Sa ACTBFAR: Exercise Set #3

Term 2, AY2022-2023
Individual output
Source: Dela Cruz, A.L.C., Rabo, J.S., & Tugas, F.C. (2019). Basic financial accounting and reporting.

DEADLINE:
Monday classes: March 27, Monday, 7:30AM, AnimoSpace
Tuesday classes: March 28, Tuesday, 7:30AM, AnimoSpace

The worksheets for Exercise 4 & 5 will be collected by the professor in class on the day of the scheduled Long Exam.

RUBRICS FOR ASSESSMENT:

Exercise Sets
CRITERIA EXEMPLARY SATISFACTORY DEVELOPING BEGINNING RATING
(97-100) (80-96) (70-79) (Below 70)
Content - The student The student The student The student
Correctness answered all the answered majority answered some of failed to answer
and assigned exercises of the assigned the assigned the assigned
Completeness correctly and exercises correctly exercises correctly exercises
(90%) completely. and completely. and completely. correctly and
completely.
Timeliness The student The student The student The student
(10%) submitted output submitted output a submitted output submitted
on or before the day after the three (3) days after output a week
deadline. deadline. the deadline. or more after
deadline.
TOTAL

EXERCISE 1. True or False. Questions 1-15.

1. Dissolution relates strongly to the limited life characteristic of partnership.
2. Dissolution does not mean actual cessation of business of the partnership.
3. If a new partner purchases interest in a partnership directly from existing partner, the Cash account is debited and
the new partner's capital account is credited.
4. Upon withdrawal, the withdrawing partner/s may receive less than his or her capital account balances.
5. Total assets and capital of a partnership are not affected by admission of new partner by purchase of interest.
6. When payment to a retiring partner is made from the personal assets of the continuing partners, the total capital of
the partnership does not change.
7. When admission to a partnership is by purchase of interest, the incoming partner receives equity equal to the
amount he/she paid.
8. A bonus to a newly admitted partner decreases the capital balances of old partners based on the old profit and loss
ratio.
9. Liquidation is the process of converting the assets of the partnership into cash and distributing the cash to partners
and creditors, in that order of priority.
10. The managing partner spearheads liquidation process as he/she is the one ordinarily tasked to take charge of
winding up partnership operations and affairs.
11. Fulfillment of the purpose for which the partnership was formed and bankruptcy of the business can give rise to
liquidation.
12. Liquidation cannot take place when there are solvent partners.
13. In partnership liquidation, gains or losses on realization of non-cash assets are allocated among the partners in
proportion to their capital equity interests.
14. All deficient partners are insolvent partners.
15. All insolvent partners are deficient partners.

ACTBFAR Exercise Set 3 - AY 2022-23, Term 2 Page 1

EXERCISE 2. Multiple Choice. Questions 16-24.

16. Which of the following occur/s every time a new partner is admitted to a partnership?
A. Dissolution only
B. Dissolution and liquidation only
C. Dissolution and termination only
D. Dissolution, liquidation, and termination

17. Which of the following DOES NOT give rise to partnership dissolution?
A. Admission of a new partner by purchase of interest
B. Transfer of full interest from one existing partner to another existing partner
C. Incapacity of a partner
D. None of the choices

18. Which of the following dissolution events WILL NOT change the net assets of the partnership?
A. Purchase of ownership interest directly from existing partner
B. Purchase of ownership interest directly from partnership
C. Both choices
D. Neither of the choices

19. In what manner should continuing partners share in the bonus paid to withdrawing partner?
A. Proportionate to their residual profit and loss ratio
B. Equally
C. Proportionate to capital account balances
D. The partner with the least capital balance is given the bonus.

20. In the event of liquidation, who spearheads the winding up of operations and affairs of the partnership?
A. Managing partner
B. Ostensible partner
C. General partner
D. Liquidating partner

21. To accomplish partnership liquidation, the accountant should be mindful of

A. The rights of the partners’ creditors
B. The rights of the partnership’s creditors
C. Both choices
D. Neither of the choices

22. Distribution of final cash to partners is based on

A. Profit and loss ratio
B. Ownership interest
C. Available cash balance
D. Final capital balances

23. Which of the following statements about partnership liquidation is FALSE?

A. Assets must be liquidated solely through sale transactions.
B. All assets can be sold at fair value in a single transaction to a competitor or to others who wish to
continue business.
C. Assets can be sold at distressed prices in a single transaction to interested party.
D. Assets can be sold piecemeal over an extended period to interested parties.

24. Which of the following would MOST likely contribute to capital deficiency of a partner?
A. Loaning money to the partnership
B. Allocating gains on realization of non-cash assets
C. Loaning money from the partnership
D. Allocating profits for the period
ACTBFAR Exercise Set 3 - AY 2022-23, Term 2 Page 2
EXERCISE 3. Multiple Choice Problem Solving. Questions 25-36.

25. Nancy and Perry are partners, and each has a capital balance of ₱100,000. To gain admission to the partnership,
Mitch pays ₱52,000 directly to Nancy for one-half of her equity. After the admission of Mitch, the total partners'
equity in the records of the partnership will be
A. ₱252,000
B. ₱200,000
C. ₱202,000
D. ₱152,000

26. Anson and Brian are partners, and each has a capital balance of ₱150,000. To gain admission to the partnership,
Lenny pays ₱160,000 directly to Anson and Brian for one-half of their equities. After the admission of Lenny,
Anson and Brian’s capital accounts will reflect an equity interest, respectively, of
A. ₱80,000 and ₱80,000
B. ₱78,000 and ₱77,000
C. ₱150,000 and ₱160,000
D. ₱75,000 and ₱75,000

27. Cedie and Sarah are partners and together have equity of ₱150,000 in the partnership. Remy wishes to become a
partner with ¼ interest in the firm. If her investment reflects the cash paid, how much will she contribute to the
partnership?
A. ₱37,500
B. ₱200,000
C. ₱50,000
D. ₱87,500

28. Hansel and Gretel are partners. Hansel's capital balance is ₱130,000 and Gretel's is ₱150,000. They agreed to
share equally in profits and losses. Both partners agree to accept a third investor, Mocha, as a new partner with a
25% interest in the partnership. Mocha intends to invest ₱115,000 in cash. The bonus that is granted to Hansel
and Gretel is closest to
A. ₱32,500 each
B. ₱10,833 each
C. ₱8,125 each
D. None; bonus to Mocha instead.

29. Gideon and Joshua ae partners with capital account balances of ₱260,000 and ₱240,000, respectively, and share
profits and losses in the ratio of 6:4. The partners decided to admit Levi as a new partner with a 20% equity
interest for an investment of ₱150,000 in the partnership. Prior to admission, Gideon and Joshua would revalue
the partnership’s assets. If the net increase in the partnership assets was ₱185,000, what would be the balance of
Gideon’s capital account after revaluation but before admission of Levi?
A. ₱371,000
B. ₱334,000
C. ₱351,000
D. ₱314,000

30. Joel, JC, and LJ are partners with capital balances of ₱50,000, ₱80,000, and ₱120,000, and share profits and
losses in the ratio of 2:4:4, respectively. Due to a house relocation, LJ decided to withdraw from the partnership.
The partners agreed that machinery and equipment be increased by ₱85,000 upon dissolution. Upon settlement of
ownership interest, LJ received ₱165,000. The capital balance of Joel immediately after the withdrawal of LJ
would be closest to
A. ₱50,000
B. ₱67,000
C. ₱78,333
D. ₱63,333

ACTBFAR Exercise Set 3 - AY 2022-23, Term 2 Page 3

 31. Partners Grace, Paul, and Trisha share profits and losses equally. On December 31, Grace, Paul, and Trisha had
capital balances of ₱30,000, ₱50,000, and ₱20,000, respectively. On the same date, they decided to dissolve and
liquidate. Non-cash assets amounting to ₱18,000 were sold for ₱12,000. The loss on realization of non-cash assets
and share of Grace on the said loss amounted to
A. ₱18,000 and ₱6,000, respectively
B. ₱12,000 and ₱2,000, respectively
C. ₱6,000 and ₱2,000, respectively
D. ₱6,000 and ₱4,000, respectively

32. Bong, Dong, and Tong are business partners sharing profits and losses 55%, 15%, and 30%, respectively. The
company is facing cash flow problems so the partners decided to liquidate. When liquidation commenced, Bong,
Dong, and Tong had capital balances amounting to ₱108,000, ₱62,000, and ₱56,000, respectively. Non-cash
assets with cost and accumulated depreciation of ₱390,000 and ₱140,000, respectively, were sold for ₱180,000,
while liabilities amounting to ₱112,000 were settled. What was Bong’s capital account balance immediately
before cash distribution?
A. ₱145,400
B. ₱69,500
C. ₱51,500
D. (₱7,500)

33. Joan, Joey, and Justin share profits and losses in the ratio of 3:2:1. As of June 30, the capital balances of Joan,
Joey, and Justin were ₱100,000, ₱80,000, and ₱70,000, respectively. The partners decided to liquidate. They sold
non-cash assets for ₱130,000. After settlement of all liabilities amounting to ₱30,000, they still had ₱184,000 cash
left for distribution. Justin’s share in final cash left for distribution would be
A. ₱48,000
B. ₱63,400
C. ₱59,000
D. ₱58,000

34. Facing financial distress, partners Gary (40%), Gerry (30%), and Gina (30%) decided to liquidate the partnership
on September 30, 2020. Their capital balances as of December 31, 2019 were ₱50,000, ₱60,000, and ₱20,000,
respectively. The net income from January 1 to September 30 was ₱44,000. On the date of liquidation, cash and
liabilities amounted to ₱40,000 and ₱90,000, respectively. For Gary to receive ₱55,200 in full settlement of
interest in the partnership, how much should the non-cash assets be sold for?
A. ₱177,000
B. ₱187,000
C. ₱193,000
D. ₱196,000

ACTBFAR Exercise Set 3 - AY 2022-23, Term 2 Page 4

 35. Julie, Olga, and Yen were partners in JOY textile distribution business sharing profits and losses equally. On June
30, 2020, the capital and drawings accounts of the partners were as follows:

Partner Capital Drawings

Julie ₱ 100,000 ₱ 60,000
Olga 80,000 40,000
Yen 300,000 20,000

The partnership was unable to collect trade receivables and was forced to liquidate on November 30, 2020. Operating
profit from July 1 to November 30 amounted to ₱72,000 which was all exhausted, including the partnership assets.
Unsettled creditors’ claims totaled ₱84,000. Olga and Yen had substantial private resources but Julie had no personal
assets. The final cash distribution to Yen would be
A. ₱162,000 C. ₱84,000
B. ₱108,000 D. ₱78,000

36. As of July 31, the books of BSA Partnership showed capital balances of ₱40,000 for Ben, ₱25,000 for Echo, and
₱5,000 for Ned. They share profits and losses in the ratio of 3:2:1, respectively. The partners decided to liquidate
and they sold all non-cash assets for ₱37,000. After settlement of all liabilities amounting to ₱12,000, they still
had cash of ₱28,000 left for distribution. Assuming that any capital debit balance was uncollectible, Ben’s share
in the distribution of ₱28,000 cash is
A. ₱19,000
B. ₱18,000
C. ₱17,800
D. ₱17,000

GENERAL INSTRUCTIONS for Exercise 4 & 5:

1. Prepare the journal entries, financial statements, and other statements in good form using a blue or black ballpen only.
2. Place heading properly.
3. Include peso sign accordingly.
4. Use money columns correctly.
5. Unless necessary, do not include decimal points for amounts.
6. Rule and double-rule amounts as needed.
7. For proper correcting of errors and other formatting guidance, please observe the “Accounting Dos and Don’ts”
uploaded in the course files section of AnimoSpace.

ACTBFAR Exercise Set 3 - AY 2022-23, Term 2 Page 5

EXERCISE 4. Journal Entries: Admission by investment of assets. The real accounts in the ledger of Chua-Tay
Partnership showed the following balances before the admission of Melan to the partnership:
Cash ₱ 60,000
Accounts Receivable 70,000
Merchandise Inventory 55,000
Machinery 120,000
Accumulated Depreciation - Machinery 21,600
Accounts Payable 40,000
Income Taxes Payable 35,000
Notes Payable 65,000
Chua, Capital (50%) 58,400
Tay, Capital (50%) 85,000

Additional information:
• The parties agreed to revalue the following:
o Accounts Receivable at 85%;
o Merchandise Inventory at 110%; and
o Machinery at 90%.
• They also agreed that additional interest of ₱3,500 on notes payable be accrued.
• Melan was to contribute ₱140,000. It was agreed that after the admission of Melan, all partners’ capital balances
would equal to the contribution of Melan. Any partner whose capital balance would be below the threshold should
contribute additional cash to the partnership.

Prepare journal entries related to the following:

1. Revaluation and accrual of interest;
2. Admission of Melan; and
3. Additional contribution of existing partners, if there is any.

EXERCISE 5. Journal Entries and Statement Preparation: With capital deficiency; solvent/insolvent partner/s.
The partners in the law firm of Mega, Nega, and Pipa had strong differences of opinion concerning client acceptance
policies that made them decide to liquidate the business on February 14, 2021. As of December 31, 2020, their capital
balances were: Mega, ₱350,000; Nega, ₱100,000; and Pipa, ₱105,000. Liabilities, cash, and non-cash assets were
₱145,000, ₱40,000, and ₱660,000, respectively. Cash revenues and expenses for 2020 amounted to ₱77,000 and
₱115,000, respectively. Profits and losses are shared by Mega, Nega, and Pipa in the ratio of 5:3:2, respectively.

Required:
1. Prepare journal entries to record liquidation under each of the following cases:
a) Non-cash assets were sold for ₱200,000. Assume any deficient partner is solvent.
b) Non-cash assets were sold at a loss of ₱515,000. Assume any deficient partner is solvent.
c) Non-cash assets were sold for ₱200,000. Assume any deficient partner is insolvent.
d) Non-cash assets were sold at a loss of ₱515,000. Assume any deficient partner is insolvent.
2. Prepare statement of liquidation for Item 1d.

ACTBFAR Exercise Set 3 - AY 2022-23, Term 2 Page 6