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Unit II – Partnership Dissolution

Dissolution – exists when the original association for purposes of carrying on activities has ended. This may be:

 Dissolution without liquidation -means the temporary termination of the life of the original partnership.
The partnership will continue operation but only the articles of partnership will be terminated and a new
one is created.

 Dissolution with liquidation - business operation is terminated.

Causes of Partnership Dissolution which may not lead to liquidation

 Admission of a partner
 Withdrawal/retirement of a partner
 Death of a partner
 Incorporation of a partners

Note: Admission, withdrawal and retirement of partners must be with the consent of all partners.

Admission of a New Partner:

WAYS OF ADMITTING A NEW PARTNER

1. By purchase - A personal transaction between the buying and the selling partners. Cash paid by the
buying partner does not go to the partnership and is not recorded in the partnership books.

2. By investment - The transaction is between the new partners and the partnership thus there is an increase
in the partnership assets and the total capitalization.

Admission by Purchase
 the incoming partner purchases interest from one or more of the original partner(s).
 personal transaction between the incoming partner and the selling partners(s).
 any consideration involved in the purchase transaction is not recorded in the partnership books.
 capital is transferred from the selling partner to the incoming partner and any gain or loss is not
recognized.
 total assets, liabilities and partnership capital remained unchanged.
 the new profit and loss ratio must be established and agreed upon.

To illustrate:
The capital accounts of M, N and O are presented below with their respective profit and loss ratio:
M P 40,000 20%
N 40,000 30%
O 60,000 50%

On July 1, 2020, P is admitted to the partnership.

REQUIRED: Record the admission of P under each of the following independent cases:
1. P buys ½ of the interest of M for P 20,000.
2. P purchases ½ of the interest of M and N for P 50,000.
3. P buys ¼ of the interests of M, N and O for P 45,000. On this date, the carrying amounts and fair
values of the assets and liabilities are approximately the same, except for the equipment which has an
increase in value of P 10,000. They agreed for the revaluation of assets and liabilities upon admission
of P.

Case 1 - P buys ½ of the interest of M for P 20,000 P buys ½ of the interest of M for P 20,000
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Date Particulars PR Debit Credit

2020
July 1 M, capital 20,000
P, capital 20,000
Admission of P

Case 2. P purchases ½ of the interest of M and N for P 50,00

Date Particulars PR Debit Credit

2020
July 1 M, capital 20,000
N, Capital 20,000
P, capital 40,000
Admission of P

Case 3: P buys ¼ of the interests of M, N and O for P 37,500. On this date, the carrying
amounts and fair values of the assets and liabilities are the same, except for
equipment which has an increase in value of P 10,000. They agreed for the
revaluation of assets and liabilities upon admission of P.

Date Particulars PR Debit Credit

2020
July 1 Equipment 10,000
M, capital 2,000
N, capital 3,000
O, capital 5,000
Revaluation of equipment

1 M, capital 10,500
N, Capital 10,750
O, capital 16,250
P, capital 37,500
Admission of P

Admission by Investment
 is a transaction between the partnership and the new partner. The assets are invested into the
partnership and recorded in the books of the partnership.
 The investment will increase the total partnership assets and total partners’ equity.
 May be recorded using bonus or revaluation method.

Accounting procedures:
1. Record the investment (contributed capital) of the new partners.
2. Determine the agreed capital of the new partner in the new firm after admission, computed as follows:
Total Agreed capitalization of the new firm x Percentage of capital of new partner

3. Determine and record bonus, if any. This usually exist when the new partner’s investment not equal to
his agreed capital in the new firm.

Bonus Method
 it is assumed that the total contributed capital (TCC) is equal to the total agreed capital (TAC).
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 There is bonus to the new partner if the new partners’ capital credit is greater than his actual
investment.

 There is bonus to old partners’ if the old partners’ capital credit greater than their actual
investments.

Goodwill method ( PFRS 3 prohibits the use of goodwill for transactions that are not considered
business combination)

 The total Agreed capital (TAC) is greater than the total contributed capital (TCC), the difference
represents “ Goodwill”

Illustrative Problem:

A and B share profits and losses equally. On August 1, 2020, C is to be admitted as a partner by contributing cash
to the firm. The capital balances before the admission of C are as follows:
A, Capital P 72,000
B, Capital 144,000
P 216,000

REQUIRED: Prepare entry(ies) to record admission of C into the partnership under each of the following
independent cases:
1. C invests P 108,000 and is to be credited for the same amount to give him 1/3 interest in the firm.
2. C invests P 120,000 for a 1/3 interest in the firm.
3. C invests P 96,000 for a 1/3 interest in the firm.
4. C invests P 120,000 for a 1/3 interest in the firm with a total agreed capitalization of P 360,000.
5. C invests P 124,000 for 30% interest in the firm. On this date, the carrying amounts and fair values of
the assets and liabilities are the same, except for the equipment which has an increase in value of
P 10,000. They agreed for the revaluation of assets and liabilities upon admission of C.
6. C invests P 108,000 for a ¼ interest in an agreed capital of P 320,000. The partner’s capital
balances should be made to equal the new profit and loss ratio.

1. C invests P 108,000 and is to be credited for the same amount to give him 1/3 interest in the firm.

Date Particulars PR Debit Credit

2020
Aug. 1 Cash 108,000
C Capital 108,000
Admission of C.

Solution: (No bonus)

Partners New P/L ratio Contributed Capital Capital Credit Difference
A, capital 1/3 72,000 72,000
B, capital 1/3 144,000 144,000
Total old partners’ capital 2/3 216,000 216,000
C, capital 1/3 108,000 108,000
Total 3/3 324,000 324,000

2. C invests P 120,000 for a 1/3 interest in the firm

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Date Particulars PR Debit Credit

2020
Aug. 1 Cash 120,000
A, capital 4,000
B, capital 4,000
C Capital 112,000
Admission of C.

Solution: (bonus to old partners)

Partners New P/L ratio Contributed Capital Capital Credit Difference
A, capital 1/3 72,000 76,000 4,000
B, capital 1/3 144,000 148,000 4,000
Total old partners’ capital 2/3 216,000 224,000 8,000
C, capital 1/3 120,000 112,000 (8,000)
Total 3/3 336,000 336,000

3. C invests P 96,000 for a 1/3 interest in the firm.

Date Particulars PR Debit Credit

2020
Aug. 1 Cash 96,000
A, capital 4,000
B, capital 4,000
C Capital 104,000
Admission of C.

Solution: (Bonus from old partners)

Partners New P/L ratio Contributed Capital Capital Credit Difference
A, capital 1/3 72,000 76,000 (4,000)
B, capital 1/3 144,000 148,000 (4,000)
Total old partners’ capital 2/3 216,000 208,000 (8,000)
C, capital 1/3 96,000 104,000 8,000
Total 3/3 312,000 312,000

4. C invests P 120,000 for a 1/3 interest in the firm with a total agreed capitalization of P 360,000.

Date Particulars PR Debit Credit

2020
Aug. 1 Cash 120,000
Goodwill 24,000
A, capital 12,000
B, capital 12,000
C Capital 120,000
Admission of C.

Solution: (Goodwill to old partners - PFRS 3 prohibits the use of goodwill for transactions that are
not considered business combination)
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Partners New P/L ratio Contributed Capital Capital Credit Difference

A, capital 1/3 72,000 84,000 12,000
B, capital 1/3 144,000 156,000 12,000
Total old partners’ capital 2/3 216,000 240,000 24,000
C, capital 1/3 120,000 120,000 ______
Total 3/3 336,000 360,000 24,000

5. C invests P 124,000 for 30% interest in the firm. On this date, the carrying amounts and fair values of the
assets and liabilities are the same, except for the equipment which has an increase in value of P 10,000. They
agreed for the revaluation of assets and liabilities upon admission of C.

Date Particulars PR Debit Credit

2020
Aug. 1 Equipment 10,000
A, capital 5,000
B, capital 5,000
Revaluation of equipment.

Cash 124,000
A , capital 9,500
B, capital 9,500
C Capital 105,000
Admission of C.

Solution:
Partners New P/L ratio Contributed Capital Capital Credit Difference
A, capital 40% 77,000 84,000 9,500
B, capital 40% 149,000 156,000 9,500
Total old partners’ capital 80% 226,000 245,000 19,000
C, capital 20% 124,000 105,000 (19,000)
Total 100% 350,000 350,000

6. C invests P 108,000 and is to be credited for the same amount to give him 1/3 interest in the firm.
The old partners withdraw of invest cash to bring their capital balances equal the new profit and loss ratio.

Date Particulars PR Debit Credit

2020
Aug. 1 Cash 108,000
C, capital 108,000
Admission of C.

Cash 36,000
A, capital 36,000
Additional investment

B, capital 36,000
Cash 36,000
withdrawal

Solution:
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Partners New P/L Contributed Capital Capital Credit Difference

ratio
A, capital 1/3 72,000 108,000 36,000
B, capital 1/3 144,000 108,000 (36,000)
Total old partners’ capital 2/3 216,000 216,000
C, capital 1/3 108,000 108,000
Total 3/3 324,000 324,000

Retirement or Withdrawal of a Partner

A partner may withdraw from the partnership:
 By selling his interest to outsider (Admission of a new partner by purchase)
 By selling his interest to existing or remaining partner(s) (Admission of a new partner by purchase)
 By selling his interest to the partnership

Accounting procedures:
1. Determine the net income from the last date income was determined to the date of withdrawal or retirement.
2. Adjust assets and liabilities for any increases or decreases in value.
3. Determine the adjusted interest of the withdrawing or retiring partner.
4. Record retirement or withdrawal of the partner.
5. No gain or loss is recognized in the partnership books.

Sale of interest of withdrawing or retiring partner to the partnership

 At book value
 At more than book value
 At less than book value

Illustration:
Red, White and Blue are partners with profit and loss ratio of 2:4:4 and credit capital balances of P 120,000,
P 160,000 and P 150,000, respectively at the beginning of 2020. On July 1, 2020, Red decides to withdraw
from the partnership. On the date of retirement, the partnership net income is P 100,000 and the book values of
the partnership assets and liabilities are equal to fair values except for an equipment with a book value of
P 50,000 and a fair value of P 60,000.

REQUIRED: Record the withdrawal of Red under each of the following cases:
1. Red is paid P 142,000 of partnership cash as final settlement of his interest
2. Red is paid P 150,000 of partnership cash as final settlement of his interest
3. Red is paid P 132,000 of partnership cash as final settlement of his interest
4. Red’s interest was acquired by Blue for P 160,000.
5. Red was given P 150,000 of partnership cash upon withdrawal and only his share of the goodwill
is recorded.

Adjust the value of Equipment and distribute the net income

Journal entries to adjust the value of equipment and distribute the net income :
Date Particulars PR Debit Credit
2020
July 1 Equipment 10,000
Red, capital 2,000
White, capital 4,000
Blue , capital 4,000
Adjust the value of equipment

Income Summary 100,000

Red, capital 20,000
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White, capital 40,000

Blue , capital 40,000
Distribution of net income

As of July 1, 2020, the partner’s adjusted capital balances:

Red, capital (120,000 +2,000+ 20,000) 142,000
White, capital (160,000 + 4,000+ 40,000) 204,000
Blue, capital (150,000 + 4,000 + 40,000) 194,000

Purchase by Partnership:
 At book value

Case 1: Red is paid P 142,000 of partnership cash as final settlement of his interest.

Date Particulars PR Debit Credit

2020
July 1 Red, Capital 142,000
Cash 142,000
To record payment to Red.

 At more than book value: (Bonus from the remaining partners)

Case 2: Red is paid P 150,000 of partnership cash as final settlement of his interest.

Date Particulars PR Debit Credit

2020
July 1 Red, Capital 142,000
White, capital 4,000
Blue, capital 4,000
Cash 150,000
To record payment to Red.

 Bonus to retiring partner of P 8,000 which will be divided by White & Blue according to their p/l ratio of 4:4.
 At less than book value: (Bonus to the remaining partners)

Case 3: Red is paid P 132,000 of partnership cash as final settlement of his interest.

Date Particulars PR Debit Credit

2020
July 1 Red, Capital 142,000
White, capital 5,000
Blue, capital 5,000
Cash 132,000
To record payment to Red.

 Bonus from the retiring partner of P10,000 which will be divided by White & Blue according to their
p/l ratio of 4:4.

Case 4. Red’s interest was acquired by Blue for P 160,000.

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Date Particulars PR Debit Credit

2020
July 1 Red, Capital 142,000
Blue, capital 142,000
Withdrawal of Red.

Case 5: Red was given P 150,000 of partnership cash upon withdrawal and only his share of the goodwill is
recorded. (Goodwill to retiring partner - PFRS 3 prohibits the use of goodwill for transactions that
are not considered business combination

Date Particulars PR Debit Credit

2020
July 1 Red, Capital 142,000
Goodwill 8,000
Cash 150,000
Withdrawal of Red.

Death of a Partner
The procedures to be observed in the retirement of a partner are also observed in case of death of a partner.
However, since a lot of preparation shall be made for the settlement of the estate of the deceased partner,
settlement of interest may be postponed and the adjusted capital of the deceased partner is transferred to a
liability account – “liability to the estate” - on the date of death. The liability account is cancelled on the date of
settlement.

To illustrate: Using the same data as the illustrative problem for retirement, except that Red dies on July 1,2020:
the journal entry would be:
Date Particulars PR Debit Credit
2020
July 1 Red, Capital 142,000
Liability to the estate of Red 142,000
To record transfer of Red’s capital
to liability account.

On settlement date: the journal entry would be:

Date Particulars PR Debit Credit

Liability to the estate of Red 142,000

Cash 142,000
To record payrment.

Conversion of the Partnership into Corporation

 Partners may opt to convert their business into a corporate form. A corporate form of business offers a
variety of advantages which include greater financing capabilities.

 Accounting procedures:
New set of books will be used by the corporation
1. Adjust and close the partnership books
2. In the corporation books, record the transfer of assets and liabilities of the partnership in
exchange for the shares of stock of the corporation. Where the value of the net assets
transferred exceeds the par value of the shares issued, the difference is credited to Share
Premium.
Illustrative Problem:
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After all the assets and liabilities have been adjusted, the records of ABCD Partnership showed the following
balances on January 1, 2020:

Debit Credit
Cash 300,000
Accounts receivable 400,000
Allowance for bad debts 10,000
Merchandise inventory 700,000
Equipment 300,000
Accumulated deprecation 87,000
Accounts payable 200,000
Notes payable 100,000
Interest payable 3,000
A, capital (30% 400,000
B, capital (20%) 300,000
C, Capital (20%) 200,000
D, capital (30%) ________ 400,000
1,700,000 1,700,000

On March 1, 2020, the business was incorporated and is authorized to issue 100,000 shares of capital stock at
P 100 par value. On the same date, the assets and liabilities of the partnership was transferred to the
corporation with the issuance of 10,000 shares to partners A,B,C and D. Another 15,000 shares were issued to
other incorporators for cash at P 130 per share.

REQUIRED: 1. Journal Entries in the books of the partnership

2. Journal Entries in the books of ARCE corporation

1. PARTNERSHIP’S BOOKS

Date Particulars PR Debit Credit

2020
March 1 Allowance for bad debts 10,000
Accumulated Depreciation - Equipment 87,000
Accounts payable 200,000
Notes payable 100,000
Interest payable 3,000
A, capital (30%) 400,000
B, capital (20%) 300,000
C, Capital (20%) 200,000
D, capital (30%) 400,000
Cash 300,000
Accounts receivable 400,000
Merchandise inventory 700,000
Equipment 300,000
To close the books

2. CORPORATION’S BOOKS
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Date Particulars PR Debit Credit

2020
March 1 Cash 300,000
Accounts receivable 400,000
Merchandise inventory 700,000
Equipment 213,000
Allowance for bad debts 10,000
Accounts payable 200,000
Notes payable 100,000
Interest payable 3,000
Share capital 1,000,000
Share Premium 300,000
Issuance of 10,000 shares

Cash 1,950,000
Share capital 1,500,000
Share Premium 450,000
Issuance of 15,000 shares to other
Incorporators.

ARCE Corporation
Statement of Financial Position
March 1, 2020

Assets
Cash 2,250,000
Accounts receivable 400,000
Less: Allowance for bad debts 10,000 390,000
Merchandise inventory 700,000
Equipment 213,000
Total assets 3,553,000

Total liabilities and Stockholders’ Equity

Liabilities:
Accounts payable 200,000
Notes payable 100,000
Interest payable 3,000 303,000

Stockholders’ Equity:
Share capital 2,500,000
Share Premium 750,000 3,250,000
Total liabilities and Stockholders’ equity 3,553,000

Unit II – Partnership Dissolution

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Activity: Exercises. Support your answers with computation in good form.

1. Capital balances and profit and loss sharing ratios of the partners in the BIG Enterprises are as follows:
Betty, Capital (50%) P 140,000
Iggy, Capital (30%) 160,000
Greg, Capital (20%) 100,000

Betty needs money and agreed to sell one-half of the interest in the partnership to Yoyo for P90,000 cash,
Yoyo pays P 90,000 directly to Betty.

How much is the ending capital of Betty after the admission of YOYO is:

a) P 140,000 b) P 70,000 c) P 90,000 d) P 0

The following data pertains to items 2 – 9:

Capital p/l ratio
D P 100,000 40%
E 120,000 60%
P 220,000 100%

2. F is admitted by purchase of one-half interest of both D and E for P 120,000. The amount credited to F is:
a) P 110,000 b) P 120,000 c) P 105,000 d) P 0

3. Refer. No. 2, give the journal entry to record admission of F.

4. F will invest cash for a 25% interest in the new firm. F will be given a bonus of P 10,000. The cash investment
F is: ______________

5. Refer. No. 4, give the journal entry to record admission of F:

6. F invests P 80,000 for ¼ interest in the firm. The capital balances of each partner in the new partnership:
__________________________________

7. Refer. No. 6, give the journal entry/ies to record admission of F:

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8. F invests P 55,000 for 20% interest in the firm. The partners may withdraw or invest cash to bring their capital
balances be to equal the new profit and loss ratio. What is the new profit and loss ratio?
______________________________

9. Refer. No. 8, give the journal entry to record admission of F:

Items 10– 11 are based on the following:

Sun (50%) Moon ( 50%)
Beginning capital balances P 540,000 P 460,000

Sun and Moon partners would like to accept Venus as a new partner to contribute cash amounting to P
400,000
for a capital credit of P 350,000 representing 25% of the new partnership total capitalization.

11. The total amount of the new partnership total capitalization is:
a) P 1,400,000 b) P 1,350,000 c) P 1, 300,000 d) not given

12. The capital balances of each partner in the new partnership: _________________________

13. RJ, a partner of JRC and Associates, an accounting firm, decides to withdraw from the partnership. RJ’s share
in the profits and losses was 30%. In final settlement of his interest, he was paid P 94,000. The total partners’
capital before revaluation of partnership assets prior to RJ’s withdrawal was P 260,000. After his
withdrawal, the remaining partners capital accounts, excluding their share in the revaluation of assets, totaled
P 190,000. What was the total amount of asset revaluation of the firm’s assets?

a) P 80,000 b) P 70,000 c) P 90,000 d) P 75,000 e) not

given

14. H and I, partners to a firm, share profits equally and each has a capital balance of P 600,000. J is admitted
as new partner by cash investment of P 300,000 for a 20% interest in both the assets and profits. J will be
credited in full for amount invested. The firm’s assets are fairly stated.

The firm’s new capital is __________________

15. Chico invested P 100,000 for a 1/3 interest in a partnership in which the other partners have capital totaling
P 260,000 before admitting Chico. Which of the following is false?
a) Chico, capital is P 100,000
b) Chico receives a bonus of P 20,000.
c) The total capital of the new firm is P 360,000.
d) The original partners’ capital is P 240,000 after admitting Chico.

16. Perez and Duran are partners who share profits and losses in a ratio of 2:3 and have capital balances of
P 750,000 and P 1,500,000, respectively. The partners agreed to admit Barros to the partnership. Barros
invested P 750,000 for a 30% interest in the partnership. The new total capital balance after admitting Barros
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is P 3,000,000. Duran’s capital balance after Barros is admitted is:

a) P 1,500,000 b) P 1,410,00 c) P 1,400,000 d) not given

17. On December 31, 2019 the balance sheet of Danger Co. has the following balances: Total assets P 450,000;
Willie loan, P 25,000; Willie, capital P 103,750; Manny Capital, P 96,250 and Loren, capital P 225,000. The
partners share profits and losses in the ratio of 25% to Willie, 25% to Manny and 50% to Loren. It was agreed
among the partners that Willie retires from the partnership and the partnership assets be adjusted to their fair
values of P 510,000. The partnership also suffered a net loss of P 150,000. The partnership would pay Willie
P 109,250 cash for his total interest in the partnership, including the loan. What is the total capital of Manny
after
retirement of Willie using the use of bonus method? _______________

18. refer to 17: prepare the necessary journal entries :

19. Peter, Chris and Paul are partners with present capital balances of P 393,750; P 472,500 and P 157,500,
respectively. The partners share profits and losses according to the following percentages; 60% for Peter;
20%
for Chris and 20% for Paul. Brian is to join the partnership upon contributing P 157,500 cash plus an equipment
with fair market value of P 315,000 to the partnership in exchange for 25% interest in the capital and 20%
interest
in the profits and losses. The existing assets of the original partnership are overvalued by P 96,250. The
original
partners will share the balance of profits and losses in their original ratio.

Capital balances of each partner in the new partnership:

Peter Chris Paul Brian
a) P 630,000 P 551,250 P 236,250 P 472,500
b) 393,750 472,500 157,500 472,500
c) 409,500 477,750 162,750 350,000
d) 467,250 497,000 182,000 350,000

The following are the capital balances and the profits and loss ratio of the partners in the STR Company on
December 31, 2019. On January 1, 2020, Gene is admitted to the partnership under the following agreement:
 Gene is to share 1/3 in the profit and loss while the other partners continue to participate in the profits
and loss in their original ratio.
 Gene is to pay Rances P 48,000 for 10% of the latter’s equity in the partnership net assets and is to
invest P320,000 cash in the partnership.
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 The total capital after Gene’s admission is P 1,000,000, of which Gene’s capital account is to show
P320,000.
Capital Account Balances P/L ratio
Sante P 120,000 25%
Tommy 160,000 50%
Rances 400,000 25%
Total assets P 680,000 100%
20. The capital account balances of the partners after Gene’s admission are:
Sante Tommy Rances Gene
_________ ________ ________ __________

21. What is the new profit and loss ratio of all partners after Gene’s admission?
Sante Tommy Rances Gene
a) 25% 50% 25% 33.33%
b) 25.99% 25% 25% 25%
c) 18.75% 37.5% 18.75% 25%
d) 16.67% 33.33% 16.67% 33.33%

22. The following is the condensed balance sheet of the partnership of Kay, Cai and Lay, who share income and
loss in the ratio of 6:3:1, respectively.

Cash P 85,000 Liabilities P 80,000

Other Assets 415,000 Kay, Capital 252,000
Cai Capital 126,000
_________ Lay, Capital ___42,000
P 500,000 P 500,000

The assets and liabilities of the partnership are fairly valued and the partnership wishes to admit Bai with a
25%interest without recording bonus. How much should be Bai invest?

a) P 105,000 b) P 125,000 c) P 140,000 d) not given

23. EE and MM are partners with capital balances of P 30,000 and P 70,000, respectively. EE has a 30% interest in
profits and losses. At this time the partnership has decided to admit NN and OO as new partners. NN
contributes cash of P 55,000 for a 20% interest in capital and a 30% interest in profits and losses. OO
contributes cash of P 10,000 and an equipment for 25% interest in capital and 35% interest in profits and
losses.

If bonus amounting to P 18,250 is given to the old partners, what is the value of the equipment contributed by
OO?
a) P 50,138 b) P 50,000 c) P 43,750 d) P 31,750

24. refer to no. 23, give the journal to record admission of new partners:

25 The partnership of Y, E and S provides for 3:3:4 sharing in profits and losses respectively. S is retiring from the
partnership and by mutual agreement the assets are to be adjusted to their fair values which is P 30,000
higher than their carrying amount. Y and E agree that the partnership will pay P 87,000 to S for his
 44

partnership interest, exclusive of his loan separately. Before the retirement of S, Total Assets, S loan, Y,
capital, E Capital and S capital has the following balances respectively: P 200,000, P 20,000, P 50,000,
P 60,000 and P 70,000. Which of the following is not correct?

a) the total amount paid to S including his loan is P 107,000.

b) the balance of Y’s capital after S’ retirement is P 56,500.
c) total assets after retirement is P 93,000.
d) the share of E in the excess payment to S is P 2,500.
26. refer to 25: prepare the necessary journal entries :

27. FF, EE and GG are partners with capital balances of P 67,200, P 108,000 and P 38,000, respectively, sharing
profits and losses in the ratio of 2:5:1. HH is admitted as a new partner bringing expertise and is to invest
cash for a 15% interest in the partnership considering the transfer of capital from him of P 18,000 upon his
admission.

Upon admission of HH, which of the following statements is false?

a) Cash will be debited in the amount of P 40,800.
b) The capital balance of EE amount to P 119,250.
c) The capital account of GG will be credited in the amount of P 2,250.
d) The total agreed capital of the old partners is P 18,000 greater than their contributed capital.

28. H and I are partners sharing profits and losses in the ratio of 6:4, respectively. On January 2, 2020, the
partners decided to admit J as a new partner upon his investment of P 96,000. On this date, the interest in the
partnership of H and I are as follows: H, P 148,000; I- P 116,000. The new partner is given a ¼ interest in
the firm, the admission of a new partner will result to which of the following:

a) Capital credit of J is P 96,000. c) Bonus to J is P 6,000

b) Bonus to H is P 2,400 d) Capital balance of H after admission is P 151,600

29 On March 1, 2019, Alma and Betty began its first year of operations with the following cash investments:
Alma P 480,000
Betty 240,000

The partners agree to allocate profits and losses as follows:

 Alma and Betty will be allowed a monthly salary of P 28,000 and P 18,000, respectively.
 The partners will be allowed with interest of 10% of their capital balances at the beginning of each year.
 The remainder will be divided on the bases of their beginning capital for the first year of operation and
equally for the subsequent years.
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 Each partner is allowed to withdraw up to P 24,000 a year. Any withdrawal in excess of the figure will be
treated as a direct reduction from their capital balances.

In 2019, the partnership suffered a net loss of P 38,000. But in 2020 they earned a net profit of P 132,000. The
partners withdraw the maximum amount from the partnership each year. On January 2, 2021, a new partner,
Cora was admitted in the partnership for an investment of P 400,000 for a 40% interest. No revaluation of
assets is to be recorded. After the admission of Cora, the partners agreed to divide profits and losses, 4:2:4 to
Alma, Betty and Cora, respectively.

On January 2, 2021, What is the entry to record the admission of Cora?

30. Partners Art and Tony who share equally in profits and losses, have the following balance sheet as of
December 31, 2019:

Cash P 120,000 Accounts Payable P 172,000

Receivable 200,000 Accumulated depreciation 28,000
Inventory 240,000 Art, capital 300,000
Equipment 180,000 Tony, capital 240,000
Total P 740,000 Total P 740,000

They agreed to incorporate their partnership, with the new corporation absorbing the net assets after the
following adjustments: provision of allowances for bad debts of P 10,000, restatement of the inventory at its
current fair value of P 260,000; recognition of further depreciation on the equipment of P 3,000. The
corporation’s capital stock is to have a par value of P 100 and the partners are to be issued corresponding total
shares equivalent to their adjusted capital balances.

The total par value of the shares of capital stock that were issued to partners Art and Tony was:
a) P 540,000 b) P 547,000 c) P 553,000 d) P 560,000

End
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