QUIZ 1: PARTNERSHIP DISSOLUTION

Name:______________________________Section:_______________Date:_________

PART I. MULTIPLE CHOICE: Write the letter that corresponds your answer. (1PT EACH)
1. When a partner retires and withdraws assets in excess of his book value, the remaining partners
absorb the excess
a. equally.
b. in their profit-sharing ratio.
c. based on their average capital balances.
d. based on their ending capital balances.

2. The admission of a new partner effected through purchase of interest in the partnership is
A. Recorded in the partnership books as a debit to cash or other asset and credit to the incoming
partner’s capital account
B. Recorded in the partnership books as a transfer within equity
C. Recorded in the partnership books as a transfer from equity to liability
D. Not recorded in its entirety

3. If a retiring partner receives more than his adjusted capital balance before retirement, what is the
logical reason if the capital balances of the remaining partner decrease after the said retirement?
a. Bonus is given by remaining partners to retiring partner
b. Bonus is given by retiring partner to remaining partners
c. Goodwill arising from retirement of a partner is recognized.
d. Impairment loss of an existing asset is recognized at the time of retirement.

4. A partners retires from the partners and receives an amount higher than his capital balance at the
time of his retirement. Under Philippine GAAP, which of the following explanation is valid if the
capital balances of the remaining partners increase after such retirement?
a. Bonus has been given by the retiring partner to the remaining partners.
b. Asset revaluation has been recognized at the time of retirement.
c. Goodwill arising from partner's retirement has been recognized.
d. Bonus has been given by remaining partners to retiring partner.

5. In the absence of other relevant data, when a new partner is admitted in an existing partnership
through the acquisition of capital interest of incumbent partners, which is always true?
a. The partnership shall recognize gain or loss as a result of the disposal of capital interest.
b. The total capital of the partnership will not change despite the admission of a new partner.
c. The total assets of the partnership will increase by the amount of the net proceeds
of the disposal of capital interest.
d. The partnership shall recognize goodwill arising from the admission of a new partner.

6. On December 31, 2021, the Statement of Financial Position of LMN Partnership provided the
following data with profit or loss ratio of 1:6:3:
Current Assets 2,500,000 Total Liabilities 1,500,000
Noncurrent Assets 5,000,000 L, Capital 2,250,000
M, Capital 2,000,000
N, Capital 1,750,000
On January 1, 2022, O was admitted to the partnership by purchasing 40% of the capital interest of
Mat a price of P1,250,000.
Compute the capital balance of M after the admission of O on January 1, 2022
A. 1,350,000
B. 1,200,000
C. 1,050,000
D. 750,000

7. and P have capital balances of P1,400,000 and P1,540,000 respectively before admission of N.
Their profit and loss agreement was 35:65. On January 1, N was to be admitted for 40% interest
in the partnership and 20% in the profits and losses by contributing used equipment which had a
cost of P1,435,000 and a fair value of P1,260,000. After the admission of N, O and P agreed to
share profits and losses equally. At the end of the year the new partnership generated net income
of P910,000.

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Assuming there is an implied undervaluation or (overvaluation) of an asset, compute the capital
balance of P at the end of the year
A. 3,269,000
B. 539,000
C. 2,586,500
D. 1,221,500

8. On December 31, 2021, the Statement of Financial Position of TUV Partnership provided the
following data with profit or loss ratio of 5:1:4:
Current Assets 3,750,000 Total Liabilities 1,250,000
Noncurrent Assets 5,000,000 T, Capital 2,750,000
U, Capital 3,000,000
V, Capital 1,750,000
On January 1, 2022, S was admitted to the partnership by investing P1,250,000 to the partnership for
10% capital interest. The total agreed capitalization of the new partnership is P7,500,000.

Compute the capital balance of V after the admission of S to the Partnership

A. 1,450,000
B. 2,050,000
C. 1,250,000
D. 1,950,000

9. On June 30, 2022, the condensed balance sheet for the partnership of Eddy, Fox and Grimm,
together with their respective profit and loss sharing percentages were as follows:
Assets, net of liabilities 320,000
Eddy, capital (50%) 160,000
Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000
Eddy decided to retire from the partnership and by mutual agreement is to be paid P180,000 out of
partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement, what is the
capital balance of Fox?
A. 84,000
B. 102,000
C. 108,000
D. 120,000
10. 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. The
bonus method shall be used to record the admission of Hamm. Immediately after admission of
Hamm, Eddy’s capital account balance should be
A. 280,000
B. 172,500
C. 160,000
D. 140,000

11. A partnership has the following capital balances:

Partners Capital Balance
William (40% of gains and losses) . . . . . . . . . . . . . P 220,000
Jennings (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000

Darrow invests P270,000 in cash for a 30 percent ownership interest. The money goes to the original
partners. Goodwill is to be recorded. How much goodwill should be recognized, and what is Darrow’s
beginning capital balance?
a. P410,000 and P270,000
b. P140,000 and P270,000
c. P140,000 and P189,000
d. P410,000 and P189,000

12. Darrow invests P250,000 in cash for a 30 percent ownership interest. The money goes to the
business. No goodwill or other revaluation is to be recorded. After the transaction, what is
Jennings’s capital balance?
a. P160,000

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b. P168,000
c. P170,200
d. P171,200

13. Summary balance sheet for the ABD Partnership follows:

Abner, Blanche, and Donna share profits in the ratio of 5:3:2, respectively.
Cash P100,000
Accounts receivable 125,000
Inventory 200,000
Land 800,000
Buildings, net 1,500,000
Total P2,725,000
Accounts payable P 250,000
Long-term debt 450,000
Abner, capital 810,000
Blanche, capital 729,000
Donna, capital 486,000
Total P2,725,000
The partners agree to admit Janice for a one-fifth interest. The fair value of the land is appraised at
P900,000 and the market value of the inventory is P250,000. The assets are to be revalued prior to
the admission of Janice.

By how much will the capital accounts of Abner, Blanche, and Donna increase due to the revaluation
of the assets?
a. The capital accounts will increase by P50,000 each.
b. P60,000, P54,000, and P36,000 respectively.
c. P75,000, P45,000, and P30,000 respectively.
d. P60,000, P50,000, and P40,000 respectively.

14. How much cash will Janice have to invest into the partnership to acquire her one-fifth interest?
a. P534,750
b. P553,740
c. P547,350
d. P543,750

15. Suppose Janice, instead, paid P450,000 directly to the old partners for 20% each of their
respective capital to acquire her one-fifth interest, (1) how much will be Donna’s capital after
Janice’s admission? and (2) how much cash will Blanche receive in exchange for her sold
interest?
a. (1) P412,800, (2) P159,300
b. (1) P421,800, (2) P139,500
c. (1) P428,100, (2) P195,300
d. (1) P482,010, (2) P153,900

16. LL and QQ are partners with capital balances of P50,000 and P70,000, respectively, and they
share profits and losses equally. The partners agree to take DD into the partnership for a 40%
interest in capital and profits, while LL and QQ each retain a 30% interest. DD pays P60,000 cash
directly to LL and QQ for his 40% interest, and total revaluation of asset (or goodwill implied) by
DD’s payment is recognized on the partnership books. If LL and QQ transfer equal amounts of
capital to DD, the capital balances after DD’s admittance will be:
a. LL, P35,000; QQ, P55,000; DD, P60,000
b. LL, P45,000; QQ, P45,000; DD, P60,000
c. LL, P36,000; QQ, P36,000; DD, P48,000
d. LL, P26,000; QQ, P46,000; DD, P48,000

17. In the AD partnership, Allen's capital is P140,000 and Daniel's is P40,000 and they share income
in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following
questions is independent of the others.

What amount will David have to invest to give him one-fifth percent interest in the capital of the
partnership if no goodwill or bonus is recorded?
a. P60,000
b. P36,000

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c. P50,000
d. P45,000

18. Assume that David invests P50,000 for a one-fourth interest. Goodwill is to be recorded. The
journal to record David's admission into the partnership will include:
a. a credit to cash for P50,000
b. a debit to goodwill for P7,500
c. a credit to David, Capital for P60,000
d. a credit to David, Capital for P50,000
19. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased
before David is admitted. David invests P40,000 for a one-fifth interest. What is the amount of
inventory?
a. P 4,000
b. P20,000
c. P15,000
d. P10,000

20. Peter, Roberts and Dana have the following capital balances; P80,000, P100,000 and P60,000
respectively. The partners share profits and losses 20%, 40% and 40% respectively. 31. Roberts
retires and is paid P160,000 based on the terms of the original partnership agreement. If the
goodwill (total revaluation of asset) method is used, what is the capital balance of Peter?
a. P 20,000
b. P 60,000
c. P110,000
d. P120,000