PARTNERSHIP AND CORPORATION

5A. ALLOWING 25% BONUS BEFORE BONUS TO CABARLES AND ANY REMAINDER EQUALLY

SHARE OF PROFIT CABARLES VALENCIA 300,000

75,000
25% Bonus before bonus 75,000
300,000 x 25%
112,500 112,500
Remainder, equally 225,000
225,000 / 2 225,000 / 2
Total share in profit 187,500 112,500 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 187,500
Valencia, Capital 112,500
To record the distribution of profits.

5B. ALLOWING 25% BONUS AFTER BONUS TO CABARLES AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

60,000
25% Bonus after bonus 60,000
300,000 / 125% x 25%
120,000 120,000
Remainder, equally 240,000
240,000 / 2 240,000 / 2
Total share in profit 180,000 120,000 300,000

bonus after bonus = profit / (100% + given rate) x given rate

ENTRY:
Income Summary 300,000
Cabarles, Capital 180,000
Valencia, Capital 120,000
To record the distribution of profits.

6A. TOTAL PROFIT IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
ANNUAL SALARY P50,000 TO CABARLES AND P30,000 TO VALENCIA, ALLOWING 25% BONUS
BEFORE BONUS TO CABARLES AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

Average Capital 475,000 775,000
71,250 116,250
15% interest on capital 187,500
475,000 x 15% 775,000 x 15%
Annual Salary 50,000 30,000 80,000
8,125
25% bonus before bonus 8,125
32,500 x 25%
12,187.50 12,187.50
Balance, equally 24,375
24,375 / 2 24,375 / 2
Total share in profit 141,562.50 158,437.50 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 141,562.50
Valencia, Capital 158,437.50
To record the distribution of profits.
6B. TOTAL PROFIT IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
25% BONUS BEFORE BONUS TO CABARLES, ALLOWING ANNUAL SALARY P50,000 TO CABARLES
AND P30,000 TO VALENCIA, AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

Average 475,000 775,000
15% interest on capital 71,250 116,250 187,500
28,125
25% bonus before bonus 28,125
112,000 x 25%
Annual salary 50,000 30,000 80,000
2,187.50 2,187.50
Balance, equally 4,375
4,375 / 2 4,375 / 2
Total share in profit 151,562.50 148,437.50 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 151,562.50
Valencia, Capital 148,437.50
To record the distribution of profits.

6C. TOTAL PROFIT IS P300,000. ALLOWING 25% BONUS BEFORE BONUS TO CABARLES,
ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING ANNUAL SALARY P50,000 TO
CABARLES AND P30,000 TO VALENCIA, AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

Average 475,000 775,000
75,000
25% bonus before bonus 75,000
300,000 x 25%
15% interest on average capital 71,250 116,250 187,500
Annual salary 50,000 30,000 80,000
(21,250) (21,250)
Balance, equally (42,500)
(42,500) / 2 (42,500) / 2
Total share in profit 175,000 125,000 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 175,000
Valencia, Capital 125,000
To record the distribution of profits.

6D. TOTAL LOSS IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
ANNUAL SALARY P50,000 TO CABARLES AND P30,000 TO VALENCIA, ALLOWING 25% BONUS
BEFORE BONUS TO CABARLES AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia (300,000)

15% interest on capital 71,250 116,250 187,500
Annual Salary 50,000 30,000 80,000
25% bonus before bonus 0 0
Balance, equally (283,750.00) (283,750.00)
(567,500)
(567,500) / 2 (567,500) / 2
Total share in profit (P162,500) (137,500) (300,000)

ENTRY:
Cabarles, Capital 162,500
Valencia, Capital 137,500
Income Summary 300,000
To record the distribution of loss.
6E. TOTAL LOSS IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
ANNUAL SALARY P50,000 TO CABARLES AND 30,000 TO VALENCIA, ALLOWING 25% BONUS
BEFORE BONUS TO CABARLES AND ANY REMAINDER EQUALLY IN THE RATIO 1:4

Share of Profit Cabarles Valencia (300,000)

15% interest on capital 71,250 116,250 187,500
Annual Salary 50,000 30,000 80,000
25% bonus before bonus 0 0
Balance, ratio 1:4 (113,500.00) (454,000)
(567,500)
(567,500) x 1/5 (567,500) x 4/5
Total share in profit 7,750 (P307,750) (300,000)

ENTRY:
Valencia, Capital 307,750
Cabarles, Capital 7,750
Income Summary 300,000
To record the distribution of loss.

7A. TOTAL PROFIT IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
ANNUAL SALARY P50,000 TO CABARLES AND P30,000 TO VALENCIA, ALLOWING 25% BONUS
AFTER BONUS TO CABARLES AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

15% interest on capital 71,250 116,250 187,500
Annual Salary 50,000 30,000 80,000
6,500
25% bonus after bonus 6,500
32,500 / 125% x 25%
13,000 13,000
Balance, equally 26,000
26,000 / 2 26,000 / 2
Total share in profit 140,750 159,250 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 140,750
Valencia, Capital 159,250
To record the distribution of profits.

7B. TOTAL PROFIT IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
25% BONUS AFTER BONUS TO CABARLES, ALLOWING ANNUAL SALARY P50,000 TO CABARLES
AND P30,000 TO VALENCIA, AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

15% interest on capital 71,250 116,250 187,500
22,500
25% bonus after bonus 22,500
112,500 / 125% x 25%
Annual salary 50,000 30,000 80,000
5,000 5,000
Balance, equally 10,000
10,000 / 2 10,000 / 2
Total share in profit 148,750 151,250 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 148,750
Valencia, Capital 151,250
To record the distribution of profits.
7C. TOTAL PROFIT IS P300,000. ALLOWING 25% BONUS AFTER BONUS TO CABARLES, ALLOWING
15% INTEREST ON AVERAGE CAPITAL, ALLOWING ANNUAL SALARY P50,000 TO CABARLES AND
P30,000 TO VALENCIA, AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia 300,000

60,000
25% bonus after bonus 60,000
300,000 / 125% x 25%
15% interest on average capital 71,250 116,250 187,500
Annual salary 50,000 30,000 80,000
(13,750) (13,750)
Balance, equally (27,500)
(27,500) / 2 (27,500) / 2
Total share in profit 167,500 132,500 300,000

ENTRY:
Income Summary 300,000
Cabarles, Capital 167,500
Valencia, Capital 132,500
To record the distribution of profits.

7D. TOTAL LOSS IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
ANNUAL SALARY P50,000 TO CABARLES AND P30,000 TO VALENCIA, ALLOWING 25% BONUS
AFTER BONUS TO CABARLES AND ANY REMAINDER EQUALLY

Share of Profit Cabarles Valencia (300,000)

15% interest on capital 71,250 116,250 187,500
Annual Salary 50,000 30,000 80,000
25% bonus after bonus 0 0
(283,750) (283,750)
Balance, equally (567,500)
(567,500) / 2 (567,500) / 2
Total share in profit (loss) (162,500) (137,500) (300,000)

ENTRY:
Cabarles, Capital 162,500
Valencia, Capital 137,500
Income Summary 300,000
To record the distribution of loss.

7E. TOTAL LOSS IS P300,000. ALLOWING 15% INTEREST ON AVERAGE CAPITAL, ALLOWING
ANNUAL SALARY P50,000 TO CABARLES AND P30,000 TO VALENCIA, ALLOWING 25% BONUS
AFTER BONUS TO CABARLES AND ANY REMAINDER IN THE RATIO 1:4

Share of Profit Cabarles Valencia (300,000)

15% interest on capital 71,250 116,250 187,500
Annual Salary 50,000 30,000 80,000
25% bonus before bonus 0 0
Balance, ratio 1:4 (113,500) (454,000)
(567,500)
(567,500) x 4/5 (567,500) x 4/5
Total share in profit (loss) 7,750 (P307,750) 300,000

ENTRY:
Valencia, Capital 307,750
Cabarles, Capital 7,750
Income Summary 300,000
To record the distribution loss.
 QUIZ 2 PARTNERSHIP DISTRIBUTION OF PROFITS OR LOSSES

1. The partnership agreement among Baisa, De Leon and Garcia provides for 8% interest on capital, a salary for De
Leon of P80,000 per year, and any remaining profit is to be divided in the ratio 3:2:1. The profit for 2021 was P480,000
and the year-end balances on partners' capital accounts are P200,000; P150,000; and P120,000, respectively. What is
the share of Baisa in the total profit for 2021?
a. P120,800
b. P181,200
c. P197,200
d. P212,800

Baisa De Leon Garcia 480,000

Capital 200,000 150,000 120,000 470,000
8% interest on capital 16,000 12,000 9,600 37,600
Annual salary 80,000 80,000
Balances, ratio 3:2:1 181,200 120,800 60,400 362,400
197,200 212,800 70,000 480,000

2. The partnership agreement among Baisa, De Leon and Garcia provides for 8% interest on capital, a salary for De
Leon of P80,000 per year, and any remaining profit is to be divided in the ratio 3:2:1. The profit for 2021 was P480,000
and the year-end balances on partners' capital accounts are P200,000; P150,000; and P120,000, respectively. What is
the ending capital balance of Baisa after the distribution of profit?
a. P362,800
b. P377,200
c. P381,200
d. P397,200

Baisa De Leon Garcia 480,000

Capital 200,000 150,000 120,000 470,000
8% interest on capital 16,000 12,000 9,600 37,600
Annual salary 80,000 80,000
Balances, ratio 3:2:1 181,200 120,800 60,400 362,400
Total share in profit 197,200 212,800 70,000 480,000

Baisa De Leon Garcia

Capital 200,000 150,000 120,000
Total share in profit 197,200 212,800 70,000
Adjusted ending capital 397,200 362,800 190,000

3. Azul and Correa are in partnership. They share profits in the ratio 3:2 and close their accounts on June 30 each year.
On January 1, 2021, Enriquez joined the partnership. The profit-sharing ratio was revised to become Azul 50%, Correa
25% and Enriquez 25%, after providing for annual salaries as follows Correa P100,000 and Enriquez P60,000. The
partnership profit for the year-ended June 30, 2021 was P2,400,000, accruing evenly over the year. What is Enriquez
share of the profit at year-ended June 30, 2021?
a. P310,000
b. P320,000
c. P610,000
d. P620,000

Azul Correa Enriquez 2,400,000

720,000 480,000
Old Ratio, 3:2 1,200,000
1,200,000 x 3/5 1,200,000 x 2/5
50,000 30,000
Annual salary 80,000
100,000 x 6/12 60,000 x 6/12
560,000 280,000 280,000
Remaining, 50%, 25%, 25% 1,120,000
1,120,000 x 50% 1,120,000 x 25% 1,120,000 x 25%
Total share in profit 1,280,000 810,000 310,000 2,400,000
4. Azul and Correa are in partnership. They share profits in the ratio 3:2 and close their accounts on June 30 each year.
On January 1, 2021, Enriquez joined the partnership. The profit-sharing ratio was revised to become Azul 50%, Correa
25% and Enriquez 25%, after providing for annual salaries as follows Correa P100,000 and Enriquez P60,000. The
partnership profit for the year-ended June 30, 2021 was P2,400,000, accruing evenly over the year. If the partners'
capital balances are P500,000; P250,000 and P250,000, respectively, what is Enriquez capital balance at year-ended
June 30, 2021 after distribution of profit?
a. P560,000
b. P570,000
c. P860,000
d. P870,000

Azul Correa Enriquez

Capital balances 500,000 250,000 250,000
Total share in profit 1,280,000 810,000 310,000
Adjusted ending balance 1,780,000 1,060,000 560,000

5. Bautista and De Guzman are partners in a review school. They share profits in the ratio 2:1. On July 1, 2020, they
admitted Grospe as a partner. Grospe's profit share would not be less than P25,000 for the six months to December 31,
2020. The profit sharing after Grospe's admission is as follows: Bautista 50%, De Guzman 30% and Grospe 20%. The
profit for the year ended December 31, 2020 was P240,000 accruing evenly over the year. What should De Guzman's
total profit share be for the year ended December 31, 2020?
a. P72,000
b. P75,500
c. P75,625
d. P76,000

Bautista De Guzman Grospe 240,000

Old Ratio 2:1 80,000 40,000 120,000
25,000
Balances, 50%, 30%, 20% 25,000
120,000 x 20% + 1,000
Balances, 50%, 30% 59,375 35,625 95,000
Total share in profit 139,375 75,625 25,000 240,000

6. On January 1, 2020, partners Aniag and Crisostomo invested P1,000,000 and P1,500,000, respectively. The
partners agreed to allow 10% interest on capital and divide the remaining profits and losses in a 3:1 ratio. During the
1st year of operation, the partnership sustained a loss of P110,000. What is the capital balance of Aniag after share of
the loss?
a. P 830,000
b. P 890,000
c. P 917,500
d. P1,017,500

Aniag Crisostomo (110,000)

Capital balances 1,000,000 1,500,000 2,500,000
10% interest on capital 100,000 150,000 250,000
Balances, ratio 3:1 (270,000) (90,000) (360,000)
Total share in profit (170,000) 60,000 (110,000)

Aniag Crisostomo
Beginning capital balance 1,000,000 1,500,000
Total share in profit (170,000) 60,000
Ending capital balance 830,000 1,560,000

7. The agreement of Manzano, Palad and Santos provides for 10% interest on capital balances, annual salaries and
agreed ratio 2:1:1 is usually necessary because
a. this will prevent arguments among Manzano, Palad and Santos.
b. partners seldom contribute time, effort and resources equally.
c. most investors require this method of distribution.
d. this reflects the amount of time devoted by the partners to the partnership.
8. Gutierrez has a capital balance of P300,000 for five months, P250,000 for four months and P200,000 for three
months. The average capital balance is
a. P241,667
b. P242,500
c. P250,000
d. P258,333

Capital balance Months Total

300,000 5 1,500,000
250,000 4 1,000,000
200,000 3 600,000
3,100,000 / 12 258,333

300,000 x 5/12 250,000 x 4/12 200,000 x 3/12 258,333

9. On January 1, 2020, Lipana and Pacinos formed a partnership. Lipana initially invested P500,000 and added P150,000
on September 1, 2020 while Pacinos initially invested P380,000 and added P120,000 June 1, 2020. How much of the
year's P800,000 profit should Pacinos receive if profits and losses are distributed based on the ratio of their average
capital balances?
a. P360,000
b. P387,500
c. P440,000
d. P412,500

Lipana Pacinos
Original Investment 500,000 380,000
Additional Investment on June 1 120,000
Additional Investment on September 1 150,000
Capital balances at December 31, 2020 650,000 500,000
Average Capital Balances 500,000 x 12 = 6,000,000 380,000 x 12 = 4,560,000
150,000 x 14 = 0,600,000 120,000 x 07 = 0,840,000
Total 6,600,000 5,400,000
/ 12 550,000 450,000

Lipana Pacinos 800,000

Average capital balances 550,000 450,000 1,000,000
Balances, ratio of average 440,000 360,000
800,000
capital balances 800,000 x (550,000 / 1,000,000) 800,000 x (450,000 / 1,000,000)

10. On January 1, 2020, Lipana and Pacinos formed a partnership. Lipana initially invested P500,000 and added
P150,000 on September 1, 2020 while Pacinos initially invested P380,000 and added P120,000 June 1, 2020. What is
the Lipana's capital balance after distributing the profit and losses according to average capital balances?
a. P 910,000
b. P 990,000
c. P1,010,000
d. P1,090,000

Lipana Pacinos
Ending capital 650,000 500,000
Balances, ratio of average capital balances 440,000 360,000
Adjusted ending capital 1,090,000 860,000

11. A 1:3:5 ratio is the same as

a. 10%, 30%, 50%.
b. 1/10, 3/10, 1/2.
c. 1/9, 1/3, 5/9.
d. 0.10; 0.30; 0.50.

12. Which of the following is not considered a legitimate expense of a partnership?

 a. Office supplies used in the partners' offices.
b. Salaries of purchasing manager hired.
c. Depreciation on machinery contributed by a partner to the partnership.
d. Salaries of the partners based on the time and services rendered in the partnership business operations.

13. If distribution of partnership profit is based on capital contribution, which is the most equitable using the following
capital concepts?
a. Original investment
b. Beginning capital
c. Ending capital
d. Average capital

14. Mariano, Roque and Yambao formed a partnership, investing P330,000; P110,000; and P440,000, respectively. The
partnership profit during 2020 was P840,000. What is the amount of Roque's share in the partnership profit if 10%
interest is allowed on original investment, 20% bonus before interest and bonus is allowed to Mariano, and the remainder
is divided equally?
a. P205,667
b. P211,533
c. P215,000
d. P219,889

Mariano Roque Yambao 840,000

Capital balances 330,000 110,000 440,000
20% bonus interest 168,000
168,000
and bonus 840,000 x 20%
10% interest on
33,000 11,000 44,000 88,000
capital
Balances, equally 194,667 194,667 194,667 584,000
Total share in profit 395,667 205,667 238,667 840,000

15. Juan, Martin and Romulo formed a partnership, investing P330,000; P110,000; and P440,000, respectively. The
partnership profit during 2020 was P360,000. What is the amount of Romulo's share in the partnership profit if 10%
interest is allowed on original investment, 20% bonus after interest and after bonus is allowed to Martin, and the
remainder is divided equally?
a. P110,667
b. P114,667
c. P116,534
d. P119,556

Juan Martin Romulo 360,000

Capital balances 330,000 110,000 440,000
10% interest on capital 33,000 11,000 44,000 88,000
45,333
20% bonus after bonus 45,333
272,000 / 120% x 20%
Balances, equally 75,556 75,556 75,556 226,667
108,556 131,889 119,556 360,000
16. Francisco and Mateo agreed to allow 20% bonus before bonus to Francisco and divide remaining profits and losses
on the basis of their average capital balances. At the beginning of 2020, Francisco had P450,000 while Mateo had
P300,000. On October 1, 2020, Mateo added P200,000 investment. If the profit was P2,500,000 during 2020, how
much should Francisco receive?
a. P1,125,000
b. P1,406,250
c. P1,625,000
d. P1,700,000

Francisco Mateo
Original Investment 450,000 300,000
Additional Investment
200,000
on October 1
300,000 x 12 = 3,600,000
450,000 x 12 = 5,400,000
200,000 x 03 = 0,600,000
Total 5,400,000 4,200,000
/ 12 450,000 350,000

2,500,000
500,000
20% bonus before bonus 500,000
2,500,000 x 20%
Balances, average 1,125,000 875,000
2,000,000
capital balances 2,000,000 x (450,000 / 800,000) 2,000,000 x (350,000 / 800,000)
Total share in profit 1,625,000 875,000 2,500,000

17. Carlos, Esteban and Jose agreed to allow 10% interest on partners' investments at the beginning of the year
P300,000; P250,000; and P450,000, respectively, 20% bonus before bonus Jose, and any remaining profit is divided
equally. What is the effect on Jose's capital on the P240,000 loss during 2020?
a. P68,333 decrease
b. P80,000 decrease
c. P83,333 decrease
d. P88,333 decrease

Carlos Esteban Jose (240,000)

Partners’ Investments 300,000 250,000 450,000
10% interest on partners’ investments 30,000 25,000 45,000 100,000
20% bonus before bonus 0 0
Balances, equally (113,333) (113,333) (113,333) (340,000)
Total share in profit (loss) (83,333) (88,333) (68,333) (240,000)