Accounting for Partnership

Do- It- Yourself: Problem Sets

C. Partnership Dissolution

Problem No. 1

Assume that after operations and partners’ withdrawals during 2018 and 2019. DE Partnerships has a book value of P 120,000 and a profit and loss
percentage on January 1, 2020 as follows:

Capital Balances P and L %

D P 72,000 70%
E 48,000 30%
Total P 120,000 100%

On this date, F is admitted to the partnership.

Required:
1. Prepare journal entries to record the admission of F, assuming:
a. Purchase of interest from one partner. F paid P 28,800 directly to D in exchange for 1/3 interest.
b. Purchase of interest from all partners. This situation gives rise to three assumptions:
1. Purchase at book value. F purchases a ¼ interest in the firm. One- fourth of each partner’s capital is to be transferred to the
new partner. F Pays the partners P 30,000.
2. Purchase at more than book value. F purchased ¼ of D’s interest for P 21,600 and ¼ of E’s interest for P 14,400, making
payment directly to D and E. The new partner will have a ¼ profit and loss ratio and the old partners continue to use their old
profit and loss ratio.
3. Purchase at less than book value. F purchased ¼ of D’s interest by paying P 26,400 directly to D and E. the new partner will
have a ¼ profit and loss ratio and the old partners continue to use their old profit and loss ratio.
2. What are the capital balances of the partners immediately after admission?

Problem No. 2

Phoenix and Tim Tucson are partners in electrical repair business. Their respective capital balances are P 90,000 and P 50,000, and they share profits
and losses equally. Because the partners are confronted with personal financial problems, they decided to admit a new partner to the partnership.
After an extensive interviewing process they elect to admit Don Dallas into the partnership.

Required: Prepare the journal entry to record the admission of Don Dallas into the Partnership under each of the following conditions:
1. Don acquires ¼ of Phoenix capital interest by paying P 30,000 directly to him.
2. Don acquires 1/5 of each partners’ capital interest. Phoenix receives P 25,000 and Tim receives P 15,000 directly from Don.
3. Don acquires 1/5 capital interest for a P 60,000 cash investment in the partnership. The total capital after the admission is to be P 200,000.
4. Don invest P 40,000 for a 1/5 interest in partnership capital. Implicit goodwill is to be recorded.

Problem No. 3

Agler, Bates and Colter are partners who share income in a 5:3:2 ratio. Colter, whose capital balance is P 150,000, retires from the partnership.

Required: Determine the amount paid to Colter under each of the following cases:
1. P 50,000 is debited to Agler capital account, the bonus approach is used.
2. Goodwill (or revaluation of asset) of P 60,000 is recorded; the partial goodwill approach (or revaluation of specific asset is used) is used. P 66,000
is credited to Bates’ capital account; the total goodwill is used.

D. Partnership Liquidation

Problem No. 4

Assume the following data for QRS Partnership had the following condensed balance sheet just before liquidation on November 1, 2020, reports the
following balances:
 Assets Liabilities and Capital
Cash P 24,000 Liabilities P 12,000
Noncash assets 84,000 Q, Loans 2,400
Q, Capital- 30% 9,600
R, Capital- 50% 48,000
S, Capital- 20% 36,000

Required: Prepare statement of liquidation, assuming:

1. The noncash assets were realized at P 96,000.
2. The noncash assets were realized at P 48,000.
3. The noncash assets were realized at P 36,000. The personal assets and liabilities of the partners on this date are as follows:
Personal Assets Partnership Liabilities
Q P 288,000 P 240,000
R P 216,000 P 228,000
S P 108,000 P 108,000

4. The noncash assets were realized at P 42,000.

5. The noncash assets were realized at P 24,000. The personal assets and liabilities of the partners on this date are as follows:
Personal Assets Partnership Liabilities
Q P 288,000 P 284,400
R P 216,000 P 228,000
S P 117,600 P 108,000
6. The noncash assets includes goodwill of P 54,000 and prepaid expenses of P 18,000. The partners agreed to write- off these accounts since they are
valueless. The remaining noncash assets were realized at P 1,200 with liquidation expenses paid amounting to P 14,400. The personal assets and
liabilities of the partners on this date are as follows:

Personal Assets Partnership Liabilities

Q P 240,000 P 204,000
R P 216,000 P 192,000
S P 108,000 P 112,800

Problem No. 5

Assume A, B, C, and D were partners sharing profits 40%:20%: 20%:20%, respectively. On January 1, 2020, they agreed to liquidate. A balance
sheet prepared in this date is shown as follows:

Assets Liabilities and Capital

Noncash assets P 181,800 Liabilities P 84,000
A. Loan P 6,000
D, Loan P 3,000
A, Capital P 26,400
 B, Capital P 25,800
C, Capital P 20,400
D, Capital P 16,200

The results of liquidation are summarized below:

Year 2020 Cash Proceeds Book Value Cost of Payment to Cash Payment
On Sale of Noncash liquidation creditors withheld Partners
Noncash assets expenses
Assets paid
January 72,000 90,000 1,200 66,000 4,800
February 21,600 30,000 1,320 18,000 1,800 5,280
March 19,200 24,000 1,440 1,200 18,360
April 6,000 19,800 4,800 600 1,800
May 2,400 18,000 960

Distribution of cash to partners are normally done at month- end.

Required:
1. Prepare statement of liquidation for the month of January to May 2020.
2. Prepare schedule of safe payments to support the distribution of cash payment for the month of January to May 2020.
3. Prepare cash payment priority program indicating the cash payment to each partner for the month of January to May 2020.
4. Using the cash payment priority program indicate the vulnerability rankings for each in the event of loss suffered by the partnership.