Acc 110 Practice Set

ACC 110 – ACCOUNTING FOR SPECIAL TRANSACTIONS PART 1
CONCEPT NOTES AND PRACTICE SETS

FEA.TAMAYO,CPA, RCA, MICB
PARTNERSHIP ACCOUNTING
PARTNERSHIP FORMATION & DIVISION OF PROFIT OR LOSS
PARTNERSHIP FORMATION
The partnership is a separate accounting entity, and therefore its assets and liabilities should remain
separate and distinct from the individual partner’s personal assets and liabilities.
Initial investments in a partnership are recorded in capital accounts maintained for each partner. When
property other than cash is invested in a partnership, the cost of the noncash property is measured
and recorded at the fair value of the property at the Babye of investment.
Conceptually, the fair value should be determined by independent valuations, but as a practical matter,
the fair value is determined by agreement of all partners because agreement is essential to partnership
formation.
All liabilities assumed by the partnership are recorded at their present values.
Upon formation, the amount credited to each partner’s capital account is the difference between the
fair market value of the assets contributed and the present value of the liabilities assumed from the
partner. The capital accounts represent the residual equity of the partnership. The capital account of
each partner reflects all of the activity of an individual partner: contribution, withdrawals, and the
distributive share of net income (loss). In some cases, a drawing account is used as a clearing account
for each partner’s transaction with only the net effect of each period’s activity shown in the capital
account.
A different problem of valuation arises when partners agree on relative capital interests that are not
aligned with their investments of identifiable assets. In this case, either of two approaches may be
used to adjust the capital accounts - the bonus approach or the goodwill approach. Under the bonus
method, the unidentifiable asset is not recorded. When the goodwill method is used, the unidentifiable
asset is recorded as goodwill.
Partners’ Accounts
Accounts that are maintained with partners consist of
(1) capital accounts,
(2) drawing or personal accounts, and
(3) loan to or from partner (receivable and payable accounts).
Capital and drawing accounts. Partners’ original investments are reported in capital accounts for each
partner. Transactions between the partnership and the individual partners resulting in changes in the
partners’ ownership interest may be summarized in the capital accounts or in separate drawing
accounts.
Partner’s Capital Account
Debited for: Credited for:

1. permanent 1. original investment/initial credit
withdrawal 2. additional investment
2. share in net loss 3. share in net income
The partnership agreement should indicate clearly those special considerations that are to apply as a
result of absolute and relative changes in partners’ interests. Entries can then be made in the accounts
in a manner that will appropriately recognize changes in interests.
Normally, increases or decreases in capital that are interpreted as permanent capital changes are
recorded directly in the capital accounts. Drawings by partners in anticipation of profits, and other
increases and decreases of relatively minor accounts that are not viewed as of a permanent character,
are recorded in the drawing accounts. At the end of the accounting period, profit or loss is summarized
in the profit or loss account and the balance in this account is transferred to the drawing accounts.
The balance transferred from profit and loss account to drawing accounts is the share of the partners
in the net income or loss for the period. The share of the partners in the net income or net loss may
also be credited or debited directly to the capital accounts of the partners. In either case, the balance
of the drawing accounts must be closed to the partners’ capital accounts.
Loans to and from Partners.

A withdrawal by a partner that is made with the assumption of ulBabyate repayment to the firm
normally calls for the recognition of a special receivable account. It may be charged to Receivable from
Partner, Loan to Partner, Advances to Partner or Notes Receivable from Partner, whichever is
appropriate.
An advance to the firm by a partner that is made with the assumption of ulBabyate repayment by the
firm normally calls for the recognition of a special payable account. The amount owed to the partner
may be credited to Loans Payable to Partner, Notes Payable to Partner, Advances from Partner,
whichever is appropriate.
DIVISION OF PROFIT OR LOSS

Methods:
1. Equally
2. In an arbitrary ratio
3. In the ratio of partners’ capitals
a. original capitals
b. capitals at the beginning of each fiscal period
c. capitals at the end of each fiscal period
d. average capitals for each fiscal period
4. Interest, salaries, and bonus to be allowed for partners and the balance to be divided on some
arbitrary basis as agreed.
As a general rule, interest on capital, salaries, and bonus shall be treated as form of profit sharing
agreement and are not expenses of the partnership; therefore, they do not affect computation of net
income.
FORMATION
Problem 1
P admits Q to a partnership interest in his business. Accounts in the ledger for P on November 30, 2020, just
before the admission of Q show the following balances:
Debits Credits
Cash P 26,000
Accounts receivable 120,000
Merchandise inventory 180,000
Accounts Payable P 62,000
P, Capital 264,000
P326,000 P326,000
It is agreed that for purposes of establishing P’s interest the following adjustments shall be made:
(1) an allowance for doubtful accounts of 2% of accounts receivable is to be established.

(2) the merchandise inventory is to be valued at P202,000.
(3) prepaid expenses of P6,500 and accrued expenses of P4,000 are to be
recognized Q is to invest sufficient cash to give him a one-third interest in the
partnership.
Required:
a. Give the entries to adjust the account balances in establishing P’s interest and to record the investment by Q.
b. Entries to adjust and establish P’s interest
1. P, Capital P2,400
Allowance for Doubtful P2,400
Accounts
120,000 x 2% = 2,400
2. Merchandise Inventory 22,000

P, Capital 22,000
202,000 – 180,000 = 22,000
3. Prepaid Expenses 6,500

Accrued Expenses 4,000
P, Capital 2,500
After the above entries are made, P, Capital becomes 286,100.

Therefore, Total Capital = 286, 100 ÷ 2/3 = P429, 150
Required Investment to be contributed by Q = 429,150 x 1/3 = P143,050
4. Cash 143,050
Q, Capital 143,050
5. Prepare a statement of financial position for P and Q, Partnership.
P and Q Partnership
Statement of Financial
Position November 30, 2020
Assets
Cash P169,050
Accounts Receivable P120,000
Allowance for Doubtful Accounts (2,400) 117,600
Merchandise Inventory 202,000
Prepaid Expenses 6,500
Total Assets P495,15
0
Liabilities and Capital
Account Payable 62,000
Accrued Expenses 4,000
Total liabilities P66,000
P, Capital P286,100
Q, Capital 143, 050
Total capital 429,150
Total liabilities and capital P495,15
0
Problem 2
The partnership of Judy and Baby was formed on February 28, 2020, at that date the following assets
were contributed:
Judy Baby
Cash P35,000 P15,000
Merchandise 45,000
Building 100,000
Furniture and Equipment 25,000
The building is subject to a mortgage loan of P30,000 that is to be assumed by the partnership. The
partnership agreement provides that Judy and Baby share profits and losses equally.
Required:
a. What are the capital balances of the partners on February 28, 2020?
b. If the partnership agreement states that the initial capital balances of the partners should be equal and no
recognition should be given to any intangible assets contributed, what are the partners’ capital balances on
February 28, 2020?
c. Given the fact stated in requirement (b) except that any contributed goodwill should be recognized in
the accounts, what are the partners’ capital balances on February 28, 2020?
a.
Judy Baby
Cash P35,000 P15,000
Merchandise 45,000
Building 100,000
Furniture & 25,000
Equipment
Mortgage Payable (30,000)
Capital P60,00 P130,00
0 0
Although not required in the problem, the entries at formation date are:
Cash 50,000
Building 100,000
Furniture & Equipment 25,000
Mortgage Payable 30,000
Judy, Capital 60,000
Baby, Capital 130,000
a. Total partnership capital = 60,000 + 130,000 = P190,000
Judy, Capital = 190,000 / 2 = 95,000

Baby, Capital = 190,000 / 2
= 95,000 Entries at Formation:
Cash 50,000
Building 100,000
Note: In effect, Baby gave 35,000 bonus to Judy. In applying the goodwill method,
the partner who gave the bonus will be used to compute agreed capital which is more than the contributed
capital.
b.
Agreed Capital (130,000 ÷ P260,00

1/2) 0
Contributed Capital 190,00
0
Goodwill to Judy P70,0
00
Entries at Formation:
Cash 50,000
Building 100,000
Goodwill 70,000
Problem 3
On July 1, 2020, Johnny and Jenny decide to pool their assets and form a partnership. The firm is to take over
business assets and assume business liabilities, and capital is to be based on the net assets transferred after the
following adjustments:
1. Jenny’s inventory is to be valued at P14,000.

2. An allowance for bad debts of 5% is to be established on the customer accounts of each party.
3. Accrued expenses of P800 are to be recognized on Johnny’s books.
4. Jenny is to be allowed goodwill of P10,000 and is to invest additional cash so that she will have 60%
interest in the new firm.
Balance sheets for Johnny and Jenny on July 1 before adjustment are given below:
Johnny Jenny
Cash P 7,500 P 4,500
Accounts receivable 18,000 15,000
Inventory 16,000 12,000

Equipment 10,000 12,000
Accumulated depreciation (4,500) (1,500)
P47,000 P42,000
Accounts payable P13,800 P10,000

Capital 33,200 32,000
P47,000 P42,000
Jenny’s books are to be retained as the partnership books.
Required:
a. Give the entries to adjust and close Johnny’s books.
b. Give the required entries on the books of Jenny upon the formation of the partnership.
c. Prepare a statement of financial position.
a. To adjust Johnny’s books.
1. Johnny, Capital P900

Allowance for Bad Debts P900
18,000 x 5% = 900
2. Johnny, Capital 800

Accrued Expenses 800
3. To close Johnny’s books

Accounts payable 13,800
Accrued expenses 800
Allowance for bad debts 900
Accumulated depreciation 4,500
Jonny, capital 31,500
Cash 7,500
Inventory 16,000
Equipment 10,000
b. Entries – Jenny’s books
1. Inventory 2,000
Jenny, capital 2,000
14,000 – 12,000 = 2,000
2. Jenny, capital 750

15,000 x 5% = 750
3. Goodwill 10,000
Note: After these entries are made, Jenny capital will be

43,250.
Agreed partnership capital
(31,500/40%) P78,750
Required Jenny capital (78,750 x P47,250
60%)
Additional cash to be invested by
Jenny P4,000
= 47,250 – 43,250
4. Cash 4,000
5. To close accumulated depreciation on Jenny’s

equipment
Accumulated depreciation 1,500
Equipment 1,500
6. To record Johnny’s net investment

Cash 7,500
Inventory 16,000
Equipment (10,000 – 4,500) 5,500
Accrued expenses 800
Johnny, capital 31,500
a.Statement of Financial Position
Johnny and Jenny Partnership

Statement of Financial Position
July 1, 2020
Asset
s
Current assets:
Cash P16,000
Accounts receivable P33,00
0
Allowance for bad debts (1,650) 31,350
Inventory 30,000 P77,350
Noncurrent assets:
Equipment 16,000
Goodwill 10,000 26,000
Total assets P103,35
0
Liabilities and Capital
Current liabilities:
Accounts payable P23,800
Accrued expenses 800 24,600
Capital:
Johnny, capital P31,500
Jenny, capital 47,250 78,750
Total liabilities and P103,35
capital 0
Problem 4
Mandy and Manny begin a partnership on January 1, 2020. Mandy invests P40,000 cash as well as inventory
costing P15,000 but with a current appraised value of only P12,000. Manny contributes a building with a P40,000
book value and a P48,000 market value. The partnership also accepts responsibility for P10,000 note payable
owed in connection with this building. The partners agree to begin operations with equal capital balances.
Required:
a. Assuming that the bonus method is used, make entries for the formation
b. Redo requirement (a) using goodwill method.
a. Bonus Method
Cash P40,000
Inventory 12,000
Buildings 48,000
Note Payable P10,000
Mandy, Capital 45,000
Manny, Capital 45,000
Mandy’s Investment 52,000

Manny’s Investment 38,000
Total Capital P90,000
Equal Capital Amount = P45,000 each

Bonus to Manny = 45,000 – 38,000 = P7,000
a. Goodwill Method
Goodwill to Manny, the partner who receives the bonus under the Bonus Method.
Partnership Capital = 52,000 / 50% = P104,000

Goodwill = 104,000 – 90,000 = P14,000
Cash 40,000
Inventory 12,000
Building 48,000
Goodwill 14,000
Note Payable 10,000
Mandy, Capital 52,000
Manny, Capital 52,000
Problem 5
On April 30, 2020, Algee, Belger, and Ceda formed a partnership by combining their separate business
proprietorships. Algee contributed cash of P50,000. Belger contributed property with a P36,000 carrying amount,
P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the P35,000 mortgage
attached to the property. Ceda contributed equipment with a P30,000 carrying amount, a P75,000 original cost,
and P55,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but
is silent regarding capital contributions. Which partner has largest April 30, 2020 capital account balance?
a. Algee
b. Belger
c. Ceda
d. All capital account balances are equal
Problem 6
On September 30, 2020, Lourdes, a sole proprietor, admits Virginia for an interest in her business. On this date
Lourdes’ capital account shows a balance of P158,400. The following were agreed upon before the formation of
the partnership:
1) Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized.
2) 5% of the outstanding accounts receivable of Lourdes amounting to P100,000 is to be recognized as
uncollectibles.
3) Virginia is to be credited with one-third interest in the partnership and is to invest cash aside from the
P50,000 worth of merchandise.
The amount of cash to be invested by Virginia and the total capital of the partnership are:
a. P32,950 and P248,850 respectively.
b. P55,300 and P221,200 respectively.
c. P82,950 and P248,850 respectively.
d. P32,950 and P171,200 respectively.
Problem 7
Joe, Well, and Sher formed a partnership on April 30, 2020 with the following assets, measured at fair market
values, contributed by each partner:
Joe Well Sher
Cash P10,000 P12,000 P30,000
Automobile 8,500
Delivery trucks 28,000
Computer and printer 5,100
Office furniture 3,500 2,500
Land and building 150,000
Although Sher has contributed the most cash to the partnership, he did not have the full amount of P30,000 and
was forced to borrow P20,000. The land and building contributed by Joe has a mortgage of P90,000 and the
partnership is to assume responsibility for the loan.
If the profit and loss sharing is 40 percent, 40 percent, and 20 percent respectively for Joe, Well and Sher, what
is the total capital investment of all the partners at the opening of the business on April 30?
a. P249,600 b. P159,600 c. P139,600 d. P166,400
DIVISION OF PROFITS/LOSS
Problem 1
Evans, Fitch, and Gault operate a partnership with a complex profit and loss sharing agreement. The average
capital balance for each partner on December 31, 2020 is P300,000 for Evans, P250,000 for Fitch, and P325,000
for Gault. An 8% interest allocation is provided to each partner. Evans and Fitch receive salary allocations of
P10,000 and P15,000, respectively. If partnership net income is above P25,000, after the salary allocations are
considered (but before the interest allocations are considered), Gault will receive a bonus of 10% of the original
amount of net income. All residual income is allocated in the ratios of 2:3:5 to Evans, Fitch, and Gault,
respectively.
Required:
a. Prepare a schedule to allocate income to the partners assuming that partnership net income is P250,000.
b. Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income
Summary
account is used by the partnership).
a.
Evan Fitch Gault
s
Net income to allocate 250,000
Interest on capital (70,000) 24,000 20,000 26,000
Salary allocations (25,000) 10,000 15,000
Bonus to Gault (25,000) 25,000
Residual 130,000
2:3:5 (130,000) 26,000 39,000 65,000
0 60,000 74,000 116,00
b.
Income summary 250,000
Evans, capital 60,000
Fitch, capital 74,000
Gault, capital 116,000
Problem 2
Required: Using the information from Problem 1 above:
a. Prepare a schedule to allocate income or loss to the partners assuming that the partnership incurs a net
loss of P36,000.
b. Prepare a journal entry to distribute the partnership's loss to the partners (assume that an Income
Summary
account is used by the partnership).
Evans Fitch Gault
Net loss to allocate (36,000)

Residual (131,000)
2:3:5 (131,000) (26,200) (39,300) (65,500)
0 7,800 (4,300) (39,500)
Fitch, capital 4,300

Gault, capital 39,500
Evans, capital 7,800
Income summary 36,000
Problem 3
The profit and loss sharing agreement for the Sealy, Teske, and Ubank partnership provides that each partner
receive a bonus of 5% on the original amount of partnership net income if net income is above P25,000. Sealy
and Teske receive a salary allowance of P7,500 and P10,500, respectively. Ubank has an average capital balance
of P260,000, and receives a 10% interest allocation on the amount by which his average capital account balance
exceeds P200,000. Residual profits and losses are allocated to Sealy, Teske, and Ubank in their respective ratios
of 7:5:8.
Required: Prepare a schedule to allocate P88,000 of partnership net income to the partners.
Sealy Teske Ubank

Interest on capital (6,000) 6,000
Bonus (13,200) 4,400 4,400 4,400
Residual 50,800
7:5:8 (50,800) 17,780 12,700 20,320
0 29,680 27,600 30,720
Problem 4
Rankin and Bend organized the RB Partnership on January 1, 2020. The following entries were made in their
capital accounts during 2014:
Debit Credit Balance
Rankin, capital:
January 1 20,000 20,000
April 1 5,000 25,000
October 1 5,000 30,000
Bend, capital:
January 1 40,000 40,000
March 1 10,000 30,000
September 1 10,000 20,000
November 1 10,000 30,000
Required: If the partnership net income, computed without regard to salaries or interest, is P20,000 for 2020,
indicate its division between the partners under the following independent profit-sharing conditions:
a. Interest at 8% is allowed on average capital investments, and the remainder is divided equally.
b. A salary of P9,000 is to be credited to Bend; 8% interest is allowed each partner on his ending capital
balance; residual profits or losses are divided 60% to Rankin and 40% to Bend.
c. Salaries are allowed Rankin and Bend in amounts of P8,300 and P9,500 respectively, and residual profits or
losses are divided in the ratio of average capital balances.
d. A bonus of twenty percent of net income is credited to Rankin, a salary of P5,000 is allowed to Bend, and
residual profits or losses are shared equally. (The bonus and salary are regarded as expenses for purposes
of calculating the amount of bonus.)
a. Average Capital:
= P25,000
Bend = (40,000 x 2/12) + (30,000 x 6/12) + (20,000 x 2/12) + (30,000 x 2/12)

= P30,000
Rankin Bend Total

Interest on average capital at 2,00 2,400 4,400
8% 0
Remainder divided equally 7,80 7,800 15,600
0
P9,80 P10,20 P20,00
0 0 0
b.
Rankin Bend Total
Salary - 9,000 9,000
Interest on ending capital at 2,400 2,400 4,800
8%
Residual = 6,200:
Divided 60%, 40% 3,720 2,480 6,200
P6,12 P13,88 P20,00
0 0 0
a.
Rankin Bend Total
Salaries 8,30 9,500 17,800
0
Residual = 2,200
Divided 25/55, 1,00 1,200 2,200
30/55 0
P9,30 P10,70 P20,00
0 0 0
b.
Rankin Bend Total
Bonus 2,500 - 2,500
Salary - 5,000 5,000
Residual = 12,500
Divided equally 6,250 6,250 12,500
P8,750 P11,25 P20,00
0 0
B = 20% (2,000 – 5,000

– B) B = 4,000 – 1,000 -
.20B
B + .20B = 3,000
1.20B = 3,000
B = 3,000 / 1.2
= P2,500
Problem 5
A partnership begins 2020 with the following capital
balances: A, capital P60,000
B, capital P80.000
C, capital 100,000
The Articles of Partnership stipulates that profits and losses be assigned in the following manner:
1) Each partner is allocated interest equal to 10% of the beginning capital balance.
2) B is allocated compensation of P20,000 per year.
3) Any remaining profits and losses are allocated on a 3:3:4 basis, respectively
4) Each partner is allowed to withdraw up to P5,000 cash per year.
Assuming that net income for 2020 is P50,000 and that each partner withdraws the maximum amount allowed,
what
is the balance in C’s capital at the end of the year?
a. P105,800 b. P106,200 c. P106,900 d. P107,400
A B C
Salary allocations (20,000) 20,000
Residual 6,000
3:3:4 (6,000) 1,800 1,800 2,400
0 7,800 29,800 12,400
C, capital (ending) = 100,000 + 12,400 -5,000 = 107,400
Problem 6
Arthur Plack, a partner in the Bright partnership, has a 30% participation in partnership profits and losses. Plack’s
capital account had a net decrease of P60,000 during the calendar year 2020. During 2020, Plack withdrew
P130,000 (charged against to his capital account) and contributed property valued at P25,000 to the partnership.
What was the net income of the Bright partnership for 2020?
a. P150,000 b. P233,333 c. P350,000 d. P550,000
Net withdrawal = 130,000 – 25,000 = 105,000
Share of Plack in profit of the partnership = 105,000 – 60,000 =

45,000 Net income = 45,000/30% = 150,000
Problem 7
X, Y, and Z, a partnership formed on January 1, 2020 had the following initial investment
X - P100,000
Y - P150,000
Z - P225,000
The partnership agreement states that profits are to be shared equally by the partners after consideration is
made for the following:
a. Salaries allowed to partners: P60,000 for X; P48,000 for Y; and P36,000 for Z.
b. Average partners’ capital balances during the year shall be allowed 10%.
Additional Information:
c. On June 30, 2020, X invested an additional P60,000.
d. Z withdrew P70,000 from the partnership on September 30, 2020
e. Share on the remaining partnership profit was P5,000 for each partner.
7.1 Interest on average capital balances of the partners totaled:

a. P48,750 b. P53,750 c. P57,625 d. P60,625
7.2 Partnership net profit at December 31, 2020 before salaries, interests, and partners’ share on the
remainder
was:
a. P199,750 b. P207,750 c. P211,625 d. P222,750
7.3 Total partnership capital on December 31, 2020 was:

a. P672,750 b. P407,000 c. P465,000 d. P480,000
PARTNERSHIP DISSOLUTION-Changes in
ownership
When partnership dissolution occurs, a new accounting entity results. The partnership should first
adjust its records so that all accounts are properly stated at the date of dissolution. After the income
(loss) has been properly allocated to the existing partners’ capital accounts, all assets and liabilities
should be adjusted to their fair market value and their present values, respectively.
After all adjustments have been made, the accounting for dissolution depends on the type of
transaction that caused the dissolution. These transactions can be broken down into two types:
1. Transactions between the partnership and a partner (e.g., a new partner contributes assets, or a
retiring partner withdraws assets)
2. Transactions between partners (e.g., a new partner purchases an interest from one or more existing
partners, or a retiring partner sells his/her interest to one or more partners)
ADMISSION BY INVESTMENT
When a new partner is admitted in the partnership, essentially three cases can result. The partner can
invest assets into the partnership and receive a capital balance
a. Equal to his/her investment
b. Greater than his/her investment
c. Less than his/her investment
If the new partner’s capital balance is equal to the assets invested, then the entry debits the assets
contributed and credits the new partner’s capital account for the fair value of the assets contributed.
If the new partner’s capital is not equal to the assets invested, then either the bonus or goodwill
method must be used.
When to apply Bonus method
New Old New
Partner’s
Partnership = Partners’ + Asset
Capital Capital Investment
AGREED CAPITAL
CONTRIBUTED CAPITAL
Which Partner (s) receive Bonus
New partner:
New partner’s capital credit > New partner’s
investment (the difference represents the bonus)
Old partner:
New partner’s capital credit < New partner’s investment
(the difference represents the bonus allocated to old partners in their P/L
ratio) When to apply Goodwill method
AGREED CAPITAL > CONTRIBUTED CAPITAL
Which partner (s) Goodwill is

recognized New partner’s
goodwill:
New partner’s capital credit > New partner’s
Investment (the difference represents the goodwill)
Old partners” goodwill:
New partner’s capital credit = New partner’s
investment (goodwill is allocated to old partners in
their P/L ratio)
A special problem under goodwill method is the valuation of the partnership capital. If the book value
acquired is less than the asset invested, the value is determined based upon the new partner’s
contribution, and goodwill is allocated to old partners accounts. If the book value acquired is greater
than the asset contributed, the value is based upon the existing capital accounts, and goodwill is
attributed to the new partners.
ADMISSION BY PURCHASE
The sale of a partnership interest is a transaction only between the partners. Thus, the treatment
accorded the transaction is determined by the partners involved.
There are two means of dealing with such a transaction. The first is to simply transfer a portion of the
existing partners’ capital to a new capital account for the buying partner. The other method available
for recording a transaction between partners involves the recording of goodwill.
PARTNER DEATH OR WITHDRAWAL

The death or withdrawal of a partner is treated in much the same manner as the admission of a new
partner. However, there is no new capital account to be recorded; we are dealing only with the capital
accounts of the original partners. Either the bonus or goodwill method may be used. The key thing to
remember in regard to a partner’s withdrawal from the partnership is that the withdrawing partner’s
capital account must be adjusted to the amount that the withdrawing partner is expected to receive.
DISSOLUTION
Problem 1
Cesar and Damon share partnership profits and losses at 60% and 40%, respectively. The partners agree to
admit Egan into the partnership for a 50% interest in capital and earnings. Capital accounts immediately before
the admission of Egan are:
Cesar (60%) P 300,000

Damon (40%) 300,000
Total P 600,000
Required:
a. Prepare the journal entry(s) using book value method and revaluation method/goodwill method for the
admission of Egan to the partnership assuming Egan invested P400,000 for the ownership interest. Egan
paid the money directly to Cesar and to Damon for 50% of each of their respective capital interests.
Book Value Method:
Cesar, Capital 150,000

Damon, Capital 150,000
Egan, 300,000
Capital
Revaluation Method:
Admission by purchase:
Purchase price (for 50%) 400,000
Less: Book value of Interest acquired ,000 x 50%)
(600 Difference 300,000
100,000
Divide by 50%
Total implied goodwill 200,000
Implied FV of partnership 800,000

(400,000/50%)
Less: Net Assets of Partnership 600,000
Goodwill 200,000
Goodwill 200,000
Damon, capital 80,000

Damon, Capital 190,000
Egan, Capital 400,000
b. Prepare the journal entry(s) for the admission of Egan to the partnership assuming Egan invested P500,000
for the ownership interest. Egan paid the money to the partnership for a 50% interest in capital and earnings.
The partnership records goodwill.
Admission by investment:
Book value acquired 550,000 1,100,000 x 50%
Purchase price 500,000
Total Agreed Capital (600,000/50%) 1,200,000
Less: Total Contributed Capital (600,000 + 500,000) 1,100,000

Goodwill (new partner) 100,000
Cash 500,000
Goodwill 100,000
c. Prepare the journal entry(s) for the admission of Egan to the partnership assuming Egan invested P700,000
for the ownership interest. Egan paid the money to the partnership for a 50% interest in capital and earnings.
The partnership records goodwill.
Admission by investment:
Book value acquired 650,000 50% of
Purchase price 700,000 1,300,000
Total Agreed Capital (700,000/50%) 1,400,000
Less: Total Contributed Capital (600,000 + 1,300,000
700,000)
Goodwill (old partners) 100,000
Cash 700,000
Goodwill 100,000
Cesar, Capital (100,000 x 60%) 60,000
Damon, Capital (100,000 x 40,000
40%)
Problem 2
A summary balance sheet for the partnership of Ivory, Jacoby and Kato on December 31, 2020 is shown
below. Partners Ivory, Jacoby and Kato allocate profit and loss in their respective ratios of 9:6:10.
Assets
Cash P 50,000
Inventory 75,000
Marketable securities 120,000
Land 80,000
Building-net 400,000
Total assets P 725,000
Equities
Ivory, capital P 425,000
Jacoby, capital 225,000
Kato, capital 75,000
Total equities P 725,000
The partners agree to admit Lange for a one-tenth interest. The fair market value for partnership land is
P180,000, and the fair market value of the inventory is P150,000.
Required:
a. Record the entry to revalue the partnership assets prior to the admission of Lange.
Inventory 75,000
Land 100,000
Ivory, capital (9/25) 63,000
Jacoby, capital (6/25) 42,000
Kato, capital (10/25) 70,000
b. Calculate how much Lange will have to invest to acquire a 10% interest.
900,000/90%=1,000,000
Lange’s investment for 10% = 1,000,000 x 10% = 100,000
c. If Lange paid P200,000 to the partnership in exchange for a 10% interest, what would be the bonus
that is allocated to each partner's capital account?
TCC = 900,000 + 200,000 = 1,100,000

Lange’s capital credit = 1,100,000 x 10% = 110,000
Bonus to old partners = 200,000 – 110,000 = 90,000
Ivory 32,400
Jacoby 21,600
Kato 36,000
Problem 3
De Shazo and Wilkins share profits equally and have equal investments in their partnership. The partnership’s
net assets are carried on the books at P28,000. Kratz is admitted to the partnership with a one-third interest in
profits and net assets. Kratz pays P10,000 cash into the partnership for his interest.
Required: Compute partners’ capital under the following method:

a. bonus method
b. goodwill method.
a. Bonus TAC =CC
28,000 + 10,000 = 38,000
Capital credit to Kratz (1/3 of 38,000) 12,666

Less: Kratz investment 10,000
Bonus to Kratz 2,666
Cash 10,000
De Shazo, Capital 1,333
Wilkins, Capital 1,333
Kratz, 12,666
Capital
b. Goodwill method
TAC (28,000 ÷ 2/3) 42,000

Less: TCC (28,000 + 10,000) 38,000
Goodwill (new partner) 4,000
Cash 10,000
Goodwill 4,000
Kratz, Capital 14,000
Comparison:
Bonus Method Goodwill Method

Kratz 12,666 1/3 14,000
Old partners 25,334 2/3 28,000
Total capital 38,000 42,000
Problem 4
A summary balance sheet for the Almond, Brandt, and Clack partnership on December 31, 2020
is shown below. Partners Almond, Brandt, and Clack allocate profit and loss in their respective
ratios of 2:1:1. The partnership agreed to pay partner Brandt P135,000 for his partnership interest
upon his retirement from the partnership on January 1, 2021. The partnership financials on
January 1, 2021 are:
Assets
Cash P 75,000
Inventory 85,000
Marketable securities 60,000
Land 90,000
Building-net 150,000
Total assets P 420,000
Equities
Almond, P 210,000
capital
Brandt, 105,000
capital Clack, 105,000
capital
Total equities P 420,000
Required: Prepare the journal entry to reflect Brandt’s retirement from the partnership:
a. Assuming a bonus to Brandt.
Almond, capital (2/3) 20,000

Clack, capital (1/3) 10,000
Brandt, Capital 30,000
Brandt, capital 135,000

Cash 135,000
b. Assuming a revaluation of total partnership capital based on excess payment.
Total implied goodwill (30,000/25%) 120,000
Total revalued capital (135,000/25%) 540,000

Less: Total capital before revaluation 420,000
Total goodwill 120,000
Goodwill 120,000
Almond, capital 60,000
Clack, capital 30,000

Cash 135,000
26
c. Assuming goodwill to excess payment is recorded.
Goodwill 30,000

Cash 135,000
Problem 5
Ron, Don, Ton, Mon and Son are partners sharing profits and losses equally, On July 1, 2020,
they decided to incorporate the partnership by transferring the assets and liabilities from the
partnership to the corporation in exchange for its stocks. The following is the post-closing trial
balance of the partnership:
Debit Credit
Cash P 45,000
Accounts receivable (net) 60,000
Inventory 90,000
Fixed assets (net) 174,000
Liabilities P 60,000
Ron, Capital 61,800
Don, capital 45,000
Ton, apital 78,600
Mon, Capital 50,000
Son , Capital 73,600
P369,000 P369,000
It was agreed that adjustments are to be made to the following assets with fair values as
follows: Accounts receivable P 40,000

Inventory 68,000
Fixed assets 180,600
The Corporation was authorized to issue P10 par preference shares and P10 par ordinary shares.
The partners agreed to receive for their equity in the partnership 720 ordinary shares each, plus
preference shares for their remaining interest.
Required:
a. Determine the adjusted capital of the partners.
b. Determine the number of preference shares to be issued to each partner.
27
c. Opening entries on the books of the corporation.
Required Adjustment:
Accounts Receivable (20,000) Decreas

e
Inventory (22,000) Decreas
e
Property and 6,600 Increas
Equipment e
Net Adjustment P(35,40 Decreas
0) e
Ron Don Mon Son Ton

Capital Bal. 61,800 45,000 78,600 50,000 73,600
Adjustment (7,080) (7,080) (7,080) (7,080) (7,080)
a. Adjusted Capital 54,720 37,920 71,520 42,920 66,520
Ordinary Share Capital (7,200) (7,200) (7,200) (7,200) (7,200)
Preference 47,520 30,720 64,320 35,720 59,320
Divided by Par Value 10 10 10 10 10
b. No. of Preference P4,752 P3,072 P6,432 P3,572 P5,932
Shares
c.
Cash 45,000
Accounts Receivable 40,000
Inventory 68,000
Property and Equipment 180,600
Liabilities 60,000
Ordinary Share Capital 36,000
Preference Share Capital 237,600
28
Problem 7
1. Data for the partnership of A and B follow:
A B
Capital balances P80,000 P60,000
Profit and loss sharing ratio 60% 40%
C is to be admitted into the partnership and is to have a one-fifth interest in capital and
profits with a cash contribution of P40,000. The balances in the capital accounts of A, B, and
C under the bonus method are:
a. P80,000, P60,000, and P40,000, respectively.
b. P92,000, P68,000, and P40,000, respectively.
c. P95,000, P65,000, and P40,000, respectively.
d. P82,400, P61,600, and P36,000, respectively.
2. Data for the partnership of Able and Baker follow:
Able Baker
Cook is to be admitted into the partnership and is to have a one-fifth interest in capital and
profits with a cash contribution of P40,000. The balances in the capital accounts of Able,
Baker, and Cook under the recording the goodwill method are:
29
3. Data for the partnership of X and Y follow:

X Y
Z is to be admitted into the partnership and is to have a one-third interest in capital and
profits with a cash contribution of P30,000. What are the balances in the capital accounts of
X, Y, and Z under the bonus method?
e. P50,000, P40,000, and P45,000, respectively.
4. Data for the partnership of X and Y follow:

X Y
Z is to be admitted into the partnership and is to have a one-third interest in capital and profits
with a cash contribution of P30,000. What are the balances in the capital accounts of X, Y,
and Z under the goodwill method?
5. Cicci and Arias are partners who share profits and losses in the ratio of 7:3 respectively.
On October 5, 2020, their respective capital accounts were as follows:
Cicci 35,000
Arias 30,000
On that date they agreed to admit Soto as partners with a one – third interest in capital and
profits and losses, upon his investment of P25,000. The new partnership will begin with a
total capital of P90,000. Immediately after Soto’s admission, what are the capital balances of
Cicci, Arias, and Soto, respectively?
a. P30,000;P30,000;P30,000.
b. P31,500;P28,500;P30,000.
c. P31,667;P28,333;P30,000.
d. P35,000;P30,000;P25,000.
30
6. On June 30, 2020, the balance sheet for the partnership of Coll, Maduro and Prieto, together
with their profit and loss ratios, were as follows:
Assets, at cost 180,000
Coll, loan 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total 180,000
Coll has decided to retire from the By mutual agreement, the assets are to
partnership. be
adjusted to their fair value of P216,000 at June 30, 2020. 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
Maduro’s capital account?
a. P36,450
b. P39,000
c. P45,450
d. P46,200
7. X and Y are partners and have capital balances of P70,000 and P30,000, respectively. X and
Y share profits and losses in the ratio 6:4, respectively. Z is admitted into the partnership by
purchasing one-fifth of the capital interests of X and Y for a total price of P25,000. The capital
balances of X, Y, and Z will be:
31
PARTNERSHIP LIQUIDATION
A liquidation is the winding up of the partnership business. That is, it sells all of its non-cash
assets, pays its liabilities, and makes a final liquidating distribution to the remaining
partners.
There are four basic steps to a partnership liquidation.

1. Any operating income or loss up to the date of liquidation should be computed and
allocated to the partners’ capital accounts on the basis of their P & L ratio.
2. All non-cash assets are sold and converted to cash. The gain (loss) realized on the
sale of such assets is allocated to the partners’ capital accounts on the basis of their
P & L ratio.
Any creditors’ claims, including liquidation expenses, or anticipated future claims, are
3. satisfied through the payment or reserve of cash.

4. The remaining unreserved cash is distributed to the remaining partners in accordance
with the balance in their capital accounts. Note that this is not necessarily the P & L
ratio.
Two factors that may complicate the liquidation process are the existence of loans or
advances between the partnership and one or more of the partners, or the creation of a
deficit in a partner’s capital account because of the allocation of a loss. When loans exist
between the partnership and a partner, the capital account and the loan (s) are combined
to give a net amount. This is often referred to as the right of offset. When a deficit exists,
the amount of the deficit is allocated to the remaining solvent partners’ capital accounts
on the basis of their relative P & L ratio. If the partner with the capital deficit is personally
solvent, he has to contribute for his deficiency
STATEMENT OF PARTNERSHIP LIQUIDATION

The statement of partnership liquidation shows in detail all of the transactions associated
with the liquidation of the partnership. A liquidation can take one of two forms: lump sum
or installment. A lump sum or simple liquidation is one in which all of the assets are sold
in bulk and all of the creditors’ claims are satisfied before a single liquidating distribution
is made to the partners. In an installment liquidation the assets are sold over a period of
Babye and the cash is distributed to the partners a s it becomes available.
INSTALLMENT METHOD OF CASH DISTRIBUTION

There are two keys to preparing a statement of partnership liquidation under the
installment method: the determination of the available cash balance at any given point
in Babye and the determination of which partner (s) is (are) to receive the payment of
that cash. The reason that the cash is not distributed in accordance with the P & L ratio is
twofold: first, the final cash distribution is based upon the balance in each partner’s capital
account, not the P & L ratio, and second, there will be situations where one or more
32
partners will have deficit balances in their capital accounts. If this is the case, they should
never receive a cash distribution, even if the deficit does not arise until late in the
liquidation process.
The determination of the available cash balance is generally straightforward. The

beginning cash balance is adjusted for the cash receipts, payments to creditors, and
liquidation expenses incurred. A situation may occur where a certain amount of cash is
to be reserved for payment of future liabilities that may arise. If this is the case, this cash
should be treated as a non-cash asset which makes it unavailable for current distribution
to partners.
The determination of which partner (s) is (are) to receive the available cash is somewhat
more difficult. This determination can be made at the beginning of the liquidation process
or at the Babye of each payment. In making this determination there are two key
assumptions that must be made:
(1) the individual partners are assumed to be personally insolvent, and (2) the remaining
non-cash assets are deemed to be worthless (thus creating a maximum possible amount
of loss).
INSTALLMENT CASH DISTRIBUTION SCHEDULE

This schedule is prepared by determining the amount of loss required to eliminate each
partner’s capital account (loss absorption capacity). All of the non-cash assets are to be
considered worthless, thus, if we determine the amount of loss required to eliminate each
partner’s capital balance, we can determine the order in which the partners should receive
the cash payments
SCHEDULE OF SAFE PAYMENT

This schedule is prepared by determining the capital balances of the partners after
allocation of all possible losses on non-cash assets still to be realized and allocation of
additional losses on partner’s capital deficiency. The balance is the amount cash safely
distributable to the partners.
NOTE: In preparing schedule, it is important to make sure that the proper capital account
balance is used. The capital balance must be inclusive of any loans or advances between
the partnership and the partners.
LIQUIDATION
33
Problem 1
The balance sheet of the Alba, Blick, and Calvo partnership on January 1, 2020 (the date of
partnership liquidation) was as follows:
Cash P 2,000 Liabilities P 4,010

Other assets 13,000 Loan from Alba 500
Loan to Calvo 1,000 Alba, capital (20%) 990
Blick, capital(40%) 4,500
Calvo, capital(40%) 6,000
Total assets P 16,000 Total liab./equity P 16,000
In January, other assets with a book value of P8,000 were sold for P5,000 in cash.
Required: Determine how the available cash on January 31, 2020 will be distributed.
Alba Blick Calvo

(20%) (40%) (40%)
Capital , January 1 990 4,500 6,000
Loans 500 (1,000)
Net Interest 1,490 4,500 5,000
Loss on realization (3,000) (600) (1,200) (1,200)
Possible loss (5,000) (1,000) (2,000) (2,000)
Balance (110) 1,300 1,800
Additional possible loss to B and 110 (55) (55)
C
Safe payment, 1/31/2020 0 1,245 1,745
34
Problem 2
The balance sheet of the Omar, Paolo, and Quek partnership on November 1, 2020
(before commencement of partnership liquidation) was as follows:
Cash P 58,000 Accounts payable P 34,000

Inventory 60,000 Notes payable 62,000
Loan to Omar 8,000 Omar, capital(40%) 24,000
Loan to Quek 14,000 Paolo, capital(25%) 26,000
Plant assets-net 70,000 Quek, capital (35%) 64,000
Total assets P 210,000 Total liab./equity P 210,000
Liquidation events in November were as follows:

- The inventory was sold for P10,000 above book value;
- Plant assets with a book value of P60,000 were sold for P34,000.
Required: Determine how the available cash on November 30, 2020 should be distributed.
Omar Paolo Quek
(40%) (25%) (35%)
Capital ,November 1 24,000 26,000 64,000
Loans (8,000) (14,000)
Net Interest 16,000 26,000 50,000
Gain on realization of inventory 4,000 2,500 3,500
(10,000)
Loss realization (26,000) (10,400) (6,500) (9,100)
Possible loss (10,000) (4,000) (2,500) (3,500)
Safe payment 5,600 19,500 40,900
35
3
Problem 3
The partnership of Felly and Frilly is in the process of liquidation. On January 1 the ledger shows
account balances as follows:
Cash P10,000 Accounts payable P15,000

Accounts receivable 25,000 Felly, capital 40,000
Lumber inventory 40,000 Frilly, capital 20,000
On January 10 the lumber inventory is sold for P25,000, and during January, accounts receivable
of P21,000 are collected. No further collections on the receivables are expected. Profits are shared
60% to Felly and 40% Frilly.
Required: Prepare a schedule showing how the cash available on January 31 should be distributed.
Felly Frilly
(60%) (40%)
Capital , January 1 40,000 20,000
Loss on AR (4,000) (2,400) (1,600)
Loss on inventory (9,000) (6,000)
(15,000)
Balance 28,600 12,400
Cash beg. 10,000

Proceeds from realization 46,000
Total cash 56,000
Distributed as:
AP 15,000
Felly 28,600
Frilly 12,400
36
Problem 4
The partnership of Jason, Kelly, and Becky, who share partnership profits 50%, 30%, and 20%
respectively, decide to liquidate their partnership. A summary balance sheet on January 1 is as
follows:
Cash P16,500 Accounts payable P21,000
Receivable 28,000 Loan from Becky 9,500
Inventory 20,500 Jason capital 69,000
Equipment-net 101,000 Kelly capital 47,000
Loan to Jason 14,000 Becky capital 33,500
P180,000 P180,000
If cash is distributed to the partners on installment, P5,000 will be retained for

possible contingencies in the liquidation process.
During January, Jason agreed to offset his capital balance with his loan from the partnership,
P25,000 was collected on the accounts receivable, and the balance is determined to be
uncollectible. Liquidation expenses of P2,000 were paid.
During February, P18,000 was collected from sale of inventories and P90,000 from sale of
equipment. Additional liabilities of P3,000 were discovered and P2,000 of liquidation expenses
were paid. All cash was then distributed in a final liquidation.
Required:
Assuming installment liquidation:
a. What is the total possible loss to be considered at the end of January ?
b. Compute the safe payment to partners on January 31.
c. Determine the final distribution to partners at end of February.
a. Possible loss consists of all noncash assets (excluding loan to partners) as of a date
including cash reserved for contingencies.
Inventory P20,500
Equipment (net) 101,000
Cash reserved for contingencies 5,000
Total possible loss, January 31 P126,500
37
b. Schedule of safe payment- January

Jason (50%) Kelly Becky
(30%) (20%)
Capital , January 1 P69,000 P47,000 P33,500
Offset of loan to Jason (14,000)
Loss on realization of Accounts receivable
(28,000 – 25,000 = 3,000) (1,500) (900) (600)
Liquidation expenses (1,000) (600) (400)
Balance, January 31, before installment payment 52,500 45,500 32,500
Loan from Becky 9,500
Possible loss (63,250) (37,950) (25,300)
Balance (10,750) 7,550 16,700
Additional loss to Kelly and Becky, 3/5 and 2/5 10,750 (6,450) (4,300)
respectively
Safe payment to partners 0 1,100 12,400
Applied to loan 9,500
Applied to capital P1,100 P2,900
Jason Kelly and Becky Partnership Statement of Liquidation

January 2022
Other Loan Jason, Kelly, Becky,
Loan to Noncash Accounts from Capital Capital Capital
Cash Jason assets Payable Becky (50%) (30%) (20%)
January 1, P16,500 P14,000 P149,500 P21,000 P9,500 P69,000 P47,000 P33,500
balance
Offset of loan to (14,000) (14,000)
Jason
Collection of
receivables with 25,000 (28,000) (1,500) (900) (600)
loss on
realization
(28,000 – 25,000
= 3,000)
Liquidation (2,000) (1,000) (600) (400)
expenses
Balance, before
installment P39,500 0 P121,500 P21,000 P9,500 52,500 45,500 32,500
payment
to partners
Payment to (13,500) (9,500) (1,100) (2,900)
partners
Balance, January P26,000 P121,500 P21,000 0 P52,500 P44,400 P29,600
31
38
Jason, Kelly and Becky Partnership Statement of Liquidation

February 2022
Other Accounts Jason, Kelly, Becky,
Cash Noncash Payable Capital Capital Capital
assets (50%) (30%) (20%)
February 1, balance P26,000 P121,500 P21,000 P52,500 P44,400 P29,600
Inventory sold; Loss on realization = 18,000 (20,500) (1,250) (750) (500)
20,500 – 18,000 = 2,500
Equipment sold; loss on realization = 90,000 (101,000) (5,500) (3,300) (2,200)
101,000 – 90,000 = 11,000
Additional accounts payable 3,000 (1,500) (900) (600)
discovered
Liquidation expenses (2,000) (1,000) (600) (400)
Balance, before final payment to P132,000 0 P24,000 P43,250 P38,850 25,900
partners
Payment to creditors and partners (132,000) (24,000) (43,250) (38,850) (25,900)
Balance, February 28 0 0 0 0 0
Entries - January Transactions:

Jason, capital P14,000
Loan to Jason P14,000
Cash 25,000
Jason, capital 1,500
Kelly, capital 900
Becky, capital 600

Kelly, capital 600
Becky, capital 400
Cash 2,000
Kelly, capital 1,100

Becky, capital 2,900
Loan from Becky 9,500
Cash 13,500
39
Entries – February transactions:
Cash 18,000
Kelly, capital 750
Becky, capital 500
Inventory 20,500
Cash 90,000
Equipment 101,000

Kelly, capital 900
Becky, capital 600

Kelly, capital 600
Becky, capital 400
Cash 2,000

Cash 132,000
40
Problem 7 (Multiple Choice)

1. Partners Dalton, Edwards, and Finley have capital balances of P40,000, 90,000 and P30,000,
respectively, immediately prior to liquidation. Total remaining assets have a book value of
P160,000, the liabilities having been paid. Among these remaining assets is a machine with a
fair value of P35,000. The partners split profits and losses equally. Edwards covets the machine
and is willing to accept it for P35,000 in lieu of cash. The other partners have no designs on
specific assets, only cash in liquidation. How much cash, in addition to the machine, would be
first distributed to Edwards, before any of the other partners received anything?
a. P15,000 b. P50,000 c. P166,667 d. P300,000
2. On January 1, 2020, the partners of Coo, Daisy, and Ely, who share profits and losses in the
ratio of 5:3:2, respectively, decided to liquidate their partnership. On this date, the partnership
condensed balance sheet was as follows:
Cash P 50,000
Other assets 250,000
Total P300,000
Assets
Liabilities P 60,000
Coo, Capital 80,000
Daisy, Capital 90,000
Ely, Capital 70,000
Total Liabilities and Equity P300,000
On January 15, 2020, the first cash sale of other assets with a carrying amount of P150,000
realized P120,000. Safe installment payments to the partners were made the same date. How
much cash should be distributed to each partner?
Coo Daisy Ely
a. P15,000 P51,000 P44,000
b. P40,000 P45,000 P35,000
c. P55,000 P33,000 P22,000
d. P60,000 P36,000 P24,000
3. Andy, Brandy and Charlie are partners in textile distribution business, sharing profits and losses
equally. On December 31, 2020 the partnership capital and partners drawings were as follows:
Capital Andy Brandy Charlie
P100,000 P80,000 P300,000
Drawings 60,000 40,000 20,000
The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit for the year amounted to P72,000 which was all exhausted including the
partnership assets. Unsettled creditors’ claims at December 31 totaled P84,000. Brandy and
Candy have substantial private resources but Andy has no personal assets.
Final cash distribution to Charlie was:
a. P78,000 b. P84,000 c. P108,000 d. P162,000
4. Allen, Branden & Caylin are in the process of liquidating their partnership. They have the
41
following capital balances and profit and loss percentages:

Capital Balance Profit/Loss
Allen P5,000 debit 20%
Branden P18,000 credit 50%
Caylin P6,000 credit 30%
The partnership balance sheet shows cash of P5,000, non-cash assets of P14,000, and no
liabilities. Assuming no liquidation expenses, what safe payment could be made?
a. P5,000 split between Branden & Caylin by a ratio of 5/8 and 3/8, respectively.
b. P5,000 to Branden only.
c. P1,000 to Allen, P2,500 to Branden, and P1,500 to Caylin.
d. P18,000 to Branden only
5. P, W and U decided to dissolve the partnership on November 30. Their capital balances and
profit and loss ratio on this date follow:
P P50,000 40%
W 60,000 30%
U 20,000 30%
The net income from January 1 to Nov. 30, is P44,000. Also, on this date, cash and liabilities
are P40,000 and P90,000 respectively. For P to receive P55,200 in full settlement of his interest
in the firm, how much must be realized from the sale of firm’s non-cash assets?
a. P196,000 b. P177,000 c. P193,000 d. P187,000
42

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ACC 110 – ACCOUNTING FOR SPECIAL TRANSACTIONS PART 1

CONCEPT NOTES AND PRACTICE SETS

PARTNERSHIP FORMATION & DIVISION OF PROFIT OR LOSS

Debited for: Credited for:

Loans to and from Partners.

DIVISION OF PROFIT OR LOSS

(1) an allowance for doubtful accounts of 2% of accounts receivable is to be established.

recognized Q is to invest sufficient cash to give him a one-third interest in the

b. Entries to adjust and establish P’s interest

2. Merchandise Inventory 22,000

3. Prepaid Expenses 6,500

After the above entries are made, P, Capital becomes 286,100.

5. Prepare a statement of financial position for P and Q, Partnership.

a. Total partnership capital = 60,000 + 130,000 = P190,000

Judy, Capital = 190,000 / 2 = 95,000

Agreed Capital (130,000 ÷ P260,00

1. Jenny’s inventory is to be valued at P14,000.

Inventory 16,000 12,000

Accounts payable P13,800 P10,000

Jenny’s books are to be retained as the partnership books.

a. To adjust Johnny’s books.

1. Johnny, Capital P900

2. Johnny, Capital 800

3. To close Johnny’s books

b. Entries – Jenny’s books

2. Jenny, capital 750

Note: After these entries are made, Jenny capital will be

5. To close accumulated depreciation on Jenny’s

6. To record Johnny’s net investment

a.Statement of Financial Position

Johnny and Jenny Partnership

Mandy’s Investment 52,000

Equal Capital Amount = P45,000 each

Partnership Capital = 52,000 / 50% = P104,000

Required: Using the information from Problem 1 above:

Evans Fitch Gault

Net loss to allocate (36,000)

Fitch, capital 4,300

Sealy Teske Ubank

Bend = (40,000 x 2/12) + (30,000 x 6/12) + (20,000 x 2/12) + (30,000 x 2/12)

Rankin Bend Total

B = 20% (2,000 – 5,000

C, capital (ending) = 100,000 + 12,400 -5,000 = 107,400

Net withdrawal = 130,000 – 25,000 = 105,000

Share of Plack in profit of the partnership = 105,000 – 60,000 =

7.1 Interest on average capital balances of the partners totaled:

7.3 Total partnership capital on December 31, 2020 was:

Which partner (s) Goodwill is

PARTNER DEATH OR WITHDRAWAL

Cesar (60%) P 300,000

Book Value Method:

Cesar, Capital 150,000

Implied FV of partnership 800,000

Cesar, Capital 210,000

Less: Total Contributed Capital (600,000 + 500,000) 1,100,000

TCC = 900,000 + 200,000 = 1,100,000

Required: Compute partners’ capital under the following method:

a. Bonus TAC =CC

28,000 + 10,000 = 38,000

Capital credit to Kratz (1/3 of 38,000) 12,666

TAC (28,000 ÷ 2/3) 42,000

Bonus Method Goodwill Method

Almond, capital (2/3) 20,000