ASSIGNMENT 3 : PARTNERSHIP DISSOLUTION – Change in Ownership Structure

A. The partnership of Rosanna Casulla and April Ann Ytac has been successful in its
operation for years now. Their respective capital balances and profit and loss agreement
that is contained in the Articles of Co-partnership follows:
Casulla Ytac
Capital P240,000 P260,000
P/L Ratio 3 5

Annabelle Sarno is admitted as a new partner.

Instructions: Prepare journal entries to record Sarno’s admission under the following
independent situations:

1. Sarno purchases ½ of the partnership’s interest for

P250,000. Casulla, Capital P120,000
Ytac, Capital P130,000
Sarno, Capital P 250,000
#
2. Sarno purchases ¾ of the partnership’s interest for
P350,000. Casulla, Capital P180,000
Ytac, Capital P195,000
Sarno, Capital P 375,000
#
3. Sarno purchases 1/5 of the partnership’s interest for
P120,000. Casulla, Capital P48,000
Ytac, Capital P52,000
Sarno, Capital P 100,000
#
4. Sarno purchases ¼ of Casulla’s interest for P60,000.
Casulla, Capital P60,000
Sarno, Capital P 60,000
#
5. Sarno purchases 1/3 of Casulla’s interest for P90,000.
Casulla, Capital P80,000
Sarno, Capital P 80,000
#
6. Sarno purchases ½ of Casulla’s interest for
P120,000. Casulla, Capital P120,000
Sarno, Capital P 120,000
#
 7. Sarno invests P300,000 for a 1/3 interest in the new firm.
Casulla, Capital P 240,000
Ytac, Capital P 260,000
Sarno, Capital P 300,000
Contributed Capital P 800,000

Cash P 300,000
Casulla, Capital P 12,500
Ytac, Capital P 20,833.33
Sarno, Capital P 266,666.67

8. Sarno invests P300,000 for a ¼ interest in the new firm, with agreed capitalization equal
to contributed capital.

Cash P 300,000
Casulla, Capital (3/8 x 100,000) P 37,500
Ytac, Capital (5/8 x 100,000) P 62,500
Sarno, Capital P 200,000

Contributed Capital= 800,000

9. Sarno invests P300,000 for a 40% interest in the new partnership.

Cash P 300,000
Casulla, Capital P 7,500
Ytac, Capital P 12,500
Sarno, Capital P 320,000

Contributed Capital= 800,000

 10. Sarno invests P300,000 for a 30% interest in the new firm.
Casulla, Capital P 240,000
Ytac, Capital P 260,000
Sarno, Capital P 300,000
Contributed Capital P
800,000

Cash P 300,000
Casulla, Capital P41,250
Ytac, Capital P68,750
Sarno, Capital P 190,000

NOTE: P 800,000 x 30% =P 240,000 – P 350,000 = P 110,000 bonus to old partners

B. The post-closing trial balance of Butuan Internet Café is presented below before the
admission of Clint Balibay.
Debit Credit
Cash P 45,000
Non-Cash Assets 715,000
Accounts Payable P150,000
Ian Basarte, Capital (40%) 265,000
Miguel Silverio, Capital ( 30% ) 185,000
Rizalina Jostol, Capital (30% ) 160,000
Total P760,000 P760,000

Assume that the partnership decided to admit Balibay as a new partner with a ¼ interest.

Required: For each of the following independent cases, determine the amount that Balibay must
contribute in cash or other assets.

Case 1 – No bonus will be recorded.

Basarte, Capital P 265,000
Silverio, Capital P 185,000
Jostol, Capital P 160,000
Total (¾ capital after admission) P 610,000

New capitalization after admission ( P 610,000/3/4) P 813,333

Required contribution of Balibay P 203,333
Case 2 - A bonus of P24,000 is to be paid by Balibay and allocated to the partners.
Basarte, Capital P 265,000
Silverio, Capital P 185,000
Jostol, Capital P 160,000
Bonus P 24,000
Total P 634,000
Share of Balibay after admission
( P 634,000/3/4) P 845,333
Less: Total capital of partners after admission ( P 610,000)
Required contribution of Balibay P 235,333

Case 3 – The old partners, Basarte, Silverio and Jostol agreed to credit Balibay for P10,000 of
bonus upon admission into the partnership.
Basarte, Capital P 265,000
Silverio, Capital P 185,000
Jostol, Capital P 160,000
Less: Bonus of Balibay ( P 10,000)
Total P 600,000
Less:New Capital after admission
(P 600,000/3/4) P 800,000
Share of new partner after bonus P 200,000
Less: Bonus to new partner P 10,000
Required contribution of Balibay P 190,000

Case 4 – Other assets are revalued to effect an increase of P80,000 and allocated to the old
partners at the time of admission of Balibay.

Basarte, Capital P 265,000

Silverio, Capital P 185,000
Jostol, Capital P 160,000
Asset Revaluation P 80,000
Total P 690,000
Less: New capital after admission
(690,000/3/4) P 920,000
Share of new partner after bonus P 230,000

Case 5 – Other assets are written down by P50,000 and bonus of P40,000 is paid to Balibay at
the time of admission.
Basarte, Capital P 265,000
Silverio, Capital P 185,000
Jostol, Capital P 160,000
Asset write down (P 50,000)
Bonus to new partner (P 40,000)
Total P 520,000
New capital after admission
(P 520,000/3/4) P 693,333
Share of new partner after bonus P 173,333
Less: Bonus to new partner (P 40,000)
Contribution of new partner P 133,333

C. Heginio Lacson, Joel Jo and Alex Ajoc are partners who shared profit and losses of 30%,
50% and 20% respectively. Jo decides to withdraw from the partnership. Their respective
capital account balances after partnership’s books have been adjusted, as follows:
Heginio Lacson P60,000
Joel Jo 85,000
Alex Ajoc 55,000

Required:
1. Prepare journal entry to record the withdrawal of Joel Jo from the partnership
under the following assumptions:
a. Alex Ajoc buys his share for P90,000.

Joel Jo, Capital P 85,000

Alex Ajoc, Capital P 85,000
#
b. Heginio Lacson buys ¾ of his share and ¼ of Alex Ajoc.

Joel Jo, Capital P 85,000

Heginio Lacson, Capital P 63,750
Alex Ajoc, Capital P 21,250
#
c. Marco Ocenar, an outsider, buys his interest for P80,000.

Joel Jo, Capital P 85,000

Marco Ocenar, Capital P 85,000
#
2. Determine the capitalization of the partnership after Joel Jo’s withdrawal in
each of the given assumptions.

Heginio Lacson P 60,000

Alex Ajoc P 140,000
P 200,000

Heginio Lacson P 123,750

Alex Ajoc P 76,250
P 200,000
 Heginio Lacson P 60,000
Alex Ajoc P 55,000
Marco Ocenar P 85,000
P 200,000

D. Bebita Esparaguera, Christine Supapo and Edwin Ceniza are partners sharing a P/L ratio
of 2:4:2. Their capital balances reflected in the partnership’s book showed the following:

Esparaguera Supapo Ceniza

Capital Balances P600,000 P800,000 P650,000

Ceniza becomes insolvent.. His equity is settled by the partnership.

Required: Give the journal entries to record the withdrawal of Ceniza, assuming the
partnership pays the amount given in the following independent cases:

1. The partnership pays P600,000.

Ceniza, Capital P 650,000

Cash P 600,000
Esparraguera, Capital (2/6 x P 50,000) P 16,667
Supapo, Capital (4/6 x P 50,000) P 33,333
#
2. The partnership pays P700,000.

Ceniza, Capital P 650,000

Esparraguera, Capital P 16,667
Supapo, Capital P 33,333
Cash P 700,000
#
E. The adjusted capital balances of the partners of Tea For Two Snack House who shared
profit and loss equally follow:
Peter Orcullo P 80,000
Mer Reyes 100,000
Bogie Lopez 90,000
Peter Orcullo is planning to sell his interest and the partnership is interested in buying
this.
Requirements:
1. If the partnership will buy his interest for P95,000 and the difference is
assumed to be bonus, determine the capital balance of each of the remaining
partners and prepare journal entry to record the withdrawal of Peter Orcullo.

Orcullo’s Withdrawal
 Orcullo, Capital P 80,000
Reyes, Capital P 7,500
Lopez, Capital P 7,500
Cash P 95,000
Capital Balances
Reyes, Capital P 92,500
Lopez, Capital P 82,500
P 175,000
2. If the partnership will buy his interest for P75,000 and the difference is
assumed to be a bonus, what necessary journal entry should be made in the
partnership book.

Orcullo, Capital P 80,000

Cash P 75,000
Reyes, Capital P 2,500
Lopez, Capital P 2,500

F. Mr. Dimamatay, a partner of Long Live Enterprises, finally died on February 29, 20A.
Record shows that his interest in the partnership as of the latest closing of the book on
December 31, 20A was P50,000. The partnership made a profit of P20,000 from January
1 to February 29, 20A. He shares 50% in profit.
Required:
1. Determine the interest of Mr. Dimamatay in the partnership at the time of his
death.

Mr. Dimamatay’s interest, Dec. 31, 20A P 50,000

Add: Share in Net Income from Jan. 1-Feb.29 (20,000 x 50%) P 10,000
P 60,000

2. Prepare journal entry in the book of the partnership assuming his interest was
given to his heirs.
Dimamatay, Capital P 60,000
Cash P 60,000

3. If his interest will be sold to Mr. Buhay as a remedy to settle the partnership
obligation, what journal entry is necessary?

Dimamatay, Capital P 60,000

Buhay, Capital P 60,000