BA 118.

1 AY 17-18
Partnership Assignment 1

1. Faye is trying to decide whether to accept a salary of $60,000 or a salary of $25,000 plus a bonus of 20% of net income
after the bonus as a means of allocating profit among the partners. What amount of income would be necessary so that
Faye would consider the choices to be equal?

2. Shar is trying to decide whether to accept a salary of $60,000 or a salary of $25,000 plus a bonus of 20% of net income
after salaries and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are
estimated to be $75,000. What amount of income would be necessary so that Shar would consider the choices to be equal?

3. Andrea is a partner and has an annual salary of $30,000 per year, but he actually draws $3,000 per month. The other
partner in the partnership has an annual salary of $40,000 and draws $4,000 per month. What is the total annual salary
that should be used to allocate annual net income among the partners?

4. A partnership has the following accounting amounts: (1) Sales = Php70,000; (2) Cost of Goods Sold = Php40,000; (3)
Operating Expenses = Php10,000; (4) Salary allocations to partners = Php13,000; (5) Interest paid to banks = Php2,000; (6)
Partners' withdrawals = Php8,000. Partnership net income (loss) is ____.

5. Which of the following characteristics of a partnership most likely explains why a public accounting firm is organized as a
partnership from a public policy viewpoint?
a. A partnership is not a taxable entity.
b. A partnership is characterized by unlimited liability.
c. A partnership is characterized by a fiduciary relationship among the partners.
d. Salaries to the partners are not considered a component of net income.

6. Liza and Enrique are considering forming a partnership whereby profits will be allocated through the use of salaries and
bonuses. Bonuses will be 10% of net income after total salaries and total bonuses. Liza will receive a salary of Php30,000
and a 10% bonus. Enrique has the option of receiving a salary of Php40,000 and a 10% bonus or simply receiving a salary
of Php52,000. Required: Determine the level of income that would be necessary so that Enrique would be indifferent to
the profit-sharing option selected.

7. Daniel and Kathryn have decided to form a partnership to provide environmental testing services to industry. The
individuals will share profits equally and have conveyed the following assets and liabilities to the partnership: Daniel:
Cash- Php20,000, Equipment (FV)- 12,000, Liabilities- 8,000. Kathryn: Equipment (FV)-34,000, Vehicles- 6,000, Liabilities-
20,000. Required: Calculate the balance of Daniel in the partnership.

8. The profit and loss sharing agreement for the Andie, Sandie, and Mandie partnership provides that each partner receive a
bonus of 5% on the original amount of partnership net income if net income is above Php25,000. Andie and Sandie receive
a salary allowance of Php7,500 and Php10,500, respectively. Mandie has an average capital balance of Php260,000, and
receives a 10% interest allocation on the amount by which his average capital account balance exceeds Php200,000.
Residual profits and losses are allocated to Andie, Sandie, and Mandie in their respective ratios of 7:5:8. How much will be
the share of Andie?

9. Gab, Francis, and Juan operate a partnership with a complex profit and loss sharing agreement. The average capital
balance for each partner on December 31, 2006 is $300,000 for Gab, $250,000 for Francis, and $325,000 for Juan. An 8%
interest allocation is provided to each partner. Gab and Francis receive salary allocations of $10,000 and $15,000,
respectively. If partnership net income is above $25,000, after the salary allocations are considered (but before the
interest allocations are considered), Juan will receive a bonus of 10% of the original amount of net income. All residual
income is allocated in the ratios of 2:3:5 to Gab, Francis, and Juan, respectively. If the partnership incurs net loss of 36,000,
how much will be the share of Juan? (Write your answer as negative if loss.)

10. The profit and loss sharing agreement for the Jonnah, Jasmine, and Jasper partnership provides for a Php15,000 salary
allowance to Jasmine. Residual profits and losses are allocated 5:3:2 to Jonnah, Jasmine, and Jasper, respectively. In 2006,
the partnership recorded Php120,000 of net income that was properly allocated to the partner's capital accounts. On
January 25, 2007, after the books were closed for 2006, Jonnah discovered that office equipment, purchased for
Php12,000 on December 29, 2006, was recorded as office expense by the company bookkeeper. Prepare the necessary
correcting entry/ies. (Format Dr. Account XXXX Dr. Account XXXX Cr. Account XXXX Cr. Account XXXX)