Question 1

XX, YY and ZZ are partners who share profits and losses in the ratio of 5:3:2, respectively. They agreed to
sell a 25% of their respective capital and profits and loses ratio for a total payment directly to the
partners in the amount of P140,000.00. They agree that goodwill of P60,000.00 is to be recorded prior
to admission of AA. The condensed balance sheet of the XYZ Partnership is as follows:

Cash P 60,000 Liabilities P100,000

Non-cash assets540,000 XX, capital 250,000

YY, capital 150,000

ZZ, capital 100,000

Total P600,000 Total P600,000

The capital of XX, YY and ZZ respectively after the payment and admission of AA are:

P210,000; P126,000; and P84,000

P250,000; P150,000; and P100,000

P187,500; P112,500; and P75,000

P280,000; P168,000; and P112,000

Question 2

A. smith, a partner in an accounting firm, decided to withdraw from the partnership, Smith’s share of
the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid
P74,000 in final settlement for his interest. The total of the partners’ capital accounts before recognition
of partnership goodwill prior to Smith’s withdrawal was P210,000. After his withdrawal the remaining
partners’ capital accounts, excluding their share of goodwill, totaled P160,000. The total goodwill of the
firm was:

P 120,000

P 160,000

250,000

140,000
Question 3

On June 30, 2001, the condensed balance sheet for the partnership of EE, FF and GG, together with their
respective profit and loss sharing percentage was as follows:

Assets, net of liabilities P 320,000

EE, capital (50%) P 160,000

FF, capital (30%) 96,000

GG, capital (20%) 64,000

HH admitted as a new partner with a 25% interest in the capital of the new partnership for a cash
payment of P140,000. Total goodwill implicit in the transaction is to be recorded. Immediately after
admission of HH, EE’s capital account balance should be:

210,000

140,000

P 160,000

P 280,000
Question 4

CC, DD and EE shared profit and losses based on 5:3:2. EE was allowed to withdraw from the partnership
on 31 December 2001 with P600,000 cash as full settlement. The condensed balance sheet of the
partnership as of the date was as follows:

ASSETS

Due from EE P 250,000

Goodwill 2,000,000

Other Assets 4,750,000

Total assets P7,000,000

LIABILITES AND CAPITAL

Liabilities P2,000,000

Due to DD 750,000

CC, capital 1,750,000

DD, capital 1,500,000

EE, capital 1,000,000

Total liabilities and capital P7,000,000

Using the partial adjustment of goodwill method, the new capital balances of the remaining partners
after EE’s withdrawal are:

CC, P1,842,750 and DD, P1,556,250

CC, P1,750,000 and DD, P1,500,000

CC, P2,000,000 and DD, P1,650,000

CC, P1,375,000 and DD, P1,275,000

Question 5

Roy and Gil are partners sharing profits and losses in the ratio of 1:2, respectively. On July 1, 2001, they
decided to form the R & G Corporation by transferring the assets and liabilities from the partnership to
the Corporation in exchange of its stocks. The following is the post-closing trial balance of the
partnership to the Corporation in exchange of its stocks. The following is the post-closing trial balance of
the partnership:

Debit Credit

Cash P45,000

Accounts receivable (net) 60,000

Inventory 90,000

Fixed Assets (net) 174,000

Liabilities P60,000

Roy, capital 94,800

Gil, capital 214,200

P369,000 P369,000

It was agreed that the adjustments be made to the following assets to be transferred to the corporation:

Accounts receivable P 40,000

Inventory 68,000

Fixed Assets 180,600

The R & G Corporation was authorized to issue P100 par preferred stock and P10 par common stock. Roy
and Gil agreed to receive for their equity in the partnership 720 shares of the common stock each, plus
even multiples of 10 shares of preferred stock for their remaining interest.

The total number of shares of preferred and common stock issued by the Corporation in exchange of
the assets and liabilities of the partnership are:

Preferred Stock: 2,520 shares ; Common Stock: 1,500 shares

Preferred Stock: 2,642 shares ; Common Stock: 1,440 shares

Preferred Stock: 2,592 shares ; Common Stock: 1,440 shares

Preferred Stock: 2,642 shares ; Common Stock: 1,550 shares

Question 6

On June 30, 2001, the balance sheet of Western Marketing, a partnership, is summarized as follows:

Sundry assets P600,000

West, capital 360,000

Tern, capital 240,000

West and Tern share profit and loses at a 60:40 ratio, respectively. They agreed to take in Cuba as a new
partner, who purchases 1/8 interest of West and Tern for P100,000. What is the amount of Cuba’s
capital to be taken up in the partnership books if book value method is used?

P 100,000

125,000

P 50,000

75,000
Question 7

The following condensed balance sheet is presented for the partnership of LL, Pp and QQ who share
profits and losses in the ratio of 4:3:3, respectively:

Cash P 90,000

Other assets 830,000

LL, loan 20,000

P 940,000

Accounts payable P210,000

QQ, loan 30,000

LL, capital 310,000

PP, capital 200,000

QQ, capital 190,000

P940,000

Assume that the assets and liabilities are fairly valued on the balance sheet and that the partnership
decides to admit FF as a new partner, with a 20% interest. No goodwill or bonus is to be recorded.

How much should FF contribute in cash or other assets?

P 175,000

142,000

177,500

P 140,000
Question 8

OO and TT are partners with capital balances P60,000 and P20,000, respectively. Profits and losses are
divided in the ratio of 60:40. OO and TT decided to form a new partnership with GG, who invested land
valued at P15,000 for a 20% capital interest in the new partnership. GG’s cost of the land was P12,000.
The partnership elected to use the bonus method to record the admission of GG into the partnership.
GG’s capital account should be credits for:

P 12,000

19,000

P 16,000

15,000
Question 9

RR and XX formed a partnership and agreed to divide initial capital equally, even though RR contributed
P100,000 and XX contributed P84,000 in identifiable assets. Under the bonus approach to adjust the
capital accounts. XX’s unidentifiable assets should be debited for:

P 46,000

16,000

P 8,000

0
Question 10

On June 30, 2001, the condensed balance sheet for the partnership of DD, FF and GG, together with
their respective profit and loss sharing percentage was as follows:

Assets, net of liabilities P 320,000

DD, capital(50%) P 160,000

FF, capital(30%) 96,000

GG, capital(20%) 64,000

P 320,000

DD decided to retire from the partnership and by mutual agreement is to be paid P180,000 out of
partnership funds for his interest. Total goodwill implicit in the agreement is to be recorded. After DD’s
retirement, what are the capital balances of the other partners?

FF: P108,000; GG: P72,00;

FF: 102,000; GG: 68,000;

FF: 120,000; GG: 80,00;

FF: P84,000; GG: P56,000;

Question 11

MM and OO are partners with capital balances of P50,000 and P70,000, respectively, and they share
profits and losses equally. The partners agree to take PP into the partnership for a 40% interest in capital
and profits, while MM and OO each retain a 30% interest. PP pays P60,000 cash directly to MM and OO
for his 40% interest, and goodwill implied by PP’s payment is recognized on the capital balances after
PP’s admittance will be:

MM, P36,000; OO, P46,000; PP,P48,000

MM, P35,000; OO, P55,000; PP, P60,000

MM, P36,000; OO, P36,000; PP, P48,000

MM, P45,000; OO, P45,000; PP, P60,000

Question 12

The capital accounts of the partnership of NN, VV and JJ on June 1, 2001 are presented below with their
respective profits and loss ratios:

NN P139,200 1/2

VV 208,800 1/3

JJ 96,000 1/6

On June 1, 2001, LL is admitted to the partnership when LL purchased, for P132,000, a proportionate
interest from NN and JJ in the net assets and profits of the partnership. As a result of a transaction LL
acquired a one-fifth interest in the net assets and profits of the firm. Assuming that implied goodwill is
not to be recorded, what is the combined gain realized by NN and JJ upon the sale of a portion of their
interest in the partnership to LL?

62,400

43,200

82,000

P0
Question 13

Presented below is the condensed balance sheet of the partnership of KK, LL and MM who share profits
and losses in the ratio of 6:3:1, respectively:

Cash P 85,000 Liabilities P 80,000

Other assets 415,000 KK, capital 252,000

LL, capital 126,000

MM, capital 42,000

Total P500,000 Total P500,000

The partner agree to sell NN 20% of their respective capital and profit and loss interest for a total
payment of P90,000. The payment by NN is to be made directly to the individual partners. The partners
agree that implied goodwill is to be recorded prior to the acquisition by NN. The capital balance of KK, LL
and MM respectively after admission of NN are:

P210,600; P100,800; P33,600

P255,600; P127,800; P42,600

P216,000; P108,000; P36,000

P198,000; P 99,000; P33,000

Question 14

RR, SS and TT decided to dissolve the partnership on November 30, 2001. Their capital balances and
profit ratio on this date, follow:

CAPITAL BALANCE PROFIT RATIO

RR P50,000 40%

SS 60,000 30%

TT 20,000 30%

The net income from January 1 to November 30, 2001 is P44,000. Also, on this date, cash and liabilities
are P40,000 and P90,000, respectively. For RR to receive P55,200 in full settlement of his interest in the
firm, how much must be realized from the sale of the firm’s non-cash assets?

P193,000

187,000

177,000

P196,000
Question 15

On June 30, 2001, the balance sheet for the partnership of CC, MM and PP, together with their
respective profit and loss ratios, were as follows:

Assets, at cost P 180,000

CC, loan 9,000

CC, capital (20%) 42,000

MM, capital (20%) 39,000

PP, capital (60%) 90,000

Total P 180,000

CC has decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P216,000 at June 30, 2001. It was agreed that the partnership would pay CC P61,200
cash for CC’s partnership interest including CC’s loan which is to be repaid in full. No goodwill is to be
recorded. After CC’s retirement, what is the balance of MM’s capital account?

P 45,450

46,200

39,000

P 36,450
Question 16

After operating for five years, the books of the partnership of Bo and By showed the following balances:

Net assets P130,000

Bo, capital 85,000

By, capital 45,000

If liquidation takes place at this point and the net assets are realized at book value, the partners are
entitled to:

Bo to receive P65,000 & By to receive P65,000

Bo to receive P97,500 & By to receive P32,500

Bo to receive P90,000 & By to receive P40,000

Bo to receive P85,000 & By to receive P45,000

Question 17

DD and GG, are partners with capital account balances of P60,000 and P90,000, respectively. They agree
to admit ZZ and a partner with a one-third interest in capital and profits, for an investment of P100,000,
after revaluing the assets of DD and GG. Goodwill to the original partners should be:

66,667

P 50,000

33,333

P0

Question 18

CC and DD are partners who profits and losses in the ratio of 7:3, respectively. On October 1, 2001, their
respective capital accounts were as follows:

CC P 35,000

DD 30,000

P 65,000

On that date they agreed to admit EE as a partner with a one-third interest in the capital and profits and
losses, and upon his investment of P25,000. The new partnership will begin with a total capital of
P90,000. Immediately after EE’s admission, what are the capital balance of CC, DD, and EE, respectively?

P31,667; P28,333; P30,000

P30,000; P30,000; P30,000

P35,000; P30,000; P25,000

P31,500; P28,500; P30,000

Question 19

Partners AA, BB, and CC divide profits and losses 5:3:2, respectively, and their balance sheet on
September 30, 2001 are as follows:

ABC Partnership

Balance sheet

September 30, 2001

Cash P 80,000

Other assets 720,000

Total assets P 80,000

Accounts payable P 200,000

AA, capital 148,000

BB, capital 260,000

CC, capital 192,000

Total liabilities and capital P 800,000

The assets and liabilities are recorded at approximate current fair values. DD is to be admitted as a new
partner with a 20% interest in capital and earnings in exchange for a cash investment. Goodwill or bonus
will not be considered.

How much cash should DD contribute?

144,000

P 150,000

P 120,000

160,000
Question 20

The balance sheet of the partnership of Salve, Gildas, and Nora, who share profits and losses in the
respective ratio of 5:3:2, follows;

ASSETS LIABILITIES AND CAPITAL

Cash P30,000 Liabilities P50,000

Other assets 320,000 Salve, capital 80,000

Gilda, capital 115,000

Nora, capital 105,000

Total P350,000 Total P350,000

The partners agreed to liquidate the partnership by installments. Immediately, there was a realization of
P100,000 cash from selling other assets with book value of P150,000. Of the cash available, the priority
is the payment of the liabilities and the balance is to be distributed to the partners.

How should the remaining cash be distributed?

Salve, P50,000; Gilda, P30,000; and, Nora, P20,000

Salve, P -0- ; Gilda, P48,000; and Nora, P32,000

Salve, P40,000; Gilda, P24,000; and, Nora, P16,000

Salve, P -0- ; Gilda, P31,000; and, Nora, P49,000

Question 21

The condensed balance sheet of the partnership of EE, FF and GG with corresponding profit and loss
sharing percentage as of June 30, 1997 was as follows:

Net assets P 400,000

EE, capital (50%) P 200,000

FF, capital (30%) 120,000

GG, capital (20%) 80,000

P 400,000

As of said date, EE retired from the partnership. By mutual agreement, he was paid P225,000 for his
interest in the partnership. Partial goodwill was to be recorded. After EE’s retirement, the total net
assets of the partnership was:

P 200,000

225,000

175,000

P 250,000
Question 22

As of December 31, 2001, the books of Ton Partnership showed capital balances of: T P40,000; O,
P25,000; N, P5,000. The partners’ profit and loss ratio was 3:2:1, respectively. The partners decided to
liquidate and they sold all non-cash assets for P37,000. After settlement of all liabilities amounting
P12,000, they still have cash of P28,000 left for distribution. Assuming that any capital debit balance is
uncollectible, the share of T in the distribution of the P28,000 cash would be:

P 17,800

P 19,000

P 17,000

P 18,000
Question 23

The following condensed balance sheet is presented for the partnership of AA, BB, and CC who share
profits and losses in the ratio of 4:3:3, respectively:

Cash P100,000

Other assets 300,000

Total P400,000

Liabilities P 150,000

AA, capital 40,000

BB, capital 180,000

CC, capital 30,000

Total P 400,000

The partners agreed to dissolve the partnership after selling the other assets for P200,000. Upon
dissolution of the partnership. AA should have received.

P 70,000

P 60,000

P0

P 40,000
Question 24

DJ partnership had a net income of P8,000 for the month ended September 30,2001.

Ambo purchased an interest in the DJ partnership of Day and Jar by paying Day P32,000 for half of his
capital and half of his 50% percent profit sharing interest on October 1, 2001. At this time Day capital
balance was P24,000 and Jar capital balance was P56,000.

Ambo should receive a credit to his account balance of:

26,667

12,000

P 20,000

P 16,000
Question 25

HH and II are partner sharing profits 3:2, respectively. On January 1, HH and II decided to admit JJ as a
new partner upon his investment of P8,000. On this date, their interests in the partnership are as
follows: HH, P11,500; II P9,300.

Assuming that the new partner is given a 1/3 interest in the firm, with bonus being allowed to the new
partner, the new capital balances of HH, II and JJ respectively, would be:

P11,500; P9,300, and P8,000

P12,480, P8,320, and P8,000

P10,540, P8,660, and P9,600

P11,520, P7,680, and P9,600

Question 26

The capital account for the partnership of LL and MM at October 31, 2001 are as follows:

LL, capital P 80,000

MM, capital 40,000

P 120,000

The partners share profits and losses in the ratio of 3:2 respectively.

The partnership is in desperate need of cash, and the partners agree to admit NN as a partner with one-
third in the capital and profits and losses upon this investment of P30,000. Immediately after NN’s
admission, what should be the capital balances of LL, MM and NN respectively, assuming goodwill is not
to be recognized?

P50,000; P50,000; P50,000

P60,000; P60,000; P60,000

P68,000; P32,000; P50,000

P66,667; P33,333; P50,000

Question 27

The following are capital account balances and profit and loss ratios of the partners in ATM Company:

P&L

CAPITAL RATIO

LL P 225,000 3

OO 75,000 1

They agree to admit RR as a partner with a 25% interest in capital upon her investment of P100,000. LL,
OO and RR are to share 5:3:2, respectively.

Subsequently, TT joins the partnership by investing P120,000 for a 20% interest in profits and capital,
the old partners are to share profits in their original ratio.

Assuming the goodwill method is used, how much is the goodwill to be recorded upon the admission of
TT?

60,000

P 80,000

P 40,000

24,000
Question 28

The partnership of MM, PP, and RR shared profits and losses equally, when MM withdraw from the
partnership, the partner agreed that there was unrecorded goodwill in the partnership. Under the bonus
method, the capital balances of PP and RR were:

Each reduce by one-half of MM’s share of the total amount of the unrecorded goodwill.

Not affected.

Each reduce by one-third on the total amount of the unrecorded goodwill.

Each reduce by one-half on the total amount on the unrecorded goodwill.

Question 29

Silverio, Domingo, Reyes, and Pastor are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and
8/21, respectively. The balances of their capital accounts on December 31, 2001 are as follows:

Silverio P 1,000

Domingo 25,000

Reyes 25,000

Pastor 9,000

P60,000

The partners to liquidate, and they accordingly convert the non-cash assets into P23,200 of cash. After
paying the liabilities amounting to P3,000, they have P22,200 to divide. Assume that a debit balance of
any partner’s capital is uncollectible.

After the P22,200 was divided, the capital balance of Domingo was:

P 4,500

3,920

17,8000

P 3,2000
Question 30

AA, BB, and CC are partners sharing profits in the ratio of 3:2:1, respectively. Capital accounts are
P50,000, P30,000 and P20,000 on December 31, 2001, when CC decides to withdraw. It is agreed to pay
P30,000 for CC’s interest. Profits after the retirement of CC are to be shared equally.

(1) The capital balance of BB after retirement of CC, using total goodwill approach, and (2) assume the
usage of bonus, partial, and total goodwill approach for the retirement, which of these methods will be
preferred by BB?

(1) P20,000; (2) Bonus method

(1) P30,000; (2) Partial goodwill

(1) P50,000; (2) Bonus method

(1) P50,000; (2) Total goodwill