following were agreed on how to distribute the profits and losses:
 Annual salaries were P600,000 to A, P540,000 to B, and P750,000 to C
 Interest was 15% of the ending capital balance in excess of P140,000
 C receives a bonus of 20% of net income after deducting the bonus and the salaries
 Remainder will be distributed equally
 At the end of the year, there was a credit balance in the income summary account in the amount
of P1,740,000

1. What is the share in the net income of Partner B?

a. 600,450
b. 593,100
c. 494,250
d. 585,750

2. What is the capital at the end of the year of Partner C?

a. 792,900
b. 96,000
c. 899,100
d. 750,900

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3. Partners D and E already established a business and they want to distribute the profits or losses that
were generated at the end of the year. The capital accounts during the year were as follows:
D E
January 1 P50,000 P70,000
April 1, investment 30,000 -
April 1, withdrawal - (20,000)
June 30, investment - 50,000
June 30, withdrawal (temp) (25,000) -
September 1, investment - 60,000
September 1, withdrawal (45,000) -
October 1, investment 70,000 -
October 1, withdrawal (temp) - (40,000)
The following were agreed on how to distribute the profits and losses:
 Interest on average capital balances at 8%
 Annual salaries of P25,000 for D and P35,000 for E
 Bonus to E at 25% of net income after deducting the interest and salaries, but before deducting
the bonus
 Remainder were shared equally
 The income summary had a debit balance of P45,000
1. What is the share in the net loss of Partner D?
a. (28,500)
b. (28,600)
c. (19,286)
d. (22,500)

2. What is the capital at the end of the year of Partner E?

a. 143,600
b. 103,500
c. 143,500
d. 103,600

4. A and B formed a partnership on January 1, 2020 by contributing capital of P525,000 and P75,000
respectively and agreed to share profits and losses 70:30 respectively also.
The following were the profit or loss agreement distribution:
 Monthly salaries for partner B in the amount of P10,000
 Interest of 5% of the partners’ beginning capital
 Bonus to partner B, 20% of net income before deducting salaries, interest, and bonus
 Remainder will be divided using their profit or loss ratio
 At December 31, 2020, the partnership generated a net income of P96,000 after deducting
salaries, interest, and bonus

1. What is the amount of the share in the net income of Partner A?

a. 93,450
b. 213,450
c. 154,950
d. 67,200

2. What is the amount of the share in the net income of Partner B?

a. 150,275
b. 214,050
c. 152,550
d. 210,300
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5. Partners A and B have profit and loss agreement with the following priority provisions: salaries of
P24,000 and P36,000 for A and B, respectively; interest of 10% on beginning capital balances of
P50,000 and P150,000 for A and B, respectively. Any remaining profits will be given equally to A
and B. At the end of the year the partnership generated a net income of P70,000. They also agreed
that the priority provisions are only allowed up to the extent of the earnings.
What is the share of the net income of partner B?
a. 46,000
b. 41,000
c. 43,500
d. 35,000

END
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