Partnership Dissolution

1. Admission of a new partner a. Admission by purchase b. Admission by investme

2. Retirement, withdrawal or death of a partner
3. Incorporation of a partnership

Problem 1

A partnership had the following condensed balance sheet:

Assets Liabilities and capital

cash 5,000 Liabilities 15,000

Non-cash assets 65,000 Rachel, Capital (80%) 40,000
Rachel, Loan 5,000 Sarah, Capital (20%) 20,000
Total 75,000 Total 75,000

The percentages in parenthesis after the partners' capital balances represent their respective
interests in profits and losses. The partners agree to admit Cecilia as a member of the firm.

From the following independent situations, determine the journal entries that would be made by
the partnership to record the admission of Cecilia in the new partnership.

Situation 1. Cecilia purchases 1/4 interest in the firm. One-fourth of each partner's capital is to
be transferred to the new partner. Cecilia pays the partners P20,000, which is divided between
them in proportion to the equities given up.

Situation 2. Cecilia purchases 1/4 interest in the firm. One-fourth of each partner's capital is to be
transferred to the new partner. Cecilia pays the partners P20,000, which is divided between them
in proportion to the equities given up. The assets are to be revalued prior to Cecilia's admission.

Situation 3. Cecilia purchases 1/4 interest in the firm. One-fourth of each partner's capital is to be
transferred to the new partner. Cecilia pays the partners P12,000, which is divided between them
in proportion to the equities given up. The assets are to be revalued prior to Cecilia's admission.

Situation 4. Cecilia invests P25,000 for a 1/4 interest in the firm. The total agreed capital of the
new partnership is P85,000.

Situation 5. New partner Cecilia conveyed a tangible asset with fair value of P32,500 with an
assumed mortgage of P5,000 in exchange for a 35% interest in capital of the new partnership.
Cecilia however, would be acquiring a 1/4 interest in profits.

Situation 6. New partner Cecilia conveyed a non-cash asset with fair value of P15,000 in
exchange for a 30% interest in capital and a 1/5 interest in profits. The total agreed capital after
admission is P80,000.
Situation 6. New partner Cecilia conveyed a non-cash asset with fair value of P15,000 in
exchange for a 30% interest in capital and a 1/5 interest in profits. The total agreed capital after
admission is P80,000.

Situation 7. Cecilia invests P15,000 for a 40% interest in the firm.

7) TCC TAC Difference
Old 60,000 45,000 - 15,000 Cash 15,000
New 15,000 30,000 15,000 Cecilia, capital 15,000
Total 75,000 75,000 - Rachel, capital 12,000
Problem 2 Sarah, capital 3,000
Cecilia, capital 15,000
The capital accounts of the MJ partnership on September 30, 2020 were: 1)

Marvin, capital (75% profit percentage) 140,000

Jayson, capital (25% profit percentage) 60,000
Total 200,000

The partnership assets and liabilities have book values equal to their fair values. On October 1,
2020, Chrisitan was admitted to a 40% interest in the partnership, when he purchased 40% of each 2)
existing partner's capital for P120,000, paid directly to Marvin and Jayson.

1) What is the capital balance of each partner aftter Christian's admission assuming that
revaluation of the assets are not recorded?
2) What is the capital balance of each partner aftter Christian's admission assuming that
revaluation of the assets are to be recorded?

Problem 3

The capital account balances for April and May partnership on January 1, 2020, were as follows:

April, capital 200,000

May, capital 100,000

April and May shared net income and losses in the ratio of 3:2, respectively. The partners agreed
to admit July to the partnership with a 35% interest in partnership capital and net income. July
invested P100,000 cash and no goodwill was recognized.

What is the balance of April's capital account after the new partnership is created? 176,000

Problem 4

Garry desires to purchase 1/4 capital and profit and loss interest in the partnership of Shaw, Vi, and
Maria. The three partners agree to sell Garry a one-fourth of their respective capital and profit and
loss interest in exhange for a total payment of P80,000. The capital accounts and the respective
percentage interests in profits and losses immediately before the sale to Garry are:
Garry desires to purchase 1/4 capital and profit and loss interest in the partnership of Shaw, Vi, and
Maria. The three partners agree to sell Garry a one-fourth of their respective capital and profit and
loss interest in exhange for a total payment of P80,000. The capital accounts and the respective
percentage interests in profits and losses immediately before the sale to Garry are:
Shaw, capital (60%) 160,000
Vi, capital (30%) 80,000
Maria, capital (10%) 40,000
Total 280,000

All other assets and liabilities are fairly valued, and no adjustment is to be recorded prior to the
acquisition by Garry. Immediately after Garry's acquisition, what would be the capital balances of
Shaw, Vi, and Maria?

Problem 5

Maria, Charissa and Cassandra shared profits and losses 20%, 40% and 40% respectively and their
partnership capital balance is P10,000, P30,000 and P50,000 respectively. Maria has decided to
withdraw from the partnership. An appraisal of the business and its property estimates the fair
value to be P200,000. Land with a book value of P30,000 has a fair value of P45,000. Maria agreed
to receive P20,000 in exchange for her partnership interest.
What amount should land be recorded on the partnership books? P45,000

Problem 6

A balance sheet on December 31, 2020 for the PKJ partnership is summarized as follows:

Assets 80,000 Liabilities 20,000

Loan to Kath 10,000 Patrick, capital (50%) 30,000
Kath, capital (40%) 30,000
Jimson, capital (10%) 10,000
Total 90,000 Total 90,000

Kath is retiring from the partnership. The partners agree that partnership assets, excluding Kath's
loan, should be adjusted to their fair value of P100,000 and that Kath should receive P31,000 for
her capital balance net of the P10,000 loan. No goodwill is to be recorded.

Determine the capital balance of Patrick and Jimson immediately after the retirement of Kath.

Problem 7

The items below are based on the following information: a)

Michael, Jane and Rafael have the following capital balances; P40,000; P50,000 and P30,000
respectively. The partners share profits and losses 20%, 40% and 40% respectively.
a) Jane retires and is paid P80,000 based on the terms of the original partnership agreement. If the
bonus method is used, what is the capital of the remaining partners?
b)
b) What is the total partnership capital after Jane retires and she receivesP80,000 and the
partnership assets are to be adjusted?

Problem 8

1)
The partership of Ben, Larry and Dan reflected beginning capital balances of P150,000; P50,000 and
P200,000 and profit and loss ratio of 5:4:1 to Ben, Larry and Dan respectively. The partners plan to
dissolve their business. The following are independent assumptions with regard to the
partnership's dissolution.

1) Daisy is to be admitted in the partnership upon purchasing 1/4 of the capital of Ben and Dan for
P90,500 with the assets being adjusted. Determine the capital balance of Larry after Daisy's
admission into the partnership.

2) Daisy is to be admitted in the partnership upon investing her business in the partnership for a
20% in the partnership with a total agreed capital balance of P450,000. Daisy's net assets have a
book value of P25,000 and fair value of P30,000. Determine the capital balance of Ben after Daisy's
admission into the partnership.

3) Daisy is to invest P50,000 for a 10% interest in the new partnership and is to be credited the
same amount of capital in the new partnership. Determine the capital balance of Larry after Daisy's 2)
admission into the partnership.

4) Daisy is to purchase 1/5 of the capital balance of Ben for P40,000 with the assets being adjusted
and is to invest P30,000 for a 15% interest in the partnership with a total agreed capital of
P550,000. Determine the capital balance of Ben and Dan after Daisy's admission into the
partnership.

5) Larry decides to retire from the partnership after the distribution of net income of P75,000. The
partners distribute net income by giving salaries of P20,000 each with the balance being distributed
based on their profit and loss ratio. If Larry receives P80,000 from the partnership, determine the
capital balance of Ben and Dan after Larry's withdrawal from the partnership. 3)

Problem 9

O, P and Q share profits in the ratio of 5:3:2. Q is permitted to withdraw from the firm on
December 31, 2019. Profits after the withdrawal of Q are to be shared 3:2. The partnership balance
sheet on this date is as follows:
 Receivable from Q 10,000 Liabilities 80,000 4)
Goodwill 80,000 Payable to P 30,000
Other assets 190,000 O, Capital 70,000
P, Capital 60,000
Q, Capital 40,000

Total 280,000 280,000

Questions:

a. Assuming that Q is paid P44,000 in full settlement of the capital interest and P10,000 claim
balance, using the bonus method of recording the withdrawal of Q, how much are the capital
balances of O and P after Q's withdrawal?

b. Using the data in question a, using the goodwill method of recording Q's withdrawal, how much
are the capital balances of O and P after Q's retirement?

c. In relation to a and b, which method is preferred by GAAP in recording Q's withdrawal?

d. Assuming that Q is paid P24,000 in full settlement of the capital interest and P10,000 claim
balance, using the bonus method of recording the withdrawal of Q, how much are the capital
balances of O and P after Q's withdrawal?

e. Using the data in question d, using the goodwill method of recording Q's withdrawal, how much
are the capital balances of O and P after Q's retirement?

f. In relation to d and e, which method is preferred by GAAP in recording Q's withdrawal?

Problem 9

O, P and Q share profits in the ratio of 5:3:2. Q is permitted to withdraw from the firm on
December 31, 2019. Profits after the withdrawal of Q are to be shared 3:2. The partnership balance
sheet on this date is as follows:

Receivable from Q 10,000 Liabilities 80,000

 Goodwill 80,000 Payable to P 30,000
Other assets 190,000 O, Capital 70,000
P, Capital 60,000
Q, Capital 40,000

Total 280,000 280,000

Questions:
a. Assuming that Q is paid P44,000 in full settlement of the capital interest and P10,000 claim
balance, using the bonus method of recording the withdrawal of Q, how much are the capital
balances of O and P after Q's withdrawal?

b. Using the data in question a, using the goodwill method of recording Q's withdrawal, how much
are the capital balances of O and P after Q's retirement?

c. In relation to a and b, which method is preferred by GAAP in recording Q's withdrawal?

d. Assuming that Q is paid P24,000 in full settlement of the capital interest and P10,000 claim
balance, using the bonus method of recording the withdrawal of Q, how much are the capital
balances of O and P after Q's withdrawal?

e. Using the data in question d, using the goodwill method of recording Q's withdrawal, how much
are the capital balances of O and P after Q's retirement?

f. In relation to d and e, which method is preferred by GAAP in recording Q's withdrawal?

b. Admission by investment

1) Rachel Sarah Cecilia Total Rachel, capital

40,000 20,000 - 60,000 Sarah, capital
- 10,000 - 5,000 15,000 - Cecilia, capital
30,000 15,000 15,000 60,000
Cash received by R (10/15 x 20,0
Cash received by S (5/15 x 20,00

2) 20,000 / 25% = 80,000

Assets 20,000
Rachel, capital 16,000
Sarah, capital 4,000

Rachel, capital 14,000

Sarah, capital 6,000
Cecilia, capital 20,000

3) 12,000 / 25% = 48,000

Rachel, capital 9,600

Sarah, capital 2,400
Assets 12,000

Rachel, capital 7,600

Sarah, capital 4,400
Cecilia, capital 12,000

4) TCC TAC Difference Cash

Old 60,000 63,750 3,750 Cecilia, capital
New 25,000 21,250 - 3,750
Total 85,000 85,000 - Cecilia, capital
Rachel, capital
Sarah, capital

5) TCC TAC Difference Non-cash asset

Old 60,000 56,875 - 3,125 Mortgage payable
New 27,500 30,625 3,125 Cecilia, capital
Total 87,500 87,500 -
 Rachel, capital
Sarah, capital
Cecilia, capital

6) TCC TAC Difference

Old 60,000 56,000 - 4,000 Non cash asset
New 15,000 24,000 9,000 Cecilia, capital
Total 75,000 80,000 5,000

M J C Total Marvin, capital

140,000 60,000 200,000 Jayson, capital
- 56,000 - 24,000 80,000 - Christian, capital
84,000 36,000 80,000 200,000

Marvin (140,000 x 60%) 84,000

Jayson (60,000 x 60%) 36,000

120,000 / 40% = 300,000

Assets 100,000
Marvin, capital 75,000
Jayson, capital 25,000

Marvin, capital 86,000

Jayson, capital 34,000
Christian, capital 120,000

TCC TAC Difference

Old 300,000 260,000 - 40,000
New 100,000 140,000 40,000
Total 400,000 400,000 -

Cash 100,000
July, capital 100,000

April, capital 24,000

May, capital 16,000
July, capital 40,000

Shaw, capital 40,000

Vi, capital 20,000
Maria, capital 10,000
Garry, capital 70,000

Shaw, capital 120,000 120,000

Vi, capital 60,000 60,000
Maria, capital 30,000 30,000

50% 40% 10%

Patrick Kath Jimson
30,000 20,000 10,000
adjustment 10,000 8,000 2,000
40,000 28,000 12,000
Bonus - 2,500 3,000 - 500
37,500 31,000 11,500

20% 40% 40%

Michael Jane Rafael
40,000 50,000 30,000 Michael, capital
Bonus - 10,000 30,000 - 20,000 Rafael, capital
 30,000 80,000 10,000 Jane, capital

20% 40% 40%

Michael Jane Rafael Total Assets
40,000 50,000 30,000 120,000 Michale, capital
15,000 30,000 30,000 75,000 Jane, capital
55,000 80,000 60,000 Rafael, capital

Ben 150,000 50% Assets 20,000

Larry 50,000 40% Ben, capital
Dan 200,000 10% Larry, capital
Dan, capital
90,500/25% = 362,000
Ben and Dan, capital 350,000 Ben, capital 40,000
Adjustment -B&D 12,000 Dan, capital 50,500
Divided by 60% 60% Daisy, capital
Total adjustment 20,000
Multiply 40% 40% Ben
Adjustment - Larry 8,000 Larry
Dan
Daisy
Total

TCC TAC Difference

Old 400,000 360,000 - 40,000 Assets 30,000
New 30,000 90,000 60,000 Daisy, capital
Total 430,000 450,000 20,000
B 20,000
L 16,000
D 4,000
Daisy capital

Ben, capital

TCC TAC Difference Cash 50,000

Old 400,000 450,000 50,000 Daisy, capital
New 50,000 50,000 -
Total 450,000 500,000 50,000 Goodwill 50,000
B
Larry, capital 70,000 L
D
Ben 150,000 50%
Larry 50,000 40%
Dan 200,000 10%

FV of Ben, capital 40,000 / 20% = 200,000 Assets

Unadjusted Ben, capital 150,000 Ben, capital
Adjustment (50%) 50,000 Larry, capital
Divided by: 50% Dan, capital
Total adjustment 100,000
Ben, capital
Daisy, capital
TCC TAC Difference
Old 460,000 467,500 7,500 Cash
New 70,000 82,500 12,500 Daisy, capital
Total 530,000 550,000 20,000
Goodwill
Ben capital 163,750 Ben, capital
Larry capital 93,000 Larry, capital
Dan capital 210,750 Dan, capital
Daisy capital 82,500 Daisy, capital

5) Larry decides to retire from the partnership after the distribution of net income of P75,000. The partners distribute
net income by giving salaries of P20,000 each with the balance being distributed based on their profit and loss ratio. If
Larry receives P80,000 from the partnership, determine the capital balance of Ben and Dan after Larry's withdrawal
from the partnership.
50% 40% 10%
B L D
150,000 50,000 200,000
NI 20,000 20,000 20,000 Salaries
7,500 6,000 1,500 Remainder
Total 177,500 76,000 221,500
- 3,333 4,000 - 667
174,167 80,000 220,833

a) 50% 30% 20%

O P Q O, capital
70,000 60,000 30,000 P, capital
- 8,750 - 5,250 14,000 Q, capital
61,250 54,750 44,000
Q, capital
Cash
b) 50% 30% 20%
O P Q
70,000 60,000 30,000 Goodwill
35,000 21,000 14,000 70,000 O, capital
105,000 81,000 44,000 P, capital
Q, capital

Q, capital
Cash
c) Bonus

d) 50% 30% 20%

O P Q
70,000 60,000 30,000
3,750 2,250 - 6,000
73,750 62,250 24,000

e) 50% 30% 20%

O P Q
70,000 60,000 30,000
- 15,000 - 9,000 - 6,000 - 30,000
55,000 51,000 24,000

f) Goodwill
achel, capital 10,000
arah, capital 5,000
Cecilia, capital 15,000

ash received by R (10/15 x 20,000) 13,333

ash received by S (5/15 x 20,000) 6,667

25,000
Cecilia, capital 25,000

ecilia, capital 3,750

Rachel, capital 3,000
Sarah, capital 750

on-cash asset 32,500

Mortgage payable 5,000
Cecilia, capital 27,500
achel, capital 2,500
arah, capital 625
Cecilia, capital 3,125

on cash asset 15,000 Rachel, capital 3,200

Cecilia, capital 15,000 Sarah, capital 800
Cecilia, capital 4,000

56,000
24,000
80,000
10,000 Jane, capital 80,000
20,000 Cash 80,000
 30,000

75,000 Jane, capital 80,000

15,000 Cash 80,000
30,000
30,000

10,000
8,000
2,000

90,500

120,000
58,000
151,500
90,500
420,000

30,000

Goodwill 20,000
Daisy, capital 20,000

40,000

130,000

50,000

25,000
20,000
5,000
 100,000
50,000
40,000
10,000

40,000
40,000

30,000
30,000

20,000
3,750
3,000
750
12,500

The partners distribute

r profit and loss ratio. If
er Larry's withdrawal

8,750
5,250
Q, capital 14,000

44,000
44,000
 70,000
O, capital 35,000
P, capital 21,000
Q, capital 14,000

44,000
44,000
Goodwill 5,000
Cecilia, capital 5,000