Partnership Dissolution ~ Changes in Qwnership Interest 31: 3-2: 33: ‘Ss IULTIPLE CHOICES - COMPUTATION aT Use the following information for items 1, 2,and 3: The ALD Partnership shows the following profit and loss ratios and capital | » balances: Aquino 60% — P252,000 Locsin 30% 126,000 Dizon 10% P42,000_ ‘The partners decide to sell Hizon 20 pereent of their respective capital and profit and loss interests for a total payment of P90,000. Hizon will pay the money directly to the other partners. Ifthe partners agree that unrecognized goodwill is to be recorded prior to the sale of Hizon, what are the capital balances of the partners after his admission? Aquino Locsin Dizon Hizon a. PI98,000 P 99,000 P33,000- P90,000 2b. P201,600 P100,800 P33,600 90,000 © P216,000 108,000 P36,000 90,000 d. P255,600 P127,800 P42,600 P90,000 Ifthe partners agrec that the bonus method is used, what are the capital balances ‘of the partners after Hizon’s admission to the partnership? Aquino Locsin Dizon - Hizon a. P198,000 P99,000 P33,000 P90,000 6. P201,600 P100,800 P33,600 P84,000 c. P216,000 P108,000 P36,000 P90,000 d. P255,699 P127,800 P42,600 P84,000 How much cash should Aquino, Locsin, and Dizon receive, respectively from Hizon? 2.” P50,400,-P25,200, and P8,400, if and only if no goodwill is recorded. . P50,400, P25,208, and P8,400, whether or not goodwill is recorded. c P54,000, P27,000, and P9,000, if and only if goodwill is recorded. d. P54,000, P27,000, and P9,000, whether or not goodwill is recorded. a138 Chapter 3 MoM: The capital accounts of Ed, Nick, and Vic are presented below with their Tespective profit and loss ratio: . Ed P139,000 (1/2) Nick 209,000 (1/3) Vie 96,000 (I/€) Tony was admitted to the partnership when he purchased directly, for P132,000 a proportionate interest from Ed and Nick in the net assets and profits of the partnership. As a result, Tony acquired a one-fifth interest in the netassets and profits of the firm. Assuming no revaluation of assets is recorded, what is the » combined gain realized by Ed and Nick upon the sale of a portion of their interests in the partnership to Tony? @ PO b. P43,200 G P62,400 @. ‘P82,000 ‘Anson wishes to purchase one-fourth interest in the partnership of Bemal, Cuevas and Diaz. The three partner's agree to scll Anson one-fourth of their respective Capital and profit and loss interests in exchange for a total paymentof P40,000. ‘The partner's capital accounts and the pro: fit and loss ratio immediately before the admission of Anson areas follows: Capital Profit and Loss Accounis Ratio Bema] P 80,000 60% Cuevas 40,000 30% Diaz 20,000 10% P140,000 100% Allassets and liabilities are fairly valued and no bonus is to be recorded upon the admission of Arison. Immediately after Anson's admission, what should be the capital balances of Bernal, Cuevas and Diaz respectively? a. P60,000; P30,000; PI5,000. B. 69,000; P34,500; PI6,500. ©. 77,000; P38,500; PI9,500. d. P92,000; P46,000; P22,000.Partnership Dissolution - Changes in Qwnerahip Interest 139 3: 37: Banzon and Cortez are partners who share profits and losses in the ratio of 6:4. On January |, 2013 their capital balances are: — Banzon P 80,000 Cortez 20,000 Total ——— Dizon is to be admitted for a 20 percent interest in the partnership by direct purchase from the partners for P30,000. How should the P30,000, cash be divided between Banzon and Cortez? a. Banzon, P18,000; Cortez, PI2,000. b. Banzon, P22,000; Cortez, P 8,000. c. Banzon, P20,000; Cortez, P10,000. d. Banzon, P24,000; Cortez, P 6,000. Perez. contributed P24,000 and Cadiz contributed P48,000 to form partnership, and they agreed to share profits in the ratio of their original capital contributions. During the first year of operations, they made a profit of P16,290, Perez withdrew 5,050 and Cadiz P8,000. At the start of the following year, they agreed to admit Gomez into the partnership. He was to receive a one-fourth interest in the capital and profits upon payment of P30,000 to Perez and Cadiz, whose capital accounts were to be reduced by transfers to Gomez's capital account of amounts sufficient to bring them back to their original capital ratio. How should the P30,000 paid by Gomez be divided between Perez and Cadiz. a. Perez, P 9,825; Cadiz, P20,175. b, Perez, P15,000; Cadiz, PI5,000. © Perez, P10,000; Cadiz, P20,000. d. Perez, P. 9,300; Cadiz, P20,700.140 Chopter 3 oper { 3-8: The following statement of financial Position is for the partnership of Alice, Betty, and Clara, before the admission of Diana: Cash P 20,000 Other assets 180,000 Total - P200,000 Liabilities .P 50,000 Alice, capital (40%) 37,000 Betty, capital (40%) : 65,000 Clara, capital (20%) j 48,000 Total P200,000 SEE Ifthe assets are fairly valued and the partnership wishes to admit Dianaas anew One-sixth-interest partner without recording goodwill or bonus, Diana should Contribute cash of: a 30,000 b. P33,333 : ¢. P36,000 . : @ 40,000 . 3-9: On December 31, 2013, Alan and Dino are paitners with capital balances of P80,000 and P40,000, respectively. They share profits and losses in the ratio of 2:1. On this date Steve invests P36,000 cash for a one-fifth interest inthe capital and profit of the new partnership. The partners agree that the unrecorded ip goodwill is to be recorded simultaneously with the admission of Steve. ‘The total unrecorded goodwill of the firm is: a. P24,000 5. 30,000 a P 4,800 d. P 6,000 3-10: Ben and Ric are partners who share profits and losses in the ratio of 6:4 Tespectively. On May 1, 2013, their respective capital accounts were as follows: Ben P60,000 Ric 50,000Partnership Dissolution ~ Changes in Ownership Interest 41 No. 3-10: Continued 3-12: Rook On that date, Lito was admitted asa partner with a one-third interest in capital and profits fo-an investment of P40,000. The new partnership began witha total capital of P150,000. Immediately after Lito’s admission, Ben’s capital account balance should be: a. P50,000 b. PS4,000 P56,667 P60,000 RP : AtDecember 31, Rod and Sol are partners with capital balances of P40,000 and P20,000, and they share profits and losses in the ratio of 2:1, respectively. Oh this date Pete invests P17,000 in cash fora one-fifth interest in the capital and profit of the new partnership. Assuming that assets are not revalued, how much shotld be credited to Pete’s capital account on December 31? a P12,000 b. PI5,000 e PI5,400 & P17,000 Fred and Raul are partners who share profits and losses in the ratio of 7:3; respectively. Their respective capital accounts areas follows: Fred P35,000 Raul 30,000 me They agreed to admit Lory as apariner with a one-third interest in the capital and profits and losses, upon an investment of P25,000. The new partnership will begin with a total capital of P90,000. Immediately after Lory’s admission, what are the capital balances of Fred, Raul, and Lory, respectively? _ P30,000; P30,000; P30,000. P31,500; P28,500; P30,000. P31,667; P28,333; P30,000. 35,000; P30,060; P25,000.442 3-13; 3-14: 3-15: Chapter 3 June and July are partners who share profits and losses equally. The capital accounts of June and July have tripled in five years and at present have the following balances. ‘ June P90,000 July 60,000 August desires to join the firm and offered to invest P50,000 for a one-third. interest. June and July declined his offer but they extendéda counter-offer to August of P70,000 for a one-fourth interest in the capital and profits and losses of he firm. If August accepted their offer and bonus is recorded, what should be the balances in the capital accounts of June and July aftcr August's admission. June July a. P100,000 P70,000 b. P120,000 P90,600 c. P 97,500 P67,500 d. P 90,000 P60,000 Mira and Nina who share profits and losses in the ratio of 3:7, are partners with capital balances of: ee Mira P40,000 Nina 60,000 Aina Elmaistobe admited into the partnership for 20 percent interest inthecapital of the firm. Ifassets are revalued and the capital balances of Mira and Nina after recording the admission of Elma are P52,000 ‘and P88,000, respectively, the cash paid by Elmais: a. P35,000 b. P20,000 ce PI0,000 d. PI5,000 Lim and Ongare partners sharing profits and losses inthe ratio of 6:4 respectively. On January 2, the partners decided to admit Ang as anew partner upon his investment of P 16,000. On this date, the interest in the partnership of Lim and_ Ong areas follows: Lim P23,000 Ong 18,600Partnership Dissolution ~ Changes in Ownership Interest 143 Lee Wo. 3-15: Continued Assuming that the new partner is given a 1/3 interestin the firm and the assets are revalued. The capital balances of the partners after admission of Ang are: Lim Ong Ang a. 23,000 18,600 20,800 b. P23,240 PI8,760 16,099 c P23,500 18,600 16,000 d. P23,000 P18,600 16,000 3-16: Ang, Beng and Ching are parmers sharing profits in the ratio of 3:3:2. Once 30, their capital balances areas follows: ‘Ang 600,000 Beng 400,000 Ching 300,000 ‘The partners agree to admit Dong on the following agreement: 1, Dongisto pay Ang P400,000 for 4 interest of Ang’s interest. 2. Dongisalso to invest P300,000 in the partnership. 3. Thetotal capital of the partnership is to be P2,000,000, of which Dong's interest is to be 25%. What are the capital balances of the partners after the admission of Dong?. Ang Beng Ching a. P487,500 587,500 425,000 &. 300,000 400,000 300,000 c. 400,000 300,000 300,000 d. 187,500 187,500 ‘(125,000 3-17; On May 8, 2013 the capital balances and profit and loss ratio of Mona and Liza, partners ofML Partnership, are shown below: . Capital Profit and Loss Balances Ratio P150,000 10% Fi 50,000 30%144 No. 3- 3-18: Chopter 3 17: Continued ’ On this date, they agrec to admit Alma as a partner for a 25 percent interest in capital upon her investment of P80,000. Mona, Liza and Alma are to share profits in the ratio of 5:3.2. Subsequently, Lorna joins the partnership by investing P75,000 for a 20 percent interest in profits and capital: The former partners continue sharing profits in their original ratio. Assuming the goodwill method is used in recording the admission of new partners, the capital balances of the partners in the new partnership are: wy »_ Mona Lita Alma Lorna a, P178,000 62,000 P80,000 P75,000 | 6, 168,000 56,000 76,000 75,000 c 150,000 50,000 80,000 75,000 d, 178,000 62,000 80,000 80,000 Red White, and Blue are partners in a business, and in its profits at the i ratio of 5:3:2. On January 5, 2013, they admit Green, who isto invest in firm sufficient cash to have a one-third interest in the partnership capital and profits. The following trial balance is taken from the original ip's records: Debit Credit Cash : P100,000 Marketable securities 75,000 Accounts receivable 225,000 : Accounts payable P 80,000 Red, Capital 175,000 White, Capital 100,000 Biue, Capital 45,000 i P400,000 400,000 The securities have a market value of P50,000, and an allowance of P25,000 was expected to cover collection losses on the receivables. No other adjustments of the netassets are considered necessary, However, the three partners among themselves must bring the balance in their capital accounts into agreement with their interest in profits. What amount must be invested by Green? P140,000. P130,000. P135,000. 145,000. RORPartnesship Dissalution ~ Changes in Ownership Interest 145 319: OnApil 27,2013, the capital accounts of XX, YY, and ZZ shows the following 3-20: xx P360,000 YY 225,000 2Z 135,000 Atthis time, WW is admitted to the firm when he purchase a one-sixth interest in the firm for P82,500. The old partners equalized their capital investments. Afterwards, all the partners agree to divide profits and losses equally. The new partnership closes its books on June 30, 2013 reporting a profit of P12,600 for two months. The partners made the following withdrawals: XX and ZZ, P75C per month; YY and WW, P1,000 per month. On June 30, 2013, WW inves: enough cash to increase his capital to a one-third interest in the partnership. How much cash is to be invested by WW? . a P180,755 Bb. P181,075 c P 20,000 d. P 60,333 On December 31, 2013 the condensed statement of financial position of ABC Partnership is presented below: - ee Total assets (at cost) P90,000 Payable to A ~ P 5,000 A, Capital 20,750 B, Capital 19,250 “C, Capital 45,000 Total ‘90,000 a ee ee ny A, B, and C share profits and losses in the ratio of 25%, 25%, and 50% respectively. It was agreed among the partners that Aretires from the partn and the ip’s assets to be adjusted to their fair market value of P102,00 asof December 31, 2013. The partnership would pay A P30,250 cash for hi total interest inthe partnership. Whatis the capital balance of Bafter the retiremet of A assuming the use of the partial goodwill method and the bonus method? Partial Goodwill Bonus Method Method a. P22,250 P21,750 5 29,750 20,750 C 22,250 21,700 d. 19,250 45,000146 Chapter 3 3-21: Perez, Reyes, and Suarez were partners with capital balances on January 2, 2013 of P100,000, P150,000, and P200,000, respectively. Their profit and loss ratio is 5:3:2. On July 1, 2013, Perez retires from the partnership. On thee date of retirement the partnership net income is P1 40,000 and the partners agreed that inventories arc to be revalued at P70,000 from its original cost of P50,000. The partners agreed further to pay Perez P1 95,000 in settlement of his interest. Whatare the capital balances of the remaining partners after the retirement of Perez? Reyes Suarez a P189,000 P226,000 5. P198,000 P232,000 c 207,000 P238,000 d@. P220,000 P226,000 3-22; Jay & Kay partnership's statement of financial position at December 31, 2012, Teported the following: Total assets P100,000 Total liabilities _ 20,000 Jay, capital 40,000 Kay, capital 40,000 On January 2, 2013, Jay and Kay dissolved their partnership and transferred all assets and liabilities toa newly formed corporation. At the date of incorporation, the fair value of the net assets was P12,000 more than the carrying amounton the partnership's books, of which P7,000 was assigned to tangible assets and P5,000 was assigned to goodwill. Jayand Kay were each issued P5,000 shares of the corporation's PI par value common stock. Immediately following incorporation, additional paid-in capital in excess of par should be credited for: P68,000 P70,000 P77,000_ 82,000" ROP.Partnership Dissolutian - Changes in Ownership Interest 147 3-23: On March 1,2011, Alma and Betty its first year of operations with the following . cash investments: Alma P480,000 Betty 240,000 The partners agrec to allocate profits and losses as follows: + Alma and Betty will be allowed a monthly salary of P48,000 and P24,000, respectively. The partners will be allowed with interest of 10% of their capital balances at the beginning of each year. The remainder will be divided on the bases of their beginning capital for the first year of operation and equally for the subsequent years. + Each partner is allowed to withdraw up to P24,000-a year. Any withdrawal in excess of the figure will be treated as a direct reduction from their capital balances. In 2011 the partnership suffered a net loss of P36,000. But in 2012 they camed anet profit of P132,000. The partners withdraw the maximum amount from the partnership each year. On January 2, 2013 anew partner, Cora was admitted in the partnership foran investment of P400,000 for a 40% interest. No revaluation of assets is to be recorded. After the admission of Cora, the partners agreed to divide profits and losses, 4:2:4, to Alma, Betty and Cora, respectively. On January 2, 2013, what is the entry to record the admission of Cora? a. Cash 400,000 Alma, Capital 33,600 Betty, Capital 33,600 Cora, Capital 467,200 b. Cash 400,000 Cora, Capital 400,000 c. Cash 400,000° Alma, Capital 32,000 Betty, Capital 16,000 Cora, Capital 448,000 d. Cash 448,000 Cora, Capital 448,000148 Chapter 3 3-24: In the early part of 2013, the partners of Pete, Carlos, and Sammy went toa local accountant secking assistance. They had begun a new businessin 2010 but had never used the services ofan accountant. Pete and Carlos began the partnership by contributing P80,000 and P 30,000 in cash, respectively. Pete was to work occasionally at the business whereas Curlos would be employed full time. They decided that year-end profits and losses should be allocated as follows: Each partner was to be allocated 10 percent interest computed on the beginning capital balances forthe period. A compensation allowance of P5,000 was to go to Pete with a P20,000 amount assigned to Carlos. Anyremaining income should be divided on a 4:6 basis to Peteand Carlos, respectively. Ih 2012, revenues totaled P90,000 with expenses reported as P64,000 (not including the compensation allowance assigned to the partners). Pete withdrew cash of P8,000 during the year while Carlos took out P11,000. In addition, PS,000 for repairs made to Pete's home was paid by the business and charged to repair expense. On January 1,2013, 2.20 percent interest in the partnership was sold to Sammy for P43,000 cash. This money was contributed to the business with the bonus method used for accounting purposes. What journal entry should have ‘been recorded by the partnership on January 1, 20137 a. Cash 43,000 Sammy, Capital 32,000 Pete, Capital : 4,400. Carlos, Capital . 6,600 b. Cash 43,000 Sammy, Capital 43,000 c. Cash 32,000 Pete, Capitat 4,400 Carlos, Capital 6,600 Sammy, Capital 43,000 " d. Cash 32,000 Sammy, Capital 32,000Partnership Dissolution - Changes in Qhvnership Interest 149 3-25: On August I, 2012, Maria and Ana formed a partnership. Maria contributed inventory of P500,000 with a fair value of P300,000 while Ana contributed cash of P250,000 and a land that cost her P900,000 and a fair value of P1 250,000. The parinership did nt assume the mortgage atached tothe property worth 250,000. The partners agree to allecate profits and losses as follows: 1. Each partner shall received 5% interest on her beginning capital balance. 2. Maria willreceiveda salary of P8,000 per month for managing the business. 3. -“Theremainder will be divided equally on the first year of operation and 60% and 40% on subsequent years. 4, Maria and Anais allowed to withdraw P5,000 per month. Any withdrawa] is treated as direct reduction of capital. In 2012 the partnership has a net income of P100,000. On July 1, 2013, Paz was admitted in the partnership by investing P800,000 fora 25% interest, goodwill istoberecarded...-. After admission of Paz, the partners agreed to divide profits, as follows: Each partner shall received 5% intereston thc amountofker begining opt All partners will received a salary of P2,000 per month. The balance to be divided 45% to Maria, 30% to Ana and 25% to Paz. Each partner is allowed to withdraw P2,000 per month. Any withdrawal is treated as a direct reduction of capital. Pepe In 2013, the partnership camneda profit of P300,000 evenly throughout the year How much is the capital balance of Maria at December 31,2013 (rounded te the nearest peso)? P707,623 P694,555 P670,653 P700,269.5 RD A150 3-26: 3-27: Chapter 3 Pedro and Mario have partner capital balances, at book value, of P45,000 and P65,000 as of December 31,2013. Pedro is allocated 60% of profits or losses, and Marios allocated the balance. The partners believe that tangible net assets. have a market value in excess of book valuc in the amor unt Of P30,000 net. The P30,000 is allocated as follows: . Book Value Market Value Accounts receivable P120,000 P102,000 Inventory 200,000 258,000 ‘Warranty obligations 20,000 30,000 ——_— 000 They are considering admitting Warren to the partnership in exchange for total consideration of P84,000 cash. In exchange for the consideration, Warren will Teceive a 30% interest in capital and a 35% interestin profits. Ifthe goodwill suggested by the admission of Warren proved to be worthless, how much Warren would be harmed? p P24,000 6. P20,000 ce P16,000 d. P28,000 Amor (A) Bea (B), and Cora (C) are partners in a small manufacturing firm whose net assets are as follows: Book Value Fair Value Current assets P285,000 P210,000 Non-current assets 395,000 320,000 Current liabilities 40,000, 40,000 Non-current liabilities 430,000: 434,000 A, capital $0,000 B, capital 100,000 C, capital 60,000Partnership Dissolution - Changes in Ownership Interest 151 No, 3-27 - Continued. ‘The parmership agreement calls for the allocation of profits and losses as follows: 1. Salaries toA, B, and C of P30,000, P30,000, and P40,000, respectively. 2. BonustoA of 10% ofnet income after the bonus. 3. Remainingamounts are allocated according to profit/loss percentages of 50%, 20%, and 30% for A, B, and C, respectively. Unfortunately, the business firids itselfin difficult times: annual profits: remain flat at approximately P132,000, additional capital is needed to finance equipment which is necessary to stay competitive. Cora has identified Dina (D) as anindividual who might be willing to acquire an interest in the partnership. Dina is proposing to acquire a 30% interest inthe capital of the partnership and revised partnership agreement which calls for the allocation of profits as follows: 1. Salaries to A, B, C, and D of P30,000, P30,000, 40,000, and P30,000, respectively. ~ 2. Bonus to D of P20,000 ifnet income exceeds P250,000. 3. Remaining amounts are allocated according to profivloss percentage of 30%, - 10%, 30%, and 30% for A, B, C, and D, respectively. Assuming you are Bea's personal CPA, you have asked to provide your client with your opinion regarding the admission of Dina. Bea does notkelieve it would be worth to admit a new partner unless her allocation of income increased by a least P1.0,000 over that which existed under the original partnership agreement. What would the average annual profit of the new partnership have to be in order for Bea to accept the idea of admitting anew partner? a. P140,000 b, P120,000 c. P290,000 d. P280,000152 ‘Chapter 3 328: Using the data in 3-27, given the net assets of the original partnership, what is the suggested purchase price that Dina should pay of'a 30% interest in the partnership? a. P24,000 6, P20,000 « P42,000— d, P25,000 3-29: Andrés and Bertoare partners in an engineering consulting company sharing Profits and losses 40% and 60%, respectively, and their capital balances are P110,000 and P150,000, rappestively ‘The recorded net assets of the company areas follows: Book Value Fair Value Working capital 240,000 P220,000 Property and equipment — net ‘80,000 108,000 Noncirrent liabilities 60,000 60,000 In addition to the recorded assets, the partners feel that the company has goodwill valued at P40,000 because the company enjoys a strong-client base and has camings that are consistently above industry average. Carlos is interested in merging his environmental consulting company with Andres and Berto. Carlos’ net assets to be conveyed to the partnership include the ‘Book Value ‘Fair Value ‘Working capital P50,000 P40,000 Equipment —net 60,000 50,000 Inaddition to the above recorded assets, Carlos feels that his business contracts and expertise will add value to the existing partnership. Carlos has valued these intangibles at P20,000. If Carlos were to acquire a 30% interest in the new partnership, how much additional cash would Carlos have to contribute to the partnership? ’ ..P22,000 b. P20,000 e P25,000 d. P24,000‘Partnership Dissolution - Changes im Ownership interest 153 3-30: Lina, Mina, and Nina are partners sharing profits on a 5:3:2 ratio and have the following capital account balances: P150,000, P90,000, and P60,000, respectively. On January 1, 2012, Olga was admitted into the partnership by investing P40,000 with a 20% share in the profits. The old partners continue to participate in profits proportionate to their original ratios. For the year 2012, the partnership books showed a net profit of P50,000. It was disclosed, however that the following errors were made: 2011 2012 Unrecorded accrued expenses at year end P2,400 : Inventory overstated * 6,200 Unrecorded purchases, for which goods have been received and inventoried ~ 4,000 Income received in advance not adjusted 3,000 ‘Unused supplics not taken up at year end ___1,800 On January 1, 2013, Lina sold her interest to Mina for P100,000. After which Mina, Nina and Olga agreed to share annual profits of P300,000 equally among themselves. During 2013, Mina withdrew P20,000; Nina withdrew P10,000 and Olga also withdrew P5,000. Atthe end of 2014, Mina decided to retire from the partnership and was paid P425,360 cash. It was agreed that the inventory with a book value of P50,000 would be adjusted to reflect their fair values of P35,000 and that total goodwill is to be recognized. Net income for the year was P195,000. 1, Whatis the share of partner Lina in the 2012 corrected net income? a. P12,220 5. P18,800 c PI9,220 a P20,000 2. Whatis the capital balance of Mina on December 3 1,2012? @ PI101,280 bP 92,880 cP 88,932 d. P102,000154 Chapter 3 ee Ole No, 3-30: Continwed 3. What is the capital balance of Olga on December 3 1,2013? P1S1,920 P172,400 P169,110 P173,000 RO SR 4. What is the capital balance of Nina on December 31,2014? . P270,080 P211,920 P250,080 P249,600 APSR 3-31: Darna is considering investing in onc of several existing partnerships and is attempting to consider the price to be paid for a partnership interest. In addition to investing cash, Darna would be contributing equipment that has fair value of" PS0,000. The existing partnerships are characterized as follows: Partnerships AA BE cc Total assets at: Book value PS00,000 P600,000 P800,000 Fair value (excluding goodwill) 450,000 725,000 850,000 Liabilities at book value and fair value 369,500 410,000 558,000 Interest to be acquired by new partner: Incapital 30% 25% 20% In profit and losses 25% 25% 20% What is the amount of consideration that Dama should have to convey in order toacquire an interest in cach of the partnerships? AA BB cc a P 34,500 P105,000 P 73,000 b. P 84,500 P 20,000 P 23,000 c. PI05,929 P125,000 P242,000 @, P130,500 P190,000 P292,000Partnership Dissolution - Changes in Ounership Interest 15S 3-32: Mayaand Rita have been partners for several years and critical values related to their partnership are: Maya Rita Total Profit Allocation: Annual salaries P80,000 _ P100,000 180,000 Bonus on net income 20% Profit and loss percentages 40% 60% Capital balances, December 31,2009 P54,000 P76,000 —-P130,000 Net assets as of December 31, 2009: At fair value P160,000 In 2010, the partnership reported a net income of P230,000, and each partner received a P100,000 distribution at year-end. On January 1, 2011, Hara was. admitted as a partner by investing P70,000 for a 25% interest in capital. Goodwill is recognized upon admission. The profit sharing agreement was modified to also include a salary of P70,000 and a bonus of 5% of net income for Hara. The profit and loss percentages were also revised to 30%, 45%, and 25% for Maya, Rita, and Hara, respectively. During 2011, the partnership recognized income of P330,000 and distributed P80,000 to cach partner during the year. On January !, 2012, Maya sold her imerest in the partnership to Rita for P200,000. The year 2012 was a transition year for the partnership, and Rita and Hara agreed to share annual profits of P200,000 equally between themselves. During 2012, Ritaand Hara withdrew 760,000 and P80,000, respectively, from the partnership. 1 Atthe beginning of 2013, Rita decided to sell its interest in the partnership to the partnership for P350,000. It was agreed that net assets with a book value of P415,000 would be adjusted to reflect their fair value of P405,000 and that the sale would be recorded by the method whereby only goodwill traceable to Rita would be recognized. Immediately after Rita's retirement, Perla purchased a 40% interest in the partnership by contributing P75,000 cash.156 Chapter 3 No. 3-32 - Continued Note that ifnet income is not sufficient to satisfy all provisions ofthe profit agreement, the profit and loss percentages are to be used to absorb any jencies. * 1, What is capital balance of Maya on December 3 1, 2010? P 81,600 P157,850 P176,000 PIU7,275 ROS 2, What is the capital balance of Rita on December 31/2011? @. PII7,275 5. P296,625 & P234,125 d.. P19S,875 3. Whatis the capital balance of Hara on December 3{, 2012? a. P75,875 b. PIS,875 & P92,025 4. P78,575 : '. 4. - Whatis the total capital of the Partnershipjafter the admission of Perla? a. P165,87§ 5. PI87,500 c PI25,500 d@ PI78,500157 Perjwership Diesolutton Changes in Own: OTe Red, White, and Blue are partners with a profit and loss ratio of 2:4:4 and credit capital balances of P60,000, P80,000, and P60,000, respectively. Green is to be admitted into the partnership with an investment of P75,000 for a 25 percent interest in the capital, profit, and losses of the firm. _ Required: a. Prepare journal entries to record the admission of Green, using: 1. Revaluation of assets 2. Bonus approach b. Prepare journal entries torecord the admission of Greénifinstcadofinvesting into ° the partnership, he purchases his interest from the partners at the same P75,000, and: . 1. Implicit goodwill is to be recorded 2. Bonus methodis used Deed Bruno and Mario are partners with a profit and loss ratio of 6:2 and credit capital balances of P200,000 and P300,000, respectively. Tomas is to be admitted into the partnership by investing P140,000 fora 20 percent interest inthe capital, profits and losses. : Required: ; ‘ a. Prepareaschedule of partners’ capital balances after the admission of Tomas, if: 1. Goodwill is notto be recorded. 2. Goodwill is to be recorded. 3. Goodwill isto recorded and then written off. ~ b,. Prepare a schedule of partners’ capital balances after the admission of Tomas. Goodwill is to be recorded and then written off, but the new profit and loss ratio is 4-4-2 for Bruno Mario and Tomas instead of 6:2:2 as in(a) (3) above.158 . Chapter 3 Rodel and Jerry who share profits and losses in the ratio of 4:6 are partners ina partnership with credit capital balances of P60,000 and P80,000, respectively. Barry is to be admitted into the partnership fora 25-pereentinterestin the Capital ofthe firm. Required: a. Gafculate the cash payment by Barry if, after the cash payment is recorded, the i capital balances of Rodel and Jeryare F76,000 andF104,000 and goodwill was recorded, b. Calculate the such payment by Barry if after the cash payment is recorded, the capital balances of Rodel and Jerry are P52,000 and P68,000 and goodwill was not recorded. LOS Gene and Nancy, partners in the G & N partnership have capital balances of P100,000 . and P40,000 and share income ina ratio of 4:1, respectively. Ellen is to be admitted into the parmership with a 20 percent interest in the business. ‘Required: Record the admission of Brad for each of the following independent situations: a. Elleninvests P60,000, and goodwill is to be recorded. b. Ellen invests P60,000. Total capital is to be P200,000. c. Ellen purchases the 20 percent interest by paying Gene P22,000 and Nancy P11,000. Ellen is assigned 20 percent of each Gene's and Nancy's capital accounts d. Ellen invests P32,000. Total capital is to be P172,000. ¢. Elleninvests P32,000, and goodwill is to be recorded. Helen and Cathy are partners witha profit and loss ratio of 70:30. Their credit balance capital accounts on January 2013 are P70,000 for Helen and P50,000 for Cathy. They have agreed to admit Cherry as a new partner in their firm.159 Partnership Dissolution - Changes in Ownership Inderest Problem 3-5: Continued Required: For each of the following cases, prepare, .joumnal entries to admit Cherry. Cherry invests an amount of cash fora 25 percent interests in profits, losses, and capital. Cherry invests P50,000 for a 25 percent interest in the capital of the firm, and goodwill is not to be recorded. ¢. Cherry invests P25,000 fora * goodwillis not to be recorded. d. Cherry invests P50,000 for a goodwillis to be recorded. Cherry invests P25,000 for a 25 percent interest in the capital of the firm, and goodwill is to be recorded. 4 ‘ PWD USL The following condensed statement of financial positionis: presented forthe partnership ofDiaz, Cruz, and Orbos, who share profits and losses inthe ratio of 4:3:3, respectively. b 25 percent interest in the capital of the firm, and 25 percent interest in the capital of the firm, and Cash P 40,000 ‘Accounts payable 150,000 Other assets 710,000 Diaz, Capital 260,000 Cruz, Capital 180,000 Orbos, Capital _ 160,000 Total Total 750,000 EEE Assume thatthe partnership decides to admit Santos asa new partner witha one-fourth interest. Required: For each of the following independent cases, determine the amount that Santos mustcontribute in cash or other assets. a. No goodwill or bonus is to be recorded. b. Goodwill of P30,000 is to be recorded and allocated to the old partners. c. A bonusof P24,000 is to be paid by Santos and allocated to old partners. d. The old partners agree to give Santos P10,000 of ‘goodwill upon admission into the partnership. . ¢. The partners agree that total resulting capital should be P82,000 andno goodwill “should be recognized.160 Chapter 3 i Subas and Tony sell clectronic equipment and supplies through their partnership. They wish to expand their computer lines and decide to admit Noel to the partnership” Subas’ capital is P100,000 Tony’s capital is P80,000 and they share income ina ratio of 3:2. ‘Required: Record the admission of Noe] foreach of the following independent situations: “a. Noel directly purchases half of Tony's investment in the partnership for P46,500. b. Noel invests the amount needed to give hima one-third interest in the capital of the partnership ifno goodwill or bonus is recorded. c. Noel invests P56,000 fora one-fourth interest. Goodwill is to be recorded. d. Subas and Tony agree that some ofthe inventory is obsolete. The inventory account isdecreased before Nocl is admitted Noel invests P52,000 fora one-fourth interest. ¢. Noel directly purchases a one-fourth interest by paying Subas P32,000 and Tony P36,000. The land account is increased before Noe! is admitted. £ Noel invests P40,000 fora one-fifth interest in the total capital P220,000. Noel invests P60,000 for one-fifth interest. Goodwill is to be recorded. Inthe ABC partnership. Andy’s capital is P50,000. Benny's is P30,000 and Conny’sis P40,000. They share income ina 3:1:1 ratio. Conny isretiring from the partnership. Required: Prepared journal entries to record Conny’s withdrawal according to each of the following independent assumptions: a. Conny’sis paid P48,000, and no goodwill is recorded. b. Conny'sispaid P50,000, and only his share of the goodwill isrecorded. c. Conny’sispaid P45,000, and implied goodwill is recorded.Partnership Dissolution — Changes in Ownership Interest 161 ‘The partnership of Ace, Jack, and Spade has been in business for 25 years. On December 31, 2013. Spade decided to retire from the partnership. The partnership reported the following capital balances for each partner at December 31,2013. Ace, Capital P150,000 Jack, Capital 200,000 Spade, Capital 120,000 ‘The partners allocate partnership income and loss in the ratio 20:30:50. Required: Record the withdrawal of Spade under each of the following independent situations. ‘a. Spade’s capital interest was acquired for P150,000 by Jack ina personal transaction. Partnership assets were not revalued, and partnership goodwill was not recognized. b. Assume the same facts as in (a) above except that partnership goodwill applicable to the entire business was recognized by the partnership. c.” Spade was given P180,000 of partnership cash upon retirement. Capital of the partnership after Spade’s retirement was P290,000. d. Spade was given P60,000 of cash and partnership land witha fair value of P120,000. ‘The carrying amount of the land on the partnership books was P100,000. Capital ofthe partnership after Spade's retirement was P310,000. e. Spade was given P150,000 of partnership cash upon retirement. The portion of goodwill attributable to Spade was recorded by the partnership. £ Assume the same facts as in (c) above except that partnership goodwill attributable toall the partners was recorded. g. Dueto limited cash in the partnership, Spade was given land with a fait value of P 100,000 and anote payable for P50,000. The carrying amount of the land on the partnership books was P60,000. Capital of the partnership after Spade’s retirement was P360,000.162 On January 1, 2013, Eddy decides to retire from the partnership of Charly, Danny, and Eddy who share profits and losses in the ratio of 3:2:1 respectively, the following condensed balance sheets present the account balances immediately before and, for six independent cases, after Eddy’s retirement. Chapter 3 ” Batonces Bolances after Eddy’ Retirement pros 10 Eddy’ Accounts Keurement Case] Care? Case 3 Cased Cae3 Come Assets: ¥ 90,000 : Cath 200.000 P 10,000 F 16,000 P 25,000 F 86,000 P 56,000 P 90,000 Other Assets 10.000 200,000 200,000 220.000 200,000 ‘Goodwill 10,000 34,000 10.000 « Total Assets "300,000 F220,000 Liabilities and et ‘Capital Liabilities P 60.000 PF 60,000 F 60,000 P 60,000 F 60,000 F 60,000 P 60,000 Charly, Copits! £0,000 74,000 80.000 83.000 92,000 110,000 £0,000 ital §— 90.000 85,000 90,000 x 98,000 110,000 160,000 70.000 ~0- -0- ~0- -0- -0- P220,000 P230,000 235.000 250,000 280,000 P300,000 Required: Prepare the necessary journal entries to record Eddy’s retirement from the Partnership for each of the six independent cases. Problem 3-11 Jose Reyes is a well known lawyer in Manila. He wants to start a business and convinces Pedro Santos, a Certified Public Accountant, to contribute the capital to form a Partriership. On January 1,2010, Santos invests a building worth P52,000 and equipment valued at P16,000 as well as P12,000 in cash. Although Reyes makes no tangible Contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances, : a a ene eedeniePartnership Dissolution - Changes in Ownership Interest 163 Problem 3-11: Continived . ‘The partnership contract provided the following agreement: + Santos will be credited annually with interest equal to 20 percent of the beginning capital balance for the year. : © Santos will also have added to his capital account 15 percentof partnership income each year (without regard for the preceding interest figure) or P4,000, whicheveris greater. All remaining income is credited to Reyes. + Neither partner is allowed to withdraw funds from the partnership during 2008. Therefore, they can each draw out P5,000 annually or 20 percent of the beginning capital balance for the year, whicheveris greater. ‘ Anetloss of P10,000 is reported by the partnership during the first year of its operation. On January |, 2011, Paulo Cruz becomes a third partner in this business by contributing P15,000 cash to the partnership. Cruz receives a 20 percent share of the business's capital. The profit and loss agreement is altered as follows: + Santosis still entitled to (1) interest on his beginning capital balance as well as (2) the share of partnership income just specified. + Anyremaining profit or loss will be split on a 6:4 basis between Reyes and Cruz, respectively. Partnership income for 20} | is reported as P44,000. Each partner withdraws the full amount thatis allowed. \ On January 1, 2012, Cruz falls ill and sells his interest in the partnership (with the consent of the other two partners) to Juan Diaz. Diaz pays P46,000 directly to Cruz. Net income for 2012 is P61,000 with the partners again taking their full drawing ‘allowance. On January 1,2013, Diaz elects to withdraw from the business for personal reasons. ‘The partnership contract contains a provision stating that any partner may leave the partnership at any time and its entitled to receive cash in an amount equal to the recorded . capital balance at that time plus 10 percent. : Required: | ‘a Prepare journal entries to record the preceding transactions on the assumption ; that the bonus (orno revaluation) method is used. Drawings need not be recorded, | although the balances should be included in the closing entries. t164 Chapted 3 Problem 3-11: Continued b. Preparejournal entries to record the previous transactions on the assumption that the goodwill (or revaluation) method is wed. Drawings need not be recorded, although the balances should be included in the closing entries. (Round all amounts off to the nearest peso) Jack, Jill and Jun are partners with a profit and loss ratio of 5:3:2. They decided to incorporate as at January 1, 2013. On that date the partnership's trial balance was as follows: J3J Partnership Trial Balance January 1, 2013 Debits Cash in Bank “P4000 =. 40,000 Accounts Receivable (net of estimated uncollectibles) «26,000 26,000 Inventories 34,000 60,000 Land 20,000 60,000 = Building $0,000 70,000 Equipment 0,000 6,000 Tou} 230,000 Credits Accounts Payable P 30,000 30,000 : Accumulated Depreciation — Building Accumulated Depreciation+ Equipment Loan Payable - Jill Jack = Capital Jilt-Capital Jun - Capital TotalsPartnership Dissolution ~ Changes in Ownership Interest 165 ~ —eeeeec_nagnaanSaeeEeeeeee Problem 3-12: Continued Capital stock in the amount of P250,000 is to be issued in the ratio of 4:3:3 for Jack, Jiit and Jun. The partners are either to receive cash or to pay amounts of cash into the partnership sufficient to bring their capital accounts into the ratio of 4:3:3 fora total capital of P250,000 after any required revaluation of assets. Required: a, Prepare the journal entries to record the incorporation if the partnership books are to be continued. b. Prepare the journal entry (entries) to record the incorporation if the corporation is to start anew set of books, Aquino and Binay begin a partnership on January 1, 2012. Aquino invests P40,000 cash and inventory costing P15,000 but with a current appraised value of only P12,000. Binay contributes equipment with a P40,000 book value anda P48,000 fair value. The partnership also accepts responsibility for a PL0,000 note payable owed in connection with this equipment. 5 ‘The partners agree to begin operations with equal capital balances. The partnership agreements also provide that at each year-end, profits and losses are allocated as follows: 1. For managing the business, Aquino is credited with a bonus of 10 percent of partnership income after subtracting the bonus. 2. Both partners are entitled to interest equal to LO percent of the average monthly capital balance for the year. 3. Any remaining profit or loss is divided 60 percent to Aquino and 40 percent to Binay, 4. Each partner is allowed to withdraw P800.per month in cash from the business.166 Chapter 3 Problem 3-13: Continued i On October 1, 2012, Aquino invested an additional P12,000 cash in the business. For 2012, the partnership reported income of P33,000. Roxas; an employee, is allowed to join the partnership on January I, 2013. The new ‘partner invests P66,000 directly into the business for a one-third interest in the Partnerhsip. The revised parmership agreement still allows for both the bonus to Aquino and the 10 percent interest, but all remaining profits and losses are now split 40 percent each to Aquino and Roxas with the remaining 20 percent to Binay. Roxas is also entitled to P800 per month drawings. Binay chooses to withdraw from the partnership a few years later. After negotiations, all parties agree that Binay should be paid a P90,000 settlement. ‘The capital balances on ‘that daté were as follows: 5 if : Required: L Assuming that this partnership uses the bonus method exclusively: . a." Make all necessary journal entries. Entries for the monthly: drawings of the partners are not required. b. Prepare a Statement of Changes in Partner's. Equity for the year ended December 31, 2012. 4. Makeall necessary journal entries. Again, entries for the monthly drawings are notrequired. b. Prepare a Statement of Changes in Partner's Equity for the year ended December 31, 2013. ;