Items 71 95

71.
MM and 00 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 00 each retain a
30% interest. PP pays P60,000 cash directly to MM and 00 for his 40% interest, and
goodwill implied by PP's payment is, recognized on the partnership books. If MM
and 00 transfer equal amounts of capital to PP, the capital balances after PP's
admittance will be:
a. MM, P35,000; 00, P55,000; PP, P60,000
b. MM, P45,000; 00, P45,000; PP, P60,000
c. MM, P36,000; 00, P36,000; PP, P48,000
d. MM, P26,000; 00, P46,000; PP, P48,000
72. Using the same information in Number 71, and the partner's decided to have a cash
settlement among themselves right after the admission of PP, i.e., the capital
balance should be made in accordance with the new profit and loss ratio, what
would be the capital balances after such transaction?
a. MM, P35,000; 00, P55,000; PP, P60,000
b. MM, P45,000; 00, P45,000; PP, P60,000
c. MM, P36,000; 00, P36,000; PP, P48,000
d. MM, P26,000; 00, P46,000; PP, P48,000 (Adapted)
73. 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
P940,000
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?
a. P 140,000 c. P175,000
b. 142,000 d. 177,500 (AICPA)
74. CC and DD are partners who share profits and losses in the ratio of 7:3, respectively.
On October 21, 20x2, their respective capital accounts were as follows:
CC................................................................................................. P35,000
DD 30,000
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P65,000
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?
a. P30,000; P30,000; P30,000; c. P31,667; P28,333; P30,000;
b. P31,500; P28,500; P30,000; d. P35,000; P30,000; P25,000
(AICPA)
75. The capital accounts for the partnership of LL and MM at October 31, 20x5 are as
follows:
LL, capital..................................................................................... P 80,000
MM, capital ......................................................................................40,000
P120,000
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 his investment of
P30,000. Immediately after NN's admission, what should be the capital balances of LL,
MM and NN respectively, assuming bonus is to be recognized?
a. P50,000; P50,000; P50,000. c. P66,667; P33,333; P50,000.
b. P60,000; P60,000; P60,000. d. P68,000; P32,000; P50,000.
(AICPA)
76. 00 and TT are partners with capital balances P60,000 and P20,000,
respectively. Profits and losses are divided in the ratio of 60:40. 00 and 7 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 P 12,000. The
partnership elected to use the bonus method to record the admission of GG into the
partnership. GG's capital account
should be credited for:
a . P 1 2 , 0 0 0 c. P16,000
b . 1 5 , 0 0 0 d. 19,000 (AICPA)
77. The partnership of Marissa and Olga is being dissolved, and the assets and equities at
book value and fair value and profit and loss ratios at January 1, 20x5 are as
follows:
Book Value Fair Value
Cash....................................................................... P 20,000 P 20,000
Accounts receivable - net ........................................100,000 100,000
Inventories ................................................................50,000 200,000
Plant assets - net .....................................................100,000 120,000
P270,000 P440,000
Accounts payable.................................................. P 50,000 P 50,000

Marissa, capital (50%) ...............................................120,000
Olga, capital (50%)....................................................100,000
P270,000
Marissa and Olga agree to admit Trent into the partnership for a one-third interest. Trent
invests P95,000 cash and a building to be used in the business with a book value to
Trent for P100,000 and a fair value of P120,000. Compute the capital balance of
Olga after the admission, assuming that the assets are revalued and goodwill is
recognized.
a. P175,000 c. P195,000
b. 155,000 d. 205,000 (Adapted)
78. AA and BB entered into a partnership on May 31, 20x5, contributing cash of P48,000 and
P32,000, respectively, and agreeing to divide earnings in the ratio of their initial
investments after allowing annual salary allowance of P12,000 each. On December
31, 20x5, the Income Summary account had a credit balance of P34,000, while the
drawing accounts showed debit balances of P14,000 for AA and P10,000 for BB.
At the beginning of the next year, CC was admitted into the firm as a new partner with
a 33-1/3% interest for a capital credit equal to his cash investment of P60,000. AA
and BB then effected a private cash settlement between themselves in order to make
the capital balances conform to a new profit-sharing ratio of 4:2:3, respectively,
with salary allowances scrapped. How much of the amount of the private cash
settlement effected between the old partners?
a. P5,000 c. P12,000
b. 9,000 d. 15,000 (Adapted)
79. AA, BB, and CC are partners sharing profits in a 5:3:2 ratio, and with capital balances of
P95,000, P80,000, and P60,000, respectively, on December 31, 20x5. The partners
decided to admit DD as a new partner on January 1, 20x6. DD will contribute cash
of P80,000 to the partnership and also pay P 10,000 for 15% of BB's share. DD is to
have a 20% share in profits. After the admission of DD, the total capital will be
P330,000 and DD's capital will be P70,000. After the admission of DD, BB's capital
balance would be:
a . P7 2 ,6 00 c, P79,100
b. 74,600 d. 81,100 (Adapted)
80. Jesse, Joseph, and Leslie are partners with capital accounts of P70,000, P 120,000,
and P90,000, respectively. The partnership share prOfits and losses 45%, 30%, and 25%,
respectively. They are considering Mowing Hans to join the partnership by investing
directly into the partnership. The partners intend to revalue the assets before Hans'
admission. Neither bonus nor goodwill are required. If the asset's market value
exceeds book value P150,000, how much will Hans invest to acquire a 20% equity
interest in the partnership?
a. P107,500 c. P86,000
b. P100,000 d. P70,000
81. Sandra and Joshua are partners. They have capital account balances of P250,000
and P200,000, respectively, and they share profits and losses 70/ 30. The partners
are considering admitting Judy as a new partner with a 25 percent equity interest for
an investment in the partnership of P 180,000. Before admission, Sandra and Joshuct
will revalue the partnership's assets. If the net increase in the partnership's assets is P
125,000, what will be the balance in Sandra's capital account immediately before
Judy's admission?
a. P262,500 c. P528,500
b. P337,500 d. P575,000
82. The following are capital account balances and profit and loss ratios of the partners
in Precious Company,
P&L
Capital Ratio
LL............................................................................. P2,250,000 2
00 ...................................................................................750,000 1
They agree to admit RR as a partner with a 25% interest in capital upon her investment
of P1,000,000. LL, 00 and RR are to share profits 5:3:2, respectively.
Subsequently, TT joins the partnership by investing P1,200,000 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?
a. P800,000 c. P400,000
b. 600,000 d. 240,000 (PhiICPA)
83. RR and XX formed a partnership and agreed to divide initial capital equally even though RR
contributed P25,000 and XX contributed P21,000 int identifiable assets. Under the
bonus approach to adjust the capitol accounts. XX's unidentifiable assets should be
debited for:
a. P1-1,500 c. P2,000
b. 4,000 d. 0 (AICPA)
84. In the AD partnership, Alien's capital is P140,000 and Daniel's is P40,000 and they share
income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following questions is independent of the others. Allen and Daniel agree
that some of the inventory is obsolete. The inventory account is decreased before David is
admitted. David invests P40,000 for a one-fifth interest. What is the amount of inventory
written down?
a. P 4,000 c. P15,000
b. P10,000 d. P20,000
85. Using the same information in No. 84, David directly purchases a one-fifth interest by
paying Allen P34,000 and Daniel P10,000. The land account is increased before David
is admitted. By what amount is the land account increased?
a. P40,000 c. P20,000
b. P36,000 d. P10,000
86. MM and NN are partners who have capitals of P6,000 and P4,800 and share profits
in the ratio of 3:2. 00 is admitted as a partner upon investing cash of P5,000, with
profits to be shared equally.
Assume that 00 is allowed a 25% interest int he firm, (1) the capital balance of MM
after the admission of 00 using goodwill method, and (2) how much will NN gain
or lose by the use of bonus method over goodwill method.
a. (1) P7,120; (2) NN will lose P140
b. (1) P7,120; (2) NN will gain P1,260
c. (1) P8,520; (2) NN will lose P1,260
d. (1) P8,520; (2) NN will gain P140 (Adapted)
87. AA and BB are partners who have capital of P600,000 and P480,000 sharing profits in the
ratio of 3:2. CC admitted as a partner upon investing P500,000 for 25% interest in the
firm, profits to be shared equally. Given the choice between goodwill and bonus
method, CC will
a.Prefer bonus method due to CC's gain of P35,000.
b. Prefer bonus method due to CC's gain of P140,000.
c. Prefer goodwill method due to CC's gain of p140,000.
d.Be indifferent for the goodwill and bonus-methods are the same. (Adapted)
Retirement or Withdrawal of a Partner

88. On June 30, 20x5, the statement of financial position for the partnership of CC, MM, and
PP, together with their respective profit and loss ratios, were as follows:
Assets, at cost.............................................................................. P180,000
CC, loan ...........................................................................................9,000

CC, capital (20%) ..............................................................................42,000
MM, capital (20%) .............................................................................39,000
PP, capital (60%) ...............................................................................90,000
Total.................................................................................. P180,000
CC 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, 20x5. 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?
a. P36,450 c. P45,450
b. 39,000 d. 46,200 (AICPA)
89. The December 31, 20x5, statement of financial position of the BB, CC, and DD
partnership is summarized as follows:
Cash.................................... P100,000 CC, loan....................P100,000
Other assets, at cost............... 500,000 BB, capital .................. 100,000
CC, capital................. 200,000
DD, capital ................ 200,000
P600,000 'P600,000
The partners share profits and losses as follows: BB, 20%; CC, 30%; and DD, 50%, CC is
retiring from the partnership and the partners have agreed that "other assets" should be
adjusted to their fair value of P600,000 at December 31, 20x5. They further agree that CC
will receive P244,000 cash for his partnership interest exclusive of the loan, which is to
be paid in full. No goodwill implied by CC's payment will be recorded. After CC's
retirement, the capital balances of BB and DD, respectively, will be:
a.P116,000 and P240;000 c. P100,000 and P200,000
b.P101,714 and P254,286 d. P 73,143 and P182,857
(Adapted)
90. On June 30, 20x5, the condensed balance sheet for the partnership of DD FF,
and GG, together with their respective profit and loss sharing'
percentages was as follows:
Assets, net of liabilities ................................................................ P320,000
DD, caital (50%)............................................................................. P160,000
FF, capital (30%) ................................................................................96,000
GG, capital (20%)................................................................................64,000
P320,000
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 gQodwill or adjustment
in assets implicit in the agreement is to be recorded. After DD's retirement,
what are the capital balances of the other partners?
FF GG FF GG
a .P 84,000 P56,000 c. P108,000 P72,000
b.102,000 68,000 d. 120,000 80,000
(AICPA)
91. PP, RR and SS were partners with capital balances as of January 1, 20x5, of P20,000,
P30,000 and P40,000 respectively, sharing profit and losses on a 5:3:2 ratio.
On July 1, 20x5 PP withdraw from the partnership. Partners agreed that at the
time of withdrawal, certain inventories had to be revalued at P 14,000 from its
cost of P 10,000. For the six month period ending June 30, 20x5, the partnership
generated a net income of P28,000. Further, partners agreed to pay PP,
P39,000 for his interest and that the remaining partners' capital accounts, would
be adjusted for whatever goodwill the settlement would generate. The payment
of PP included a goodwill of:
a. P3,000 c. P10,000
b. 5,000 d. 8,500 (Adapted)
92. The condensed balance sheet of the partnership of EE, FF and GG with
corresponding profit and loss sharing percentage as of June 30, 20x5 was as
follows:
Net assets ......................................................................................P480,000
EE, capital (50%) ......................................................................... P240,000

FF, capital (30%) .............................................................................144,000
GG, capital (20%) ..............................................................................96,000
P480,000
As of said date, EE retired from the partnership. By mutual agreement, he was

paid P270,000 for his interest in the partnerhsip. Partial goodwill or adjustment
in assets was to be recorded. After EE's retirement, the total net assets of the
partnership was:
a. P300,000 c. P240,000
b . 2 1 0 , 0 0 0 d. 270,000 (Adapted)
93. Using the same information in Number 92, except that total goodwill or
adjustments in assets was to be recorded. What will be the total net assets of the
partnership after EE's retirement?
a . P300,000 c. P240,000
b. 210,000 d. 270,000 (Adapted)
94. 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 P88,800 in final settlement for
his interest. The total of the partners' capital accounts before recognition of
partnership goodwill prior to Smith's withdrawal was P252,000. After his
withdrawal the remaining partners' capital accounts, excluding their share of
goodwill, totalled P 192,000. The total goodwill of the firm was:
a . P1 4 4 ,00 0 c. P192,000
b . 1 6 8 , 0 0 0 d. 300,000 (AICPA)
95. Bob, Claire, and Jack are partners who share profits and losses 30 percent, 25
percent, and 45 percent, respectively. Bob informed Claire and Jack that he is
withdrawing from the partnership. The partners' capital accounts at the date of
Bob's withdrawal are P150,000, P135,000, and P225,000, respectively. The
partnership agreement states that the goodwill, if any, of the withdrawing
partner will be recognized for all partners immediately prior to the withdrawal of
any partner. In this instance, the partners determine that the goodwill
associated with Bob is P22,500. Assuming that Bob's equity is purchased by a
new partner (Deborah) approved by Claire and Jack, what is the amount of
Deborah's initial capital account?
a.P150,000
b. P170,000
c. P172,500
d.The amount cannot be determined because the amount Deborah
paid for Bob's equity is not known
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71.

Accounts payable ............................................................................ P210,000

Accounts payable.................................................. P 50,000 P 50,000

Retirement or Withdrawal of a Partner

CC, loan ...........................................................................................9,000

DD decided to retire from the partnership and by mutual agreement is to be

EE, capital (50%) ......................................................................... P240,000

As of said date, EE retired from the partnership. By mutual agreement, he was

94. A. Smith, a partner in an accounting firm, decided to withdraw from the

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