SEATWORK: PARTERSHIP OPERATIONS

TRUE OR FALSE: Write “TRUE” if the statement is

correct, otherwise write “FALSE”.

1. In the absence of a profit or loss sharing

agreement, an industrial partner shall not be STRAIGHT PROBLEMS:
liable for the losses.
2. The designation of losses and profits cannot be PROB 1 A and B formed a partnership
entrusted to one of the partners. on January 1, 2024. The partnership agreement
3. A stipulation which excludes one or more stipulates the following:
partners from any share in the profits or losses
 Weekly salary allowance of P950 for A.
is void.
Salary allowances are to be withdrawn
4. Salaries to partners of a partnership typically are
throughout the period and are to be debited
recorded and debited to partners’ drawings
to drawings account.
account.
 Interest of 10% on the weighted average
5. Interest on loans from partners to the
capital balance of B.
partnership is typically accounted for as a device
 Bonus to A of 10%.
for sharing net income.
 The partners share profits and losses on a
6. A partners’ withdrawal of assets from a
60:40 ratio.
partnership that is considered a permanent
reduction in that partners’ equity is credited to During the period ending December 31, 2024, the
the partners’ capital account. partnership earned profit of P100,000.
7. The partners’ drawing accounts are used to
record the partners’ share of the net income or The movement in B’s capital account are as
loss for an accounting period. follows:
8. The allocation of an error should be based on B, Capital
the profit or loss ratio in effect when the error March 31
was discovered and not when the error was 80,000 initial
made. investment
9. If there is a provision for division of profits but Jul31 Sept 30
not losses in the partnership agreement, it is withdrawal 30,000 40,000 additional
concluded that losses should be divided investment
according to the ratio of capital account Dec 31
balances. 10,000 additional
10. Should the partners agree to divide losses only, investment
profits, if any shall be divided by the partners in End 100,000
the same manner as that of dividing losses.
11. Bonus is justified when the partnership earns A. Assume Bonus is based on profit before
profit for the period. Hence, when it incurs a salaries, Interest and Bonus, compute the
loss, bonus is ignored for purposes of loss capital of B at the end of the period.
allocation.
12. Interest on capital may be recognized in profit B. Assume Bonus is based on profits after
sharing. However, when a partnership incurs a salaries and interest. Assume further that the
loss for the period, interest on capital is ignored. withdrawal on July 31 by B is only
13. Salaries may be reasonably given to a temporary. Compute the respective share of
managing partner only when the partnership the partners in the partnership profit.
earns profit for the period.
14. Salaries for management hired to run the C. Assume Bonus is based on profit after
business is considered a legitimate expense of salaries, interest and bonus,
the partnership. 1. Compute the respective share of the
15. The fact that salaries paid to partners are not partners in the partnership profit.
component of partnership income is indicative of 2. Compute the increase (decrease) in the
being characteristic of the proprietary theory. capital of B during the period.
16. In partnership accounting, partner salary 3. Prepare the closing entries.
allowances like interest allowance on capital
balances are not expenses in the determination
of partnership net income.
17. When an interest allowance based on average
capital balance is provided under the partnership Prepared by Sir Jerome
profit or loss sharing agreement, any forms and
amount of drawings is typically included in the
computation of average capital balance.