Partnership Dissolution

Problem 1

A partnership had the following condensed balance sheet:

Assets Liabilities and Capital

Cash 2,500.00 Liabilities 7,500.00 32,500.0
Noncash Assets 0 XX Capital (80%) 20,000.00
XX Loan 2,500.00 YY Capital (20%) 10,000.00
37,500.0
Total 0 37,500.00

The percentages in parentheses after the partner's capital balances represent their
respective interests in profits and losses. The partners agree admit ZZ as a member of
the firm.

1. ZZ purchases a ¼ interest in the firm. One fourth of each partner's capital is to be

transferred to the new partner. ZZ pays the partners which is divided between
them in proportion to the equities given up. The capital balances of XX, YY, and
ZZ after should be:

XX YY ZZ XX YY ZZ
a. 15,000 7,500 9,375 c. 15,000 7,500 7,500 b. 12,500 12,500 12,500 d.
10,000 10,000 10,000
Problem 2

WW desires to purchase a one-fourth capital and profit and loss interest in the
partnership of EE, GG, DD. The three partners agree to sell WW a one fourth of their
respective capital and profit and loss interest in exchange for a total payment of 40,000.
The capital accounts and the respective percentage interest in profits and losses
immediately before the sale to WW are:

EE, capital (60%) 80,000.00

GG, capital (30%) 40,000.00
DD, capital (10%) 20,000.00
Problem 3 losses in the ratio of 6:4 respectively:

The following condensed balance sheet is

presented for the who share profit and partnership of AA and BB
 Cash 33,750.00
Other Asset 468,750.00
BB, loan 22,500.00
525,000.00
Accounts Payable 90,000.00
AA, capital 261,000.00
BB, capital 174,000.00
525,000.00

The assets and liabilities are fairly valued on the balance sheet. AA and BB decide to
admit CC as a new partner with 20% interest. No bonus is to be recorded. What amount
should CC contribute or invest in cash and other assets?

a. 82,500 c. 105,000
b. 87,000 d. 108,750
Problem 4

DD, EE and FF are partners sharing profits and losses of 50%, 30% and 20%
respectively. The December 31, 2019 balance sheet of the partnership before any profit
allocation was summarized as follows:

ASSETS LIABILITES AND CAPITAL

Cash 60,000.00 Accounts Payable 4,000.00 Inventories 40,000.00 FF, loan 3,000.00 Furn. & Fixt
(net) 50,000.00 DD, capital 70,000.00 Patent 15,000.00 EE, capital 60,000.00 FF, capital
30,000.00
FF, drawings (2,000.00)
Total Assets 165,000.00 Total Liabilities and Capital 165,000.00

The partnership net income for the year amounted to 30,000. On January 1, 2020, FF
has decided to retire from the partnership and by mutual agreement among partners;
the following have been arrived at:

a. Inventories amounting to 5,000 is considered obsolete and must be written off b.

Furniture and fixtures should be adjusted to their current value of 65,000 c. Patents
are considered worthless and must be written off immediately before the retirement
 of FF

It was agreed that the partners will pay FF for his interest in the partnership inclusive of
loan balance

1. The interest of FF immediately before his retirement amounted to:

a. 37,000 c. 35,000
b. 36,000 d. 24,000

2. FF retires by receiving 36,000 cash payment at book value, the capital balances
of DD and EE after the retirement of FF:
a. DD, 82,500; EE, 67,500 c. DD, 67,500; EE, 58,500
b. DD, 85,000; EE, 69,000 d. DD, 57,500’ EE, 52,500

3. FF retires by receiving 38,000 cash (payment at more than book value), using
bonus method, the capital balances of DD and EE after the retirement of FF: a.
DD, 81,250; EE, 66,750 c. DD, 81,875; EE, 67,125
b. DD, 83,750; EE, 68,250 d. DD, 82,500; EE, 67,500
Problem 5

The capital accounts of the Sarah and Opel partnership on January 1, 2018 were:
Sarah, Capital (75% profit percentage) P 140,000

Opel, Capital (25% profit percentage) 60,000

Total Capital P 200,000

On October 1, Tina was admitted for a 40% interest in the partnership when she
purchased 40% of each existing partner’s capital for P100,000, paid directly to Sarah
and Opel. The partnership’s net income for the year is P82,500 and 2/3 of it was earned
in the last quarter of the year.

1. What are the capital balances of Sarah, Opel and Tina after Tina’s admission to the
partnership?
A. P105,000; P45,000; P100,000
B. P135,875; P55,313; P127,500
C. P96,375; P40,125; P91,000
D. P112,500; P50,000; P87,500

2. How much will Sarah receive from the above transaction?

A. P71,000 C. P86,250
 B. P92,500 D. P118,750

3. Assume Tina is admitted by investing the P100,000 into the partnership for a 40%
interest, how much is the ending capital balance of Opel after admission and the bonus
(given)/received to/from Tina?
C. P89,063; P5,313
A. P68,750; (P6,250) D.
B. P79,063; P59,125;(P7,750)
(P13,125)
Problem 6

The balance sheet at December 31, 2018, for the Beth, Daisy and Maya partnership is
summarized as follows:
Daisy is retiring from the partnership. The partners agreed that the partnership assets,

Assets P 1,000,000 Liabilities P 250,000

Loan to Daisy 125,000 Beth Capital (50%) 375,000 Daisy Capital (40%)
375,000
Maya Capital (10%) 125,000

Total P 1,125,000 Total P 1,1125,000

excluding Daisy’s loan, should be adjusted to their fair market value of P1,250,000 and
that Daisy should receive P380,000 for her capital balance net of the P125,000 loan.

How much is the capital balance of Beth and Maya immediately after Daisy’s retirement.

A. P475,000; P145,000 C. P481,250; P146,250

B. P500,000; P150,000 D. P385,416; P127,084
Problem 7

On January 2, 2018, Lexy and Ace dissolve their partnership and transfer all assets and
liabilities to a newly formed corporation. At the date of incorporation, the fair value of
the net assets was P22,500 more than the carrying amount on the partnership’s books.
Of which P12,500 was assigned to tangible assets and P10,000 was assigned to patent.
Lexy and Ace were each issued 5,000 shares of the corporations P12.50 par common
stock.
Immediately following incorporation, additional paid-in capital in excess of par should be
credited for
A. P160,000 C. P25,000
B. P47,500 D. P137,500
Problem 8

On June 30, 2017, the balance sheet for the partnership of D, E and F, together with
their respective profit and loss ratios, is summarized as follows:

Assets, at cost P 375,000 D, Loan P 18,750 D, Capital (20%) 87,500

E, Capital (20%) 81,250

F, Capital (60%) 187,500

Total P 375,000

D has decided to retire from the partnership, and by mutual agreement the assets are to
be adjusted to their fair value of P450,000 at June 30, 2018. It is agreed that the
partnership will pay D P127,500 cash for his partnership interest exclusive of his loan,
which is to be repaid in full.

1. After D’s retirement, what are the capital account balances of partners E and F,
respectively?

A. P81,250 and P187,500 C. P121,250 and P307,500 B. P90,000 and

P213,750 D. P96,250 and P232,500
Problem 9

Partners Boba and Tess, who share profits and losses equally, have decided to
incorporate the partnership at December 31, 2018. The partnership net assets after the
following adjustments will be contributed in exchange for share of stocks from the
corporation.

I. Provision of allowance for doubtful accounts, P6,250.

II. Adjustment of overstated equipment by P2,500
III. Adjustment of understated inventory by P13,750 and
IV. Recognition of additional depreciation of P5,000.

The corporation’s ordinary share is to have a par value of P250 each and the partners
are to be issued corresponding shares equivalent to 80% of their adjusted capital
balances.
The partnership balance sheet at December 31, 2018 follows:

Cash P 112,500 Liabilities P 107,500 Accounts Receivable 62,500 Accounts Payable

5,000 Inventory 87,500 Boba, Capital 106,250 Equipment 50,000 Tess, Capital
93,750 Total P 312,500 Total P 312,500

1. Determine the total credit to APIC upon incorporation of partnership

A. P61,875 C. P40,000
B. P144,375 D. P140,000
Problem 10

Capital balances and profit sharing percentages for the partnership of Aaron, Nimrod,
and Elijah on January 1,2018 are as follows:

Aaron (36%) P140,000

Nimrod (24%) 100,000
Elijah (40%) 160,000
On January 2,2018 the partners agree to admit Ruth in the partnership for a 25%
interest in capital and earnings for her investment in the partnership of P120,000.
Partnership are not to be revalued.

a. The capital balance of Aaron, Nimrod, Elijah and Ruth, immediately after the
admission of Ruth would be:
b. What will be new profit and loss ratio for Aaron, Nimrod, Elijah, and Ruth, if old
partners will share profits using the old ratio?
Problem 11

The balance sheet of Dylan and Samuel Partnership at December 31, 218, appears
below:

Assets: Liabilities:
Cash P15,000 Accounts Payable P35,000
Accounts Receivable (net) 45,000 Notes Payable 25,000
Inventories 75,000 Accrued Liabilities 40,000
PPE (net) 225,000 Mortgage Payable 110,000
Dylan, Capital 60,000
Samuel. Capital 90,000
P360,000 P360,000

Determine the capital balances of partners immediately after the admission of

Sebastian under the ff. independent situations:
a. Sebastian acquired 25% interest in the partnership capital directly from Dylan
and Samuel for P50,000. Sebastian paid P18,750 directly from Dylan and
P31,250 directly to Samuel. Total Assets of the partnership after the
admission of Sebastian were P360,000. How much must be the capital
balance of Dylan immediately after the admission of Sebastian.
b. Assume the same facts as in a except that total assets of the partnership were
 P410,000 after the admission of Sebastian. At January 1,2019, inventories
had a fair value of P85,000, while PPE (net) had a fair value of P265,000.
Both Dylan and Samuel decided to revalue the partnership’s assets before the
admission of Sebastian. Determine the capital balance of Samuel immediately
after the admission of Sebastian
c. Sebastian acquired a 25% interest in capital by investing P50,000 of cash into
the partnership. Total capital of the Dylan-Samuel-Sebastian Partnership on
January 1,2019, amounted to P200,000. Determine the capital balance of
Sebastian immediately after his admission
d. Sebastian acquired 25% interest in capital by investing P80,000 of cash into
the partnership. Total capital of the Dylan-Samuel-Sebastian Partnership after
Sebastian’s admission amounted to P320,000. The fair value of the
inventories was P85,000 and the fair value of the PPE (net) was P305,000 on
January 1,2019. Determine the capital balance of Dylan, Samuel and
Sebastian immediately after Sebastian’s admission.
Problem 12

1. A, B and C have capital balances of P112,000, P130,000 and P58,000,

respectively and share profits in the ratio 3:2:1. D invest cash in the partnership
for a ¼ interest.
a. D receives a ¼ interest in the assets of the partnership and B is credited with
P15,000 of the bonus from D, how much cash D invest?
Problem 13

L, M and M are partners sharing profits in the ratio of 3:2:1, respectively. Capital
accounts are P500,000. P300,000 and P200,000 on December 31,2018, when N decides
to withdraw. It is agreed to pay P300,000 for N’s interest. Profits after the withdrawal of
N are to be shared equally.

Questions:
a. Using the bonus approach, how much are the capital balances of L and M
after N’s withdrawal?