DISSOLUTION PROBLEMS

ADMISSION OF A NEW PARTNER

1. Blue and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2009, their
respective capital accounts were as follows:
Blue P60,000
Rubi 50,000

On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an investment of
P40,000. The new partnership began with total capital of P150,000. Immediately after Lind’s admission, Blue’s
capital should be
a. P50,000 c. P56,667
b. P54,000 d. P60,000
60% 40%
BLUE RABI LIND (NEW) TOTAL
TCC 60,000 50,000 40,000 150,000
TAC 54,000 46,000 50,000 (1/3) 150,000
Bonus to Lind (6,000) (4,000) 10,000 -

2. Western and Pate are partners with capital balances of P60,000 and P20,000, respectively. Profits and losses are
divided in the ratio of 60:40. Western and Pate decided to form a new partnership with Grant, who invested land
valued at P15,000 for a 20% capital interest in the new partnership. Grant’s cost of the land was P12,000. The
partnership elected to use the bonus method to record the admission of Grant into the partnership. Grant’s capital
account should be credited for
a. P12,000 c. P16,000
b. P15,000 d. P19,000
60% 40%
Western Pate Grant TOTAL
TCC 60,000 20,000 15,000 95,000
TAC 57,600 18,400 19,000 (20%) 95,000
Bonus to Grant (2,400) (1,600) 4,000 -

3. Dunn and Grey are partners with capital account balances of P60,000 and P90,000, respectively. They agree to
admit Zorn as a partner with a one-third interest in capital and profits, for an investment of P100,000, after
revaluing the assets of Dunn and Grey. Goodwill to the original partners should be
a. P0 c. P50,000
b. P33,333 d. P66,667
6/15 9/15
DUNN GREY ZORN (NEW) TOTAL
TCC 60,000 90,000 100,000 250,000
 TAC 80,000 120,000 100,000 1/3 300,000
Asset revaluation 20,000 30,000 0 50,000

4. The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share profits and
losses in the ratio of 60:40, respectively:
Cash P 45,000
Other assets 625,000
Beda, loan 30,000
P 700,000
Accounts payable P 120,000
Alfa, capital 348,000
Beda, capital 232,000
P 700,000

The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as a new
partner with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in cash
or other assets?
a. P110,000 c. P140,000
b. P116,000 d. P145,000
580,000/80%

ALFA BEDA CAPP TOTAL

TCC 348,000 232,000 145,000 725,000
TAC 348,000 232,000 145,000(20%) 725,000
0 0 0 0

5. A and B contributed the net assets of their respective proprietorship business amounting to P50,000 and P80,000,
respectively. A is to invest additional cash into the partnership and shall have 60% interest in the partnership. How
much cash shall A invest?
a. P3,333 b. P20,000 c. P70,000 d. P120,000

(60%) (40%)
A B TOTAL
NET ASSETS 50,000 80,000 130,000
Add’l cash 70,000 - 70,000
TOTAL CAPITAL 120,000 80,000 200,000
6. A, K and O formed a partnership. They agreed that their capital contributions shall be aligned with their profit or
loss agreement of 40%, 25% and 35% respectively. A, K and O contributed non-cash assets at agreed values of
P20,000, P30,000 and P85,000,respectively. K first contributed P40,000 cash for his capital, compute the total
cash contributions of the other partners?
a. P160,000 b. P105,000 c. P145,000 d. P120,000

40% 25% 35% 100%

A K O TOTAL
NCA 20,000 30,000 85,000 135,000
CASH 92,000 40,000 13,000 145,000
Total Capital 112,000 70,000 98,000 280,000

7. MacDo will invest in the partnership of Jabili and Pitsa Hat for a 40% interest. Jabili and Pitsa Hat have capital of
P40,000 and P30,000 and shares profit 60:40, respectively. MacDo is to invest P20,000 into the partnership and to
purchase 1/2 of Jabili’s interest for P30,000. Compute the capital interest of MacDo, Jabili and Pitsa Hat, respectively,
under the bonus method.
a. P 50,000, P20,000; P20,000 c. P 40,000, P20,000; P20,000
b. P 36,000, P22,400; P31,600 d. P 20,000, P20,000; P20,000
60% 40% - 100%
JABILI PITSA HUT MACDO TOTAL
Capital before admission 40,000 30,000 - 70,000
 Purchase (20,000) - 20,000 -
 Investment - - 20,000 20,000
TOTAL CAPITAL CONT’N 20,000 30,000 40,000 90,000
 Revaluation/GW - - - -

 Bonus to old 2,400 1,600 (4,000) -

TOTAL AGREED CAP. 22,400 31,600 36,000 (40%) 90,000

RETIREMENT

1. On June 30, 2009, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together with their
respective profit and loss sharing percentages was as follows:
Assets, net of liabilities P320,000
Eddy, capital (50%) P160,000
Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
P320,000

Eddy 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 Eddy’s retirement, what are
the capital balances of the other partners?
Fox Grimm Fox Grimm
a. P 84,000 P56,000 c. P108,000 P72,000
b. P102,000 P68,000 d. P120,000 P80,000
50% 30% 20% 100%
EDDY FOX GRIMM TOTAL
CAPITAL BEFORE RET. 160,000 96,000 64,000 320,000
Bonus - - - -
Revaluation 20,000 12,000 8,000 40,000
SETTLEMENT/capital 180,000 108,000 72,000 360,000

2. Assume instead that Eddy remains in the partnership and that Hamm is 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 Hamm, Eddy’s capital account balance should be
a. P280,000 b. P210,000 c. P160,000 d. P140,000
 50% 30% 20%
EDDY FOX GRIMM HAMM TOTAL
TCC 160,000 96,000 64,000 140,000 460,000
TAC 210,000 126,000 84,000 140,000 (25%) 560,000
Revaluation 50,000 30,000 20,000 - 100,000

3. As of December 31, 2009, A, B and C shares profit equally and have unadjusted capital balances of P120,000,
P180,000 and P200,000, respectively. Also as of this date, the income summary account have a credit balance of
P60,000. Both A and B made drawings of P40,000 each during the year which were charged directly to their
capital. On December 31, 2009, A retired and was paid P110,000. Compute the capital balances of B and C,
respectively, after A’s retirement.
a. P160,000; P215,000 b. P155,000; P215,000 c. P155,000; P235,000 d. P215,000; P235,000

A = B = C TOTAL
Unadjusted capital 120,000 180,000 200,000 500,000
Share in Net income 20,000 20,000 20,000 60,000
Adjusted Capital 140,000 200,000 220,000 560,000
BONUS to remaining p. (30,000) 15,000 15,000 -
SETTLEMENT & CAPITAL110,000 215,000 235,000

4. On June 30, 2009, the balance sheet for the partnership of Coll, Boy, and Rei, together with their respective profit
and loss ratios, was as follows:
Assets, at cost P 180,000------216,000
Coll, loan P 9,000 Loan payable to Coll
Coll, capital (20%) 42,000
Boy, capital (20%) 39,000
Rei, capital (60%) 90,000
Total P 180,000

Coll 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, 2009. It was agreed that the partnership would pay Coll P61,200 cash for Coll’s
partnership interest, including Coll’s loan which is to be repaid in full No goodwill is to be recorded. After Coll’s
retirement, what is the balance of Boy’s capital account?
a. P36,450 c. P45,450
b. P39,000 d. P46,200
20% 20% 60%
COLL BOY REI TOTAL
Capital balances 42,000 39,000 90,000 171,000
Loan 9,000 - - 9,000
Asset Rev’n 7,200 7,200 21,600 36,00
Bonus to Coll 3,000 (750) (2,250) -
Settlement 61,200 45,450 109,350
DEATH OF A PARTNER

On January 1, 2008, the partnership of D, E and F started with an initial contribution from the partners of
P100,000, P200,000 and P300,000, respectively. The partners stipulated that in case of death of any partner, the
parties will compute profits up to the nearest month and to provide for 20% annual interest for the deceased
partner interest prior to its settlement.
On July 1, 2008, D was heart-attacked and instantly died. The newly hired accountant of the partnership prepared
the following entries during the year:
2008 D (RIP)

290,000 x 6/12 = 145,000 Net income 290,000

Int. Expense
(14,350)
Actual 275,650
Share of D –
(43,500)
PROFIT ALLOCATION INTEREST EXPENSE Remaining Profits
(145,000 x 30%) 143,500 X 20% X 6/12 232,150
1/01 07/01 14,350 12/31
D 100,000 +43,500 = 143,500
E 200,000
F 300,000

7/1/8
P/L Summary 43,500
D, Capital 43,500

D, capital 143,500
Payable to D’s estate 143,500
To set-up D’s capital as a liability

12/31/8 Interest expense 14,350

Payable to D’s estate 14,350
To recognize interest on D’s estate

12/31/8 Sales 700,000

Inventory, end 50,000
Purchases 300,000
Operating expenses 160,000
Interest expense 14,350
Profit and loss summary 275,650 290,000 net income
To close nominal accounts

12/31/8 Profit and loss summary 232,150

E, capital (40%) 4/7 132,657.14
F, capital (30%) 3/7 99,492.86
To close profit and loss to E and F’s remaining P&L sharing ratio.
 E F
Beg. Capital 200,000 300,000
Share in profits 132,657 99,493
Ending Capital 332,657 399,493

Profits were evenly earned throughout the year. Compute the correct capital balances of E and F as of December
31, 2008, respectively.
a. P302,333; P453,500 c. P298,666; P440,500
b. P332,657; P399,493 d. P320,000; P460,000

INCORPORATION OF THE PARTNERSHIP

1. Partners A and B, sharing profits 50:50, have the following balance sheet as of December 31, 2006:

Cash P 120,000 Accounts payable P 172,000

Receivable 100,000 Accum. Depreciation 8,000
Inventory 140,000 A. Capital 140,000
Equipment 80,000 B, Capital 120,000
Total P 440,000 P 440,000

They need to incorporate their partnership, with the new corporation absorbing the net assets after the following
adjustments: provision for allowance for bad debts of P10,000; statement of the inventory at its current fair value
of P160,000; and, recognition of further depreciation on the equipment of P3,000. The corporation’s capital stock
is to have a par value of P100, and the partners are to be issued corresponding total shares equivalent to their
adjusted capital balances. The total par value/share capital of the shares of capital stock that were issued to Partner
A and B was:
a. P260,000 b. P267,000 c. P273,000 d. P280,000

50% 50%
A B TOTAL
Unadjusted Capital 140,000 120,000 260,000
+/- adjustments
Bad Debts (5,000) (5,000) (10,000)
Revaluation of Inv. 10,000 10,000 20,000
Dep’n Expense (1,500) (1,500) (3,000)
Adjusted Capital 143,500 123,500 267,000/100par = 2,670 shares
divided by100 par 100 par
Shares issued 1,435 1,235
2. Jay &Kay partnership’s balance sheet at December 31, 2009, reported the following:
Total assets P 100,000
Total liabilities (20,000)=
Jay, capital 40,000
Kay, capital 40,000

On January 2, 2010, Jay and Kay dissolved their partnership and transferred all assets and liabilities to a newly
formed corporation. At the date of incorporation, the fair value of the net assets was P12,000 more than the
carrying amount on the partnership’s books, of which P7,000 was assigned to tangible assets and P5,000 was
assigned to goodwill. Jay and Kay were each issued 5,000 shares of the corporation’s P1 par value common stock.
Immediately following incorporation, additional paid-in capital in excess of par should be credited for
a. P68,000 c. P77,000
b. P70,000 d. P82,000

UNADJUSTED CAPITAL BALANCE 80,000

FAIR VALUE ADJUSTMENT 7,000

ADJUSTED CAPITAL BALANCE 87,000

Issuance of Shares (5,000 x 2 @1php par) (10,000) share capital

Excess of capital over par 77,000 share premium