Basic Accounting for Partnership

Mutual Agency

A characteristic of a partnership giving specific authority to the partner into such transactions

b. Daniel, ₱60,000; Mauricio, ₱40,000; and Hebron, nothing

Daniel, Mauricio, and Hebron are partners. Their contributions are as follows: Daniel, ₱600,000; Mauricio, ₱400,000; and Hebron, services. The partners did not agree on how to divide profits or losses. If there is a net loss of ₱100,000, how should the loss be shared by the partners? a. Daniel, ₱35,000; Mauricio, ₱35,000; and Hebron, ₱30,000 b. Daniel, ₱60,000; Mauricio, ₱40,000; and Hebron, nothing c. Daniel, ₱40,000; Mauricio, ₱60,000; and Hebron, nothing d.Daniel, ₱30,000; Mauricio, ₱20,000; and Hebron, ₱50,000

Sarabia ₱(870) Abad ₱180

Provide 2% allowance for the doubtful accounts, Accounts receivable is ₱18,500 for Sarabia and ₱13,500 for Abad. Sarabia's furiture and Fixtures should be ₱31,000 (Book value is ₱30,000), while Abad's office equiptment is under-depreciated by ₱250. Rent Expense incurred previously by Sarabia was not yet recorded amounting to ₱1,000 while salary expense incurred by Abad was not also recorded amounting to ₱800. Fair market values of inventory amounted to ₱29,500 for Sarabia and ₱ 21,000 for Abad ( Book values are ₱30,000 and ₱19,500 resrectively ) What is the net (debit) credit adjustment for Sarabia and Abad?

Add: Share in profit / loss Less: Temporary withdrawals Partner's Equity END

Statement of Changes in Partner's Equity For the year ending A B TOTAL Capital Balance Beginning ₱ 65,000 ₱ 55,000 ₱120,000 Additional Investments Total ____________________________? ____________________________? ____________________________?

ASSETS = LIABILITIES + PARTNER'S EQUITY

Statement of financial position As of Formula is _____=_____+_____

TRUE

T/F: "The losses and profits shall be distributed in conformity with the agreement."

TRUE

T/F: A partner by estoppel is one who is actually not a partner but who represents himself as one.

TRUE

T/F: A partner is not entitled, before ascertainment of profits, to interest on the capital subscribed by him

TRUE

T/F: Additional investments on beginning capital investments are not encourage.

TRUE

T/F: Adjusting entries are necessary to arrive at agreed amount are reversed through capital accounts of the partners

TRUE

T/F: All partners (except limited partners), including industrial are personally liable for all debts incurred by the partnership.

TRUE

T/F: Any adjustment to any depreciable properties and equiptment or fixed assets account title accumulated depreciation should still be used even the basis is fair market value or agreed value.

TRUE

T/F: As a industrialist partner, he gets a just and equitable share, and the balance of the profits to be divided among the capitalist partners in proportion to their capital contribution.

TRUE

T/F: As to contract in limited partnership it is called certificate of partnership

FALSE

T/F: Bonus is a unique intangible asset that is internally generated, comes from reputation, good name, capable staff and personnel, superior quality products, favorable location and other qualities of a business that has an edge over its competitors.

TRUE

T/F: Bonus is to be allowed to managing partner to an allowed level of profit

TRUE

T/F: Capitalist partners can not engage in the same business as that of the partnership.

TRUE (though industrialist partner will have a just and equitable share and is priority in the distribution then after is based on capital contribution for the rest)

T/F: Distribution of profit or loss. First is agreement, second is based in profit sharing in absence of an agreement in case of a loss, Third option is based in capital balances or contribution absence of first and second option

TRUE ("In accordance with the partnership agreement, Dong is an industrialist partner in this partnership and shall earn a share in the partnership's profit") *not in losses

T/F: For an industrialist partner a memorandum entry is made in the general journal and noted in the general ledger

TRUE

T/F: Free interest is the amount of cash to be received by the partner in the schedule of safe payment.

TRUE

T/F: Have profit agreement but no loss agreement but according to the laws in partnership, what is agreed in profit sharing will follow in loss sharing, in the absence of stipulation of no loss agreement.

TRUE

T/F: If a partnership is formed by combining two sole proprietorships, all past liabilities become the responsibility of the partnership.

TRUE

T/F: In absence of stipulation Industrial partner shall not be liable for the losses and shall be just and equitable in circumstances

TRUE

T/F: Indirect method all net income and losses from operations are closed to the DRAWING'S account of each partner, then compute the balance of the drawing account and close to the capital account.

TRUE

T/F: Industrialist partner may be liable for loss if there is an agreement stipulated.

TRUE

T/F: Limited Partners as such shall not be bound by the obligations of the partnership

TRUE

T/F: Limited partner may contribute only property, never industry

TRUE

T/F: P - Debiting capital and crediting contra-asset account decreases asset value

TRUE

T/F: Partners are owners not employees, in their agreements interest and salaries are called allowances.

TRUE

T/F: Partners invested for profits not interest.

TRUE

T/F: The SEC shall not register any corporation organized for the practice of public accountancy (The Philippine Accountancy Act of 2004, Sec.28).

TRUE (Mutual Contribution)

T/F: There cannot be a partnership without contribution of money, to a common fund.

TRUE

T/F:GAIN - debit accumulated depreciation credit the capital account LOSS - debit the capital account credit accumulated depreciation

A B Share in profits ₱58,588 ₱47,412

A and B are partners sharing 7:3 profits and losses, Fiscal year ended May 31, 2016 Capital account balances are ₱200,000 and ₱140,000, Partner's current account credit side are ₱15,000 and ₱13,000. during the year the following Drawings has been made For A: ₱10,000 on 08/31/15, 11/30/15, 02/28/15, 02/28/16, 05/31/16 For B ₱7,000 on 08/31/15, 11/30/15, 02/28/15, 02/28/16, 05/31/16 Interest charges for drawings is 12%, capital balances and current account credit balances are 12% interest is allowed. A is to receive ₱15,000 salary, Partnership has profited ₱102,940 ended May 31, 2016. *Calculate the profit of each partner.

Interest charged A B In partner's drawings ₱ 1,800 ₱ 1,260

A and B are partners sharing 7:3 profits and losses, Fiscal year ended May 31, 2016 Capital account balances are ₱200,000 and ₱140,000, Partner's current account credit side are ₱15,000 and ₱13,000. during the year the following Drawings has been made For A: ₱10,000 on 08/31/15, 11/30/15, 02/28/15, 02/28/16, 05/31/16 For B ₱7,000 on 08/31/15, 11/30/15, 02/28/15, 02/28/16, 05/31/16 Interest charges for drawings is 12%, capital balances and current account credit balances are 12% interest is allowed. A is to receive ₱15,000 salary, Partnership has profited ₱102,940 ended May 31, 2016. *Calculate the total interest chargeable on the partner's drawings

A B End,Bal. ₱31,788 ₱31,152

A and B are partners sharing 7:3 profits and losses, Fiscal year ended May 31, 2016 Capital account balances are ₱200,000 and ₱140,000, Partner's current account credit side are ₱15,000 and ₱13,000. during the year the following Drawings has been made For A: ₱10,000 on 08/31/15, 11/30/15, 02/28/15, 02/28/16, 05/31/16 For B ₱7,000 on 08/31/15, 11/30/15, 02/28/15, 02/28/16, 05/31/16 Interest charges for drawings is 12%, capital balances and current account credit balances are 12% interest is allowed. A is to receive ₱15,000 salary, Partnership has profited ₱102,940 ended May 31, 2016. *Compute the balance of of each partner's current account as at May 31, 2016.

C) Mutual Agency

Any partner can bind the other partners to a contract if he is acting, within his express or implied authority. A) Mutual Contribution B) Co-ownership of Contributed Assets C) Mutual Agency D)Limited Life

₱700,000 (260,000 - 50,000 = 210,000/.3)

A has a 30% participation in the partnership profit and loss. A capital account has a net decrease ₱120,000 during the year also withdrew ₱260,000 charged against his capital account and contributed property fair value of ₱50,000. What is the net income of the partnership?

D. ₱(3,000)

A partnership showed the following account balances: sales, ₱70,000; cost of sales, ₱40,000; operating expenses, ₱10,000; partner's salaries, ₱13,000; interest paid to banks, ₱2,000 and partners' drawings, ₱8,000. The partnership profit is. A. ₱20,000 B. ₱18,000 C. ₱5,000 D. ₱(3,000)

The Bureau of Internal Revenue

A sole proprietor and an individual with no business form a partnership. These books, together with other partnership documents, shall be registered with what entity?

c. A = ₱90,000; B = ₱72,000; and C = ₱18,000

A, B, and C are partners. Their contributions are as follows: A = ₱600,000; B = ₱400,000; C = services. Partners A, B, and C agreed to divide profits or losses in the ratio of 50:40:10, respectively. How should a net loss of ₱180,000 be shared by partners? a. A = ₱100,000; B = ₱80,000; and C = nothing b. A = ₱100,000; B = ₱65,000; and C = ₱15,000 c. A = ₱90,000; B = ₱72,000; and C = ₱18,000 d. A = ₱90,000; B = ₱70,000; and C = ₱20,000

₱57,600 for A and ₱62,400 for B (distribution of PROFIT based on ending balances)

A, Capital - Credit side: 7/1 ₱15,000; 12/1 ₱10,000; Debit side: 1/1 ₱100,000; 4/1 ₱10,000; 11/1 ₱35,000 and B, Capital - Credit side: 4/1 ₱30,000; 12/1 ₱35,000; 10/1 ₱5,000; Debit side: 1/1 ₱150,000; 6/1 ₱50,000 *Distribute ₱120,000 profit based on ENDING balances

₱150,000 is the new capital balance for both partners

A, Capital - Credit side: 7/1 ₱15,000; 12/1 ₱10,000; Debit side: 1/1 ₱100,000; 4/1 ₱10,000; 11/1 ₱35,000 and B, Capital - Credit side: 4/1 ₱30,000; 12/1 ₱35,000; 10/1 ₱5,000; Debit side: 1/1 ₱150,000; 6/1 ₱50,000 *What is the new capital balances of each partner ₱120,000 profit is based on 3:5 ratio for A and B also withdrawals of 15,000 and 55,000 respectively

₱45,818.18 for A and ₱74,181.82 for B (distribution of PROFIT based on average balances

A, Capital - Debit side: 7/1 ₱15,000; 12/1 ₱10,000; Credit side: 1/1 ₱100,000; 4/1 ₱10,000; 11/1 ₱35,000 and B, Capital - Debit side: 4/1 ₱30,000; 12/1 ₱35,000; 10/1 ₱65,000; Credit side: 1/1 ₱150,000; 6/1 ₱50,000 *Distribute on a ₱120,000 profit based on AVERAGE balances

Income Summary ₱120,000 _______________A, Drawing ₱35,200 _______________B, Drawing ₱ 84,800

A, Capital is ₱100,000 and B, Capital is ₱150,000; 20% interest on beginning capital, Salary Allowance ₱20,000 to B, 10% bonus on net income to B, profit ratio is 2:3 and Net income is ₱120,000. What is the journal entry? (Compounded form)

Partnership

ARTICLE 1767. two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves by what contract?

A, Drawing ₱25,000 B, Drawing ₱25,000 _________A, Capital ₱25,000 _________B, Capital ₱25,000

After a ₱50,000 of two partners is already distributed what journal entry format is needed to close the account?

Cost of Goods Sold / Cost of Sales

Merchandise Inventory, Beg. Add: Purchases Transportation in = Cost of Goods Available For Sale (Less:) Merchandise Inventory, End _ _ _ _ _ _ _ _ _ _ _?

Total Goods Available For Sale

Merchandise Inventory, Beg. Add: Purchases Transportation in = __________________________?

Total Goods Available

Merchandise Inventory, Beg. Add: Purchases ________________ _ _ _ _ _ _ _ _ _ _ _?

₱35,000

BONUS: Assuming the net income of MM TRADING, a trading partnership (after income tax of 30%) was ₱350,000. The bonus is 10% of net income. The bonus should be ₱?

₱31,600 (350,000-14,000-20,000x.10=)

Based on B problem ₱350,000: The bonus is 10% of net income after interest on beginning capital balance and after salary allowance but BEFORE bonus, assuming the interest on beginning capital is ₱14,000 and the salary allowance is ₱20,000. The bonus is ₱?

₱500,000 (350,000 / (1-.3))

Based on B problem ₱350,000: What is the net income before taxes, tax rate is 30%, net income before tax is ₱

₱83,900 (₱350,000-₱14,400x.25)

Based on BONUS problem ₱350,000: Steve who manages the business, is to receive a bonus of 25% in excess of ₱14,400.

₱58333.33 (350,000/1.2 x .2)

Based on BONUS problem ₱350,000: The bonus is 20% of net income AFTER income tax expense and bonus. The bonus is ₱?

B. ₱32,000 ₱62,000 ₱63,600

Cash Priority Program Dig, Cut, and Tat share profits and losses in the ratio of 5:3:2. The partners decided to liquidate the partnership. The partnership balance sheet follows: *ASSETS* Cash ₱40,000 Other ASSETS 210,000 *LIABILITIES AND CAPITAL* Liabilities ₱60,000 Dig, Loan 8,000 Dig, Capital 40,000 Cut, Capital 72,000 Tat, Capital 70,000 The partnership is to be liquidated by installment. The first sale of non-cash assets with a cost of ₱120,000 realized ₱90,000. Liquidated expenses paid amounted to ₱2,000. How much cash should be distributed to each partner? Dig Cut Tat A. None ₱35,400 ₱45,600 B. ₱32,000 ₱62,000 ₱63,600 C. None ₱9,600 ₱28,400 D. None ₱27,600 ₱40,400

BOOK VALUE

Cost less accumulated depreciation =

A, Capital ₱ 19,500 B, Drawing ₱ 9,500 _____________A, Drawing ₱ 19,500 _____________B, Capital ₱ 9,500

Journal entries already has been made to record distribution of net income. What journal entry is needed given the distributed profits of A is ₱80,500 and B is ₱69,500 and has temporary drawings of ₱100,000 and ₱60,000

₱14,400 (All members of a partnership are entitled to share profits. If no provisions are set forth in the articles of partnership as to how profits or losses are to be divided, they must be shared equally. Partners commonly receive a salary and an interest allowance. If net income remains after all allowances have been satisfied, the remaining income is split according to agreed proportions. A loss is shared in the same proportions.)

Determine the net income of partner A based upon the following given information: 1) partners A, B, and C are entitled to a salary of ₱20,000 each, 2) any net profit or loss is to be split 30/50/20 respectively, and 3) net income of ₱48,000 was earned this year.

₱50,000 Is the bonus, 10% of net income before income tax. tax rate is .3 [350,000 / (1-.3) = 500,000 x .1]

KOBE and TJ limited earned ₱350,000 net of taxes (tax rate 30%) The bonus is 10% of net income before income tax. What is the bonus ₱__________?

B/T/C Partnerships (Business,Trade or Commercial are subject to income tax)

For taxation purposes, there are two kinds of partnership The General Professional Partnerships exercising their common profession and the ____________

Net Income

Gross Profit (Operating Expenses) _ _ _ _ _ _ _ _ _ _ _ _ _ _ ?

at least one GENERAL partner and at least one LIMITED partner

Kinds of Partnership according to the liability of the partners, What are the minimum composition of a limited partnership?

c. Ming, ₱40,000; Ling, ₱25,000; and King, ₱35,000

King, Ling, Ming are partners. Their contributions are as follows: King,₱600,000; Ling,₱400,000; and Ming, services. The partners agreed to divide profits or losses in the following percentages: King, 35%; Ling, 25%; and Ming, 40%. If there is a net income of ₱100,000, how should the net income be distributed among the partners? a. King, ₱60,000; Ling, ₱40,000; and Ming, nothing b. King, ₱30,000; Ming, ₱20,000; and Ling, ₱50,000 c. Ming, ₱40,000; Ling, ₱25,000; and King, ₱35,000 d. King, ₱35,000; Ming, ₱25,000; and Ling, ₱40,000

b. Combination of c and d below

Lalo is an industrial partner. Besides his services, he also contributed capital to the partnership. There is no agreement as to the distribution of profits or losses. The share of Lalo in the profit is: a. To be determined by the remaining partners b. Combination of c and d below c. Such share as may be just and equitable under the circumstances. d. Pro-ratio his capital contribution.

General Professional Partnerships (Though exempted as a a partnership, personally will still file their personal (itr) income tax return for that particular taxable year)

In the two kinds of partnership which is non-taxable or exempt from income tax?

A.) Direct Method

In this method all net income and losses from operations are closed to the capital account of each partner, then the drawing account will be closed to the capital account A.) Direct Method B.) Indirect Method

d) Sonia

On April 30, 2014, Tinting, Yoyoy, and Sonia formed a toy store partnership by combining their separate properties. Tinting contributed cash amounting to ₱50,000. Yoyoy contributed property with a ₱36000 carrying amount, a ₱40,000 original cost, and ₱80,000 fair market value. The partnership accepts the responsibility for the ₱35,000 mortgage attached to the property of Yoyoy. Sonia contributed equiptment with a ₱30,000 carrying amount, a ₱75,000 original cost, and ₱55,000 fair value. The agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partners have the largest capital balances on April 30, 2014? a) All account balances are equal b) Yoyoy c) Tinting d) Sonia

C) Dormant partner

One who does not take active part in the business of the partnership and is not known as a partner. A) Nominal Partner B) Secret Partner C) Dormant Partner D)Silent Partner

A) Silent Partner

One who does not take active part in the business of the partnership though may be known as a partner A) Silent Partner B) Secret Partner C) Dormant Partner D) Limited Partner

B) Secret Partner

One who takes active part in the business but is not known to be a partner by outside parties. A) Silent Partner B) Secret Partner C) Dormant Partner D) Limited Partner

ASSET

P - A debit in asset and credit in capital increases in what value?

DECREASE

P - A debit in liabilities and a credit in capital effects liabilities balances as an decrease or increase?

ASSET

P - Debiting a contra-asset account and crediting capital increases what values?

PARTNER, Capital ₱3,500 Allowance for doubtful accounts ₱3,500

P - What is the journal entry to revalue the accounts receivable from the net realizable value of ₱43,500 to ₱40,000?

INCREASE IN LIABILITY BALANCES

P - a debit in capital and a credit in liabilities effects what account? increase or decrease?

A debit in asset and credit in capital

P: What entry decreases asset in value?

Gross Profit

Sales (Cost of Goods Sold) _ _ _ _ _ _ _ _ _ _ _ _ _ _?

Sales ₱800,000 __________Cost of Sales ₱400,000 __________Operating Expenses ₱250,000 __________Income Summary ₱150,000 Income Summary ₱150,000 _______________A, Drawing ₱ 60,000 _______________B, Drawing ₱ 90,000

Sales ₱800,000 GP ₱400,000 NI ₱150,000 COS (400,000) OP (₱250,000) Prepare journal entry to close income and expense to income summary account and the distribution of net income ratio of 2:3 to A and B respectively .

B) Liquidation

The ______________ of a partnership is the WINDING up of its business activities characterized by sale of all non-cash assets, settlement of all liabilities and distribution of the remaining cash to the partners. A) Dissolution B) Liquidation

A) Dissolution

The _________________ of a partnership is the CHANGE in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business of the partnership. A) Dissolution B) Liquidation

A) all the answers are correct

The articles of partnership contain which of the following information? A) all the answers are correct B) how net profits and losses to be divided C) responsibilities of partners D) initial investment of partners E) policies on the admission and withdrawal of new partners

Income Summary ₱120,000 _______________A, Drawing ₱ 51,429 _______________B, Drawing ₱ 68,571

The partnership earned a net profit of ₱120,000 distribute profit in a 3:4 ratio for A and B respectively in journal entry format.

OSTENSIBLE PARTNER

This partner is usually a well known, well connected individual whose name lends credibility and recognition to the firm, and is paid a fee for this service, legally, is not partner because he or she neither owns a part of the firm nor actively participates in its affairs.

LIMITED PARTNER

This partner's role is to make his own contribution and receive his share in the profit, does not participate in the management. His contractual liabilities only to the extent of his contributions to the partnership

Accumulated Dep-Office Equiptment ₱3,000 __________________A, Capital ₱3,000

To record the increase in value of office equiptment from book value of ₱22,000 to ₱25,000. What is the journal entry?

A, Capital ₱3,500 ______________Allowance for impairment loss ₱3,500

To revalue Accounts Receivable from the net realizable value of ₱43,500 to ₱40,000. What is the journal entry?

b. Tonton will get only ₱20,000 in the first year and none in the second year.

Tonton, Tingting and Noy are partners. Tonton is an industrial partner. During the first year operation, the firm realized a net income of ₱60,000. During the second year, the firm sustained a net loss of ₱30,000. In the Articles of Partnership, it was agreed that Tonton, the industrial partner would get one-third of the profit but would not share in the losses. How much will Tonton, the industrial partner get? a. Tonton will get ₱20,000 which is 1/3 of the income of the first year of operations and then will share in the loss in the second year of ₱10,000. b. Tonton will get only ₱20,000 in the first year and none in the second year. c. Tonton wil get only ₱10,000 which is one-third of the net income for the first year and second year combine. d. Tonton will share in the net loss in the second year.

Cost of Goods Sold

Total Goods Available (Less:) Merchandise Inventory, End _ _ _ _ _ _ _ _ _ _ _?

Arbitrary Ratio

What is called an agreed level of measurement in a determined ratio?

NET REALIZABLE VALUE

What is called receivable less allowance for uncollectible accounts and should be stated for Accounts receivable?

B.) Bonus

What is defined in the dissolution of a partnership as the amount of capital or equity by one partner transferred to another with no cash consideration but for the good reputation or earning capacity of the latter. A.) Goodwill B.) Bonus

A, Drawing ₱25,000 B, Drawing ₱25,000 ________ Income Summary ₱50,000

What is the closing entry to record the distribution of ₱50,000 net loss? (assuming there is no agreement and follow the Philippine Partnership Law, for two partners A and B)

Sales ________Cost of Sales ________Purchases ________Operating Expenses ________Tax Expense ________Income Summary (Net Income)

What is the journal entry format to close income and expense accounts before distribution of income to partners also in journal entry form

Cash ₱124,400 A, Capital ₱124,400

What is the journal entry if partner A initial investment which is equivalent to 40% of B's Capital ₱311,000?

Accum Dep - Office Equiptment ₱3,000 PARTNER, Capital ₱3,000

What is the journal entry to record the increase in value of office equiptment from book value of ₱22,000 to ₱25,000?

PARTNER, Capital ₱15,000 Restaurant Inventory ₱15,000

What is the journal entry to record the loss due to the revaluation of restaurant inventory from ₱60,000 to ₱45,000?

B) Restricted Interest

What is the partner's interest in the unsold non-cash assets reflected in the schedule of safe payment? A) Free Interest B) Restricted Interest C) Loss Absorption balances D) Capital Deficiency

B) capital

When a journal entry records for the division of a gain on the sale of a building, which account must be credited? A) liability B) capital C) building D) cash

A) the distribution of profits or losses

Which of the following items is treated in partnerships differently from other forms of business organizations? A) the distribution of profits or losses B) the depreciation of assets C) the recording of revenues D) the recording of expenses