29.

Merlin, a partner in the Camelot Partnership, has a 30% participation in partnership profits
and losses. Merlin’s capital account has a net decrease of P1,200,000 during the calendar year
2008. During 2008, Merlin withdrew P2,600,000 (charged against his capital account) and
contributed property valued at P500,000 to partnership. What was the net income of the
Camelot Partnership for year 2008?
a. P3,000,000 c. P7,000,000
b. 4,666,667 d. 11,000,000
(AICPA)
SOLUTION:
Merlin, Capital
Withdrawal 2,600,000
Property 500,000 900,000
1,200,000

2,600,000
- 500,000
2,100,000
-1,200,000
900,000 ÷ .30 = 3,000,000

Answer = A

30. On January 2, 2008, BB and PP formed a partnership. BB contributed capital of P175,000.00

and PP, P25,000.00. They agreed to share profits and losses 80% and 20% respctively. PP is the
genera manager and works in the partnership full time and is given a salary of P5,000.00 a
month; an interest of 5% of the beginning capital (of both partner) and a bonus of 15% of net
income before the salary, interest and the bonus period.

The profit and loss statement of the partnership for the year ended December 31, 2008 is as
folows:
Net Sales................................................................................................. P875,00
0
Cost of goods sold.................................................................................. 700,000
Gross profits........................................................................................... P175,00
0
Expenses(including the salary, interest and the bonus)......................... 143,000
Net income............................................................................................. P 32,000

SOLUTION:

BB PP
Salary 5,000
Interest 10,000
Bonus 4,800
TOTAL 19,800
- 6,400
13,400

PP share in profit is 32,000 × 20%= 6,400

Answer: A

31. On January 1, 2008, A, B, C, and D formed Bakya Trading Co., a partnership, with capital
contributions as follows: A, P50,000; B, P25,000; C, P25,000; and D, P20,000. The partnershp
contract provided that each partner shall receive a 5% interest on contributed capital, and that
A and B shall receive salaries of P5,000 and P3,000, respectively. The contract also provided that
C shall receive a minimum of P2,500 per annum, and D a minimum of P6,000 per annum, which
is inclusive of amounts representing interest and share of remaining profits. The balance of the
profits shall be distributed to A, B, C, and D in a 3:3:2:2 ratio.

What amount must be earned by the partnership, before any charge for interest and salaries, so
that A receive an aggregate of P12,500 including interest, salary, and share of profits?

a. P16,667 c. P30,667
b. 30,000 d. 32,333
(PhilCPA)
SOLUTION:

A B C D Total
Salary 5,000 3,000 208.33 500 8,708.33
Interest 2,500 1,250 1,250 1,500 6,500
Balance 5,000 5,000 3,333 3,333
TOTAL 12,500 16,666.67 or
16,667

Answer: A
32. AA, BB, and CC are partners with average capital balances during 2008 of P472,500,
P328,650, and P162,350, respectively. The partners receive 10% interest on their average capital
balances; after deducting salaries P122,325 to AA and P82,625 to CC, the residual profits or loss
is divided equally.

In 2008, the partnership had a net loss of P125,624 before the interest and salaries to partners.

By what amount should AA’s and CC’s capital amount change-increase (decrease)?

AA CC AA CC
a. P30,267 P(40,448) c. P(40,344) P31,205
b. 29,476 27,586 d. 28,358 32,458

Answer: a. P30,267 P(40,448)

Solution:

AA BB CC Total
Salaries P122,325 P82,625 P204,950
Interest 47,250 P23,865 16,235 87,350
Remainder (139,308) (139,308) (139,308) 417,924
Total P 30,267 P(115,443) P(40,448) P(125,624)
33. The same information in No. 32, except the partnership had a loss of P125,624 after the
interest and salaries in partners, by what amount should BB’s capital account change-
increase(decrease)?

a. P(115,443) c. P(41,875)
b. 23,865 d. 28,000
Answer: a. P(115,443)
Solution:
AA BB CC Total
Salaries P122,325 P82,625 P204,950
Interest 47,250 P23,865 16,235 87,350
Remainder (139,308) (139,308) (139,308) 417,924
Total P 30,267 P(115,443) P(40,448) P(125,624)

34. XX, YY, and ZZ formed a partnership on January 1, 2008. Each contributed P120,000.
Salaries were to be allocated as follows:
XX YY ZZ
P30,000 P30,000 P45,000
Drawings were equal to salaries and be taken out evenly throughout the year.
With sufficient partnership net income, capital XX and capital YY could split a bonus equal to 25
percent of partnership net income after salaries and bonus (in no event could the bonus go
below zero).
Remaining profits were to be split as follows: 30% for XX; 30% for YY, and 40% for ZZ.
For the year, partnership net income was P120,000.
Compute the ending capital for each partner:
a. XX, P155,100; YY, P155,100; ZZ, P169,800
b. XX, P126,000; YY, P126,000; ZZ, P124,500
c. XX, P125,100; YY, P125,100; ZZ, P124,800
d. XX, P125,500; YY, P125,500; ZZ, P124,000
Answer: D
Solution:
XX (30%) YY (30%) ZZ (40%)
Capital Contribution 120,000 120,000 120,000
Salaries 30,000 30,000 45,000
Drawings (30,000) (30,000) (45,000)
Bonus 1,500 1,500
Remainder 3,600 3,600 4,800
TOTAL 125,100 125,100 124,800

Bonus = 25% (120,000-105,000-B)

B= 25% (15,000-B)
B= 3,750 - .25B
1.25B= 3,750
1.25 1.25
B= 3,000 ÷ 2= 1,500 (each xx and yy)

Remainder:
R= 15,000 – 3,000
R= 12,000
R= 12,000÷10 = 1,200
XX= 1,200 × 3 = 3,600
YY= 1,200 × 3 = 3,600
ZZ= 1,200 × 4,800
35. CC,PP, and AA, accountants agree to form a partnership and to share profits in the ratio
5:3:2. They also agreed that AA is to be allowed a salary of P28,000, and that PP is to be
guaranteed P21,000 as his share of the profits. During the first year of operation, income from
fees are P180,000, while expenses total, P96,000. What amount of net income should be
credited to each partners’ capital account?
a. CC, P28,000; PP, P16,800; AA, P11,200
b. CC, P25,000; PP, P21,000; AA, P38,000
c. CC, P24,000; PP, P22,000; AA, P38,000
d. CC, P25,000; ,PP P21,000; AA, P39,000
ANSWER: C
SOLUTION:
CC PP AA Total
Salary 28,000 28,000
PP Shares 21,000 21,000
Remainder 25,000 10,000 35,000
TOTAL 25,000 21,000 38,000 84,000

Income 180,000
Expenses 96,000
84,000
36. Hunt, Rob, Turman, and Kelly own a pubshing company that they operates a partnership.
The partnership agreement includes the following:
 Hunt receive a salary of P 20,000 and a bonus of 3% of income after all bonuses.
 Rob 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:
Hunt ................................................................ P50, 000
Rob .................................................................. 45, 000
Turman ........................................................... 20, 000
Kelly ................................................................ 47, 000

Any remaining profits and loss are to be divided equally among the partners.
Determine how a profit of P105, 000 would be allocated among the partners.
a. Hunt, P41, 450; Rob, P29, 950; Turman, P15, 450; Kelly, P18, 150
b. Hunt, P28, 000; Rob, P16, 500; Turman, P2, 000; Kelly, P4, 700
c. Hunt, P39, 700; Rob, P29, 200; Turman, P16, 700; Kelly, P19, 400
d. Cannot be determined.
Answer: D
Solution: H- 41,450; R- 29,950; T- 15,450; K- 18,150
Profit= 105,000

Average Capital: H= 50,000

R= 45,000
37. RR and PP shae profits after the provision of annual salary of allowances of P14, 400 and
P13, 200, respetively in the ratio of 6:4. However, if partnership’s net income is insufficient to
provide for said allowances in full amount, the net income shall be divided equally between the
partners. In 2008, the following errors were discovered: Depreciation for 2008 is understated by
P2,100, and the inventory on Ddecember 31, 2008 is overstated by P 11, 400. The partnership
net income for 2008 was reported to be P19, 500.
The capital accounts of the partners should be increased(decreased) by:
a. RR, P(6,540); PP, P(6,540) c. RR, P(6,960); PP, P6,540
b. RR, P3,000; PP, P3,000 d. RR, P(6,750); PP, P(6,750)
Answer: b. RR, P3,000; PP, P3,000
Solution:
RR, Capital 1,050
PP, Capital 1,050
Accumulated Depreciation 2,100

RR, Capital 5,700

PP, Capital 5,700
Inventory 11,400
Net Income 19,500
RR, Capital 9,750
PP, Capital 9,750
38. JJ and KK are partners sharing profits 60% and 40% rspectively. The average profits for past 2
years are to capitalized at 20% per year (for purposes of admitting a new partner) in
determining the aggregate capital of JJ and KK, after adjusting the profits for the following items
ommitted as follows:
Ommossions at Year-End 2007 2008
Prepaid Expense............................................... P 1,600
Accrued Expense............................................. 1,200
Deferred Expense........................................... P 1,400
Accrued Income............................................. 1,000
Other pertinent information as follows:
2007 2008
 Net Income of partnership......................... P14,400 P13,600
Capital accouts end of the year:
JJ..................................................... 45,400 54,000
KK................................................... 45,000 55,000

The aggregate capital of JJ and KK after capitalizing tthe average profits at 20% per annum is:
a. P 67,765 c. 69,000
b. 72,105 d. 71,000
39. MM, NN and OO partners, share profits on a 5:3:2 ratio. On January 1, 2008, PP admitted
into the partnership with a 10% share in profits. The old partners continue to paricipate in their
original ratio
For the year 2008, the net income of the partneship wwas reported P 12,500. However, it was
discovered thta the following items were ommitted in the firm’s books:
Unrecorded at year end 2007 2008
Prepaid Expense............................. P 800
Acrrud Expense.............................. P 600
Unearned Income.......................... 700
Accrued Income.............................. 500
(1) The new profit and loss ratio for N, and (2) the share of partner OO in the 2008 net
income:
a. (1) 30%;(2) P2,214 c. (1) 27%;(2) P2,286
b. (1) 27%;(2) P2,214 d. (1) 30%;(2) P2,286
(PhilCPA)
SOLUTION:
RATIO
BEFORE. AFTER
MM. 50%. 45%. (90% x 50%)
NN. 30%. 27%. (90% x 30%)
OO. 20%. 18%. (90% x 20%)
PP. —- 10%
Net Income 12,500
 X 20%
= 2,500 OO share in net income
Note: the omissions will not affect the net income but directly the capital account, so the net
income must be multiply to OO old ratio which is 20%
40. A, B, and C are partners in an accounting firm. Their capital account balances at year end
were A- P900,000, B- P110,000, and C-P50,000. Tgey share profit and losses on a 4:4:2 ratio
after the following special terms.
1.) Partner C is to receive a bonus of 10% of net income after the bonus
2.) Interest of 10% shall be paid on that partner of a partner’s capital in excess of P100,000
3.) Salaries of P10,000 and P12, 000 shall be paid to partners A and C respectively
Assuming a net income of P44,000 for the year, the total profit share of partner C was:
A. 7,800
B. 16,800
C. 19,400
D. 13,???
ANSWER: C. 19,400

B=.10(44,000-B) A B C Total
=.10(4400-B) Interest 1,000 1,000
=.10B (4400) Salaries 10,000 12,000 22,000
B+.10B=4400 Bonus 4,000 4,000
1.10B=4400 Remainder 6800 6,800 3,400 17,000
1.10 1.10 16,800 7,800 19,400 44,000
B=4000

I= 10,000 (.10)
I= 1000

56. CC and DD are partners who share profits and losses in the ratio of 7:3, respectively. On
October 21,2008, their respective capital accounts were as follows:
CC............................................................................................................................ P35,000
DD...............................................................................................................................30,000
 P65,000
On that date they agreed to admit EE as a partner with a one-third interest in the capital and
profits and losses, and upon his investment of P25,000. The new partnership will begin with a
total capital of P90,000.Immediately after EE's admission, what are the capital balance of CC,
DD, and EE respectively?
a. P30,000; P30,000; P30,000;
b. P31,500; P28.500; P30,
c. P31,667; P28,333; P30,000;
d. P35,000, P30,000, P25,000
ANSWER: B
Solution:
AC CC BONUS
Old 60,000 65,000 (5,000)
New 30,000 25,000 5,000

90,000 90,000 -
CC Capital = 35,000 – 3,500 = 31,500
DD Capital = 30,000 – 1,500 = 28,500
EE Capital = 25,000 + 5,000 = 30,000

57. The capital account for the partnership of LL and MM at October 31, 2008 are as follows:
LL, capital............................................................................................................................P 80,000
MM,
capital.............................................................................................................................40,000
P120,000
The partners share profits and losses in the ratio of 3:2 respectively
The partnership is in desperate need of cash, and the partners agree to admit NN as a partner
with one-third in the capital and profits and losses upon this investment of P30,000.
Immediately after NN's admission, what should be the capital balances of LL, MM and NN
respectively, assuming bonus is to be recognized?
a. P50,000; P50,000; P50,000 c. P66,667; P33,333; P50,000
b. P60,000; P60,000; P60,000 . d. P68,000; P32,000; P50,000
ANSWER: D
Solution:
AC CC BONUS
Old 100,000 120,000 (20,000)
New 50,000 30,000 20,000

150,000 150,000 -
LL Capital = 80,000 – 12,000 = 68,000
MM Capital = 40,000 – 8,000 = 32,000
NN Capital = 30,000 + 20,000 = 50,000

58. OO and TT are partners with capital balances of P60,000 and P20,000, respectively. Profits
and losses are divided in the ration of 60:40. OO and TT decided to form a new partnership with
GG, who invested land values at P15,000 for a 20% capital interest in the new partnership. GG’s
cost of the land was P12,000. The partnership elected to use the bonus method to record the
admission of GG into the partnership. GG’s capital account should be credited for:
a. P12,000 c. P16,000
b. 15,000 d. 19,000

ANSWER: D
SOLUTION:

CC AC Bonus
Old Partners’ Capital 80,000 76,000 (4,000)
(80%)
New Partner’s 15,000 19,000 4,000
Capital (20%)
95,000 95,000 0
59. RR and XX formed a partnership and agreed to divide initial capital equally, even though RR
contributed P25,000 and XX contributed P21,000 in identifiable assets. Under the bonus
approach to adjust the capital accounts. XX’s unidentifiable assets should be debited for:
a. P11,500 c. P2,000
b. 4,000 d. 0
ANSWER: C
Cash 46,000 25,000 + 21,000 = 46,000 ÷ 2 = 23,000
RR capital 25,000 RR capital 2,000
XX capital 21,000 XX capital 2,000
60. The partnership of Marissa and Olga is being dissolved, and the assets and equities at the
book value and fair value and profit and loss ratios at January 1, 2008 are as follows:
Book Value Fair Value
Cash P 20,00 P 20,000
Accounts receivable – net 100,000 100,000
Inventories 50,000 200,000
Plant assets – net 100,000 120,000
P270,000 P440, 000
Accounts payable P 50,000 P 50,000
Marissa, capital (50%) 120,000
Olga, capital (50%) 100,000
P270,000
Marissa and Olga agree to admit Trent into the partnership for a one-third interest. Trent invests
P95,000 cash and a building to be used in the business with a book value to Trent for P100,000
and fair value of P120,000
Compute the capital balance of Olga after the admission, assuming that assets are not revalued
and bonus is recognized.
a. P135,000 c. P195,000
b. 155,000 d. 205,000

ANSWER: A
SOLUTION:
 CC AC
Old 290,000 220,000
New 145,000 215,000
435,000 435,000
290,000 – 220,000 = 70,000 × .5 = 35,000
100,000 + 35,000 = 135,000
93. Partnership indicated an individual profit and loss sharing ratios. Personal assets and
liabilities of the partners are as follows:
Daniela. Ericka. Fredline
Personal Assets P 50,000. P 50,000. P 100,000
Personal Liabilities P 40,000. P40,000. P 40,000
The partnership creditors proceed against Fredline for recovery of their claims, and the
partners. their claims against each other
How much would Ericka received?
a. P -0- c. P 47,341
b. P 40,000 d. Cannot be determined
The August, Albert and Gerry partnership bece insolvent on January 1, 2008 and the partnership
is being liquidated as soon as practicable. In this respect the following information for the
partners has been marshalled:
Capital Balances. Personal Assets. Personal Liabilities
August..... P 70,000 P 80,000. P40,000
Albert...... P (60,000) P 30,000. P 50,000
Gerry...... P (30,000) P 70,000. P 30,000
Total....... P 120,000
Assumed that individual profits and losses are divided equally among the three partners. Based
on the information, calculate the maximum amount that August can expect to received from
the partnership liquidation.
a. P 20,000. c. P 71,000
b. 40,000 d. 100,000
Answer: letter B
Solution:
August. Albert. Gerry
Capital balance P 70,000. (P 60,000) (P 30,000)
Net Worth. P 40,000. (P 20,000) (P 40,000)
Balance. P 110,000. (P80,000) P 10,000
Loss in insolvent (P40,000) P 80,000. (P40,000)
partner
Balance. P 70,000. - (P 30,000)
Share in Deficient (P 30,000) - P 30,000
Partner
Final Distribution P 40,000
94. Gardo and Gordo formed a partnership on July 1, 2008 to operate two assumes to be
managed by each of them. They invested P 30,000 and P 20,000 and agreed to share earnings
60% and 40%, respectively. All their transactions were for each and other subsequent
transactions were recorded through their respective bank accounts as illustrated below:
Gardo. Gordo
Cash receipts...... P 79,300 P 60,240
Cash disburments...... 62, 270 71,690
On October 31, 2008 all remaining noncash assets in the two stores were sold for cash P 60,000.
The partnerahip was dissolved, and cash settlement was effected. In the distriburion of P 60,000
cash Gardo received:
a. P 24,000 c. P 34,000
b. 26,000. d. 36,000
Answer: letter D
Solution:
Gardo. Gordo. Total
Share on realization P 36,000. P 24,000. P 60,000
of 60,000
95. PP, QQ and RR partners to a firm, have capital balances of P11,200, P13,000, P5,800,
respectively, and share profits in the ratio 4:2:1. Prepare a schedule showing how available cash
will be given to the partners as it becomes available. Who among the partners shall be paid first
with an available cash of P1400?
a. QQ
b. No one
c. RR
d. PP
(Adapted)
Answer: A.
Solution: PP QQ RR Payment to PP QQ RR
11,200 13,000 5,800
4 2 1
______________________
19,600 45,500 40,600
(4,900) 1,400

96. The PQR partnership is being dissolved. All liabilities have been paid and the remaining
assets are being realized gradually. The equity of the partners is as follows:
Partners Accounts Loans to (from) Partnership Profit and Loss Ratio
P. P24000 6000 3
R. 36000 -. 3
Q. 60000 (10000) 4
The second cash payment to any Partner(s) under a program of priorities shall be made this:
a. T1 R P2,000
b. T1 Q P4,000
c. T2 R P8,000
d. T2 R P6,000 & P8,000
(PhilCPA)
Answer: D
Solution:
P Q R Payment to P Q R
24,000 36,000 60,000
6,000. (10,000)
_______________________
30,000 36,000 50,000
30% 30% 40%
100,000 120,000 125,000
(5,000). 1500 2,000
_______________________
100,000 120,000 120,000
(20,000) (20,000). 6,000 8,000
_______________________
100,000 100,000 100,000

97. A cash distribution plan (payment priority progran) Matthew, Norell and Reams partnership
appears below:

Priority Creditors Matthew Novell Reams

First P300,000................. 100%.
Next P 80,000.................. 70% 30%
Next P 70,000.................. 3/7. 4/7
Remainder....................... 22% 34% 44%

If P550,000 of cash is to be distributed, how much will be received by the priority Creditors,
Matthew, Norell and Reams?
Priority Creditors Matthew Norell Reams
a. P 0; P 0; P 0; P 0
b. 0; 121,000; 187,000; 242,000
c. 300,000; 55,000; 85,000; 110,000
d. 300,000; 108,000; 58,000; 84,000
(Adapted)

Answer: D
Matthew Norell Reams
550,000
300,000 56,000 24,000
30,000 40,000
22,000 34,000 44,000
_____________________________________________________
300,000 108,000 58,000 84,000

98. The assets and equities of the Queen, Reed and Stac Partnership at the end of it's fiscal year
on October 31, 2008 are as follows:

Assets
Cash P15,00
Receivables - net 20,000
Inventory 40,000
Plant assets - net 70,000
Loan to Reed 5,000
Total Assets P150,000

Liabilities and Capital

Liabilities P50,000
Loan from Stac 10,000
 Queen, capital - 30% 45,000
Reed, capital - 50% 30,000
Stac, capital - 20% 15,000
Total Liabilities and Capital P150,000
The partnership decided to liquidate the partnership. They estimate that the noncash assets,
other than the loan to Reed, can be converted into P100,000 cash over the two-months period
ending December 31, 2008. Cash is to be distributed to the appropriate parties as it becomes
available during the liquidation process.
The partner most vulnerable to partnership losses on liquidation is:
a. Queen
b. Reed
c. Reed and Queen equally
d. Stac
(Adapted)

Answer: A
Solution:
Queen Reed Stac
45,000 30,000 15,000
(5,000) 10,000
___________________________________________________________
45,000 25,000 25,000
÷ 30% 50% 20%
___________________________________________________________
150,000 50,000 125,000
(25,000). 7,500
___________________________________________________________
125,000 125,000
(75,000). (75,000) 22,500. 15,000
___________________________________________________________
 50,000 50,000 50,000
P1 Q P 7,500
P2 Q 22,500
S 15,000

99. Using the same information in no. 98, and P65,000 is available for the first distribution, it
should be paid to:
Priority Creditors Queen Reed Stac
a. P60,000 P5,000 P 0 P 0
b. 60,000. 1,500 2,500 1,000
c. 50,000 5,000 0 10,000
d. 50,000 12,000 0 8,000
(Adapted)

Answer: A
Solution:
Payment of Liabilities P60,000
Return to Queen. 5,000
__________________________________
65,000