Partnership Dissolution Changes in Ownership

47

CHAPTER 3
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
3-1:

c
Implied capital of the partnership (P90,000/20%)
P450,000
Actual value of the partnership
( 420,000)
Goodwill

30,000
HIZON
Capital balances before Goodwill
Goodwill to old partners
_____
Total
Purchase by Hizon (20%)
_90,000
Capital balances after admission
P 90,000
3-2:

DAVID

P252,000
__18,000

P126,000
___9,000

P42,000
__3,000

P270,000
( 54,000)

P135,000
( 27,000)

P45,000
( 9,000)

P216,000

P108,000

P36,000

AQUINO

LOCSIN

DAVID

P252,000
( 50,400)

P126,000
( 25,200)

P42,000
( 8,400)

P201,600

P100,800

P33,600

AQUINO

LOCSIN

DAVID

P 50,400

P 25,200

P 8,400

__3,600

__1,800

___600

P 54,000

P 27,000

P 9,000

d
TOTAL
Capital transferred
P 84,000
Excess divided using profit and loss ratio
__6,000
Cash distribution
P 90,000

3-4:

LOCSIN

b
HIZON
Capital balances before admission
Purchase by Hizon (20%)
_84,000
Capital balances after admission
P 84,000

3-3:

AQUINO

b
Selling price
Interest sold (444,000X1/5)
Combine gain

P132,000
( 88,800)
P 43,200

3-5:

b
Implied value of the partnership (P40,000/1/4)
P160,000
Actual value
( 140,000)
Goodwill

20,000
DIAZ
Cash balances
P 20,000
Goodwill, Profit and Loss ratio
__2,000
Total

BERNAL

CUEVAS

P 80,000

P40,000

__12,000

__6,000

P 92,000

P46,000 P 22,

( 23,000)

( 11,500)

P 69,000

P34,500

BANZON

CORTEZ

P 16,000

P 4,000

__6,000

__4,000

P 22,000

P 8,000

PEREZ

CADIZ

P 24,000

P 48,000

5,430

10,860

000
Capital Transfer (1/4)
( 5,500)
Capital balances after admission
P 16,500
48
Chapter 3

3-6:

b
TOTAL
Capital Transfer (20%)
P20,000
Excess, Profit and Loss ratio
_10,000
Cash distribution
P30,000

3-7:

d
TOTAL
Capital balances beginning
P 72,000
Net profit, 1:2
16,290
Drawings

( 5,050)

( 8,000)( 13

P 24,380

P 50,860

( 5,570)

( 13,240)

P 18,810

P 37,620

,050)
Capital balances before admission
P 75,240
Capital transfer (squeeze)
(18,810) (1/4)
Capital balances after admission 1:2

P 56,430
Capital transfer
P18,810
Excess, 1:2
_11,190
Cash
P30,000
3-8:

P 5,570

P 13,240

__3,730

__7,460

P 9,300

P 20,700

a
Total agreed capital (P150,000/5/6)
Diana's Interest
Cash distribution

3-9:

3-10:

P180,000
1/6
P 30,000

a
Total agreed capital (P36,000/1/5)
Total contributed capital (80,000+40,000+36,000)
Unrecognized Goodwill

P180,000
( 156,000)
P 24,000

Increase
(Dec.)
(P 10,000)
_10,000
P

Old partners
New partner
Total

Contributed
Agreed
Capital
Capital
P110,000
P100,000
__40,000
__50,000
P150,000
P150,000

Ben, capital balance before admission

Bonus share to new partner (10,000X60%)
Ben, capital after admission
3-11:

P 60,000
( 6,000)
P 54,000

c
Total agreed capital (P40,000+20,000+17,000)
Pete's interest
Pete's agreed capital balance

P 77,000
1/5
P 15,400

Partnership Dissolution Changes in Ownership

3-12:

b
Old partner
New partner
Total

Capital balances before admission

Investment by Lory

49

Contributed
Capital
P 65,000
25,000 (1/3)
P 90,000

Agreed
Capital
P60,000
30,000
P90,000

Increase
(Dec.)
(P 5,000)
_5,000
P

FRED
P 35,000

RAUL
P30,000

LORY

25,000

Bonus to Lory
Capital balances after admission
3-13:

(
3,500)
P 31,500

( 1,500)
P28,500

c
Total agreed capital (90,000+60,000+70,000)
Augusts' interest
Agreed capital
Contributed capital
Bonus to June & July

P220,000
_____1/4
P 55,000
__70,000
P 15,000
JUNE
P90,000
__7,500
P97,500

Capital balances before admission

Bonus from August, equally
Capital balances after admission
3-14:

JULY
P 60,000
__7,500
P 67,500

a
Total agreed capital (52,000 + 88,000)/80%)
Total capital of Mira & Nina after admission
Cash paid by Elma

3-15:

__5,000
P 30,000

P175,000
( 140,000)
P 35,000

a
Total agreed capital (P41,600/2/3)
Total contributed capital (P23,000+18,600+16,000)
Goodwill to new partner, Ang

Capital balances before admission

Investment by Ang
Goodwill to August
Capital balances after admission

LIM
P23,000

_____
P23,000

P 62,400
( 57,600)
P 4,800
ONG
P 18,600

______
P 18,600

ANG

16,000
__4,800
P20,800

50
Chapter 3

3-16:

Capital balances before

admission
P1,300,000
Admission by Dong:
By Purchase (1/2)
By Investment
___300,000
Capital balances before

ANG

BENG

CHING

DONG TOTAL

P600,000

P 400,000

P 300,000

( 300,000)
_______

_______

_______

300,000
_300,000

Goodwill and Bonus

P300,000
P1,600,000
Goodwill to Old Partners (sch. 1) 150,000
Bonus to Old Partners
(sch. 1) __37,500
________
Capital balances after
admission
P487,500
P2,000,000
Schedule 1:
Old Partners
New Partner
Total

P 400,000

P 300,000

150,000
__37,500

100,000
__25,000

P 587,500

P 425,000

CC
AC
P 1,000,000 P1,500,000
600,000 (25%) __500,000
P 1,600,000 P2,000,000

P600,000
400,000
( 100,000)
P500,000
Inc. (Dec.)
P500,000
( 100,000) Bonus
P400,000 GW

3-17: b
Capital balances before
admission of Alma
P 200,000
Admission of Alma:
Investment
Goodwill to old partner,
70:30 (sch. 1)
___40,000
Capital balances before
admission of Lorna
P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2
( P40,000)
Investment
Goodwill to old partners,
5:3:2 (sch. 2)
___20,000
Capital balances after
admission
P 375,000

MONA

LIZA

ALMA

P150,000

P 50,000

80,000

__28,000

___12,000

_______

______

P178,000

P 62,000

P 80,000

(P 20,000)

(P 12,000) (

P8,000)

LORNA TOTAL

80,000

__10,000

____6,000

____4,000

______

P168,000

P 56,000

P 76,000

P 75,000

Schedule 1:
Total agreed capital (80,000/25%)
P 320,000
Total capital contributed (200,000+80,000)
( 280,000)
Goodwill to old partners, 70:30
40,000
Schedule 2:
Total agreed capital (75,000/20%)
P 375,000
Total contributed capital (280,000+75,000)

75,000 75,000

( 355,000)
Goodwill to old partners, 5:3:2

20,000
Partnership Dissolution Changes in Ownership

3-18:

TOTAL
Unadjusted capital balances
P320,000
Overvaluation of Marketable Securities
( 25,000)
Allowance for Bad Debts
( 25,000)
Adjusted capital balances before admission
P270,000
Total agreed capital (270,000/2/3)
Green's interest
Investment
3-19:

51

RED

WHITE

BLUE

P175,000

P100,000

P 45,000

( 12,500)

( 7,500)

( 5,000)

( 12,500)

( 7,500)

( 5,000)

P150,000

P 85,000

P 35,000

P405,000
1/3
P135,000

TOTAL
Capital balances before
admission
P720,000
Capital transfer
to WW (1/6)
______
Balances
P720,000
Equalization of capital
______
Balances
P720,000
Net profit, equally
12,600
Drawings (2 months)
_( 7,000)
Capital balances before
WWs Investment
P725,600

XX

YY

ZZ

WW

P360,000

P225,000

P135,000

( 60,000)

( 37,500)

( 22,500)

_120,000

P300,000

P187,500

P112,500

P120,000

( 100,000)

__12,500

__87,500

______

P200,000

P200,000

P200,000

P120,000

3,150

3,150

3,150

3,150

_( 1,500)

_( 2,000)

_( 1,500)

_( 2,000)

P201,650

P201,150

P201,650

P121,150

Total agreed capital (201,650+201,150+201,650)/2/3

WW's interest
Agreed capital of WW
Contributed capital (see above)

P906,675
1/3
P302,225
_121,150

3-20:

Cash to be invested
a

P181,075

Capital balances
P 45,000
Understatement of assets, P12,000
__6,000
Balances before settlement to A
P 51,000
Settlement to A
A's interest (23,750+5,000)
Partial Goodwill to A

A
P 20,750

B
P 19,250

__3,000

__3,000

P 23,750

P 22,250

P 30,250
_28,750
P 1,500

Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A
P 22,250
Bonus to A (1,500X25/75)
_( 500)
B, capital after retirement of A
P 21,750
52
Chapter 3

3-21:

a
Perez
Suarez
Capital balances
P 200,000
Net income, P140,000
28,000
Undervaluation of inventory, P20,000
____4,000
Capital balances before settlement to Perez
P 232,000
Settlement to Perez
Bonus to Perez
_( 6,000)
Capital balances after retirement
P 226,000

3-22:

Reyes

P 100,000

P 150,000

70,000

42,000

___10,000

____6,000

P 180,000

P 198,000

( 195,000)
___15,000

_(

P 189,000

ELY

FLOR

P 320,000

P 192,000

9,000)

c
GLOR
Capital balances
P 128,000
Settlement to Ely
Total Goodwill (P40,000/50%)P80,000
___16,000
Capital balances after retirement of Ely

( 360,000)

__40,000 ___24,000
P

P 216,000

P 144,000
3-23:

c
Capital balance 3/1/07
Net loss-2007:
Salary (10 months)
Interest (10 months)
Bal. beg. cap. ratio: 48:24
Total
Capital balance
Drawings
Capital balance, 12/31/07
Net profit- 2008:
Salary
Interest
Balance, equally
Total
Capital balance
Drawings
Capital balance 12/31/08

_Alma_
480,000

_Betty_
240,000

480,000
40,000
( 544,000)
( 24,000)
456,000
( 24,000)
432,000

240,000
20,000
( 272,000)
( 12,000)
228,000
( 24,000)
204,000

720,000
60,000
( 816,000)
( 36,000)
684,000
( 48,000)
636,000

576,000
43,200
( 397,800)
221,400
653,400
( 24,000)
629,400

288,000
20,400
( 397,800)
( 89,400)
114,600
( 24,000)
90,600

864,000
63,600
( 795,600)
132,000
768,000
( 48,000)
720,000

Total contributed capital (720,000 + 400,000)

Coras interest
Coras agreed capital
Coras contributed capital
Bonus to Cora, from Alma and Betty 4:2
Therefore entry (c) is correct.

_Total_
720,000

1,120,000
40%
448,000
400,000
48,000

Partnership Dissolution Changes in Ownership

3-24:

53

a
Capital balance, beg. 2007
2007 net profit (90,000 59,000):
Interest
Compensation
Balance, 4:6
Total

Balance
Withdrawal
Repairs (charge to Pete)
Capital balance, 12/31/07

_Pete_
P80,000
8,000
5,000
( 2,000)
11,000

91,000
( 8,000)
( 5,000)
78,000

1/1/08: Admission of Sammy

Total agreed capital (P117,000 +43,000)
Sammys interest
Sammys agreed capital

_Carlos_
P30,000

_Total_
P110,000

3,000
20,000
( 3,000)
20,000

50,000
( 11,000)
39,000

11,000
25,000
( 5,000)
31,000

141,000
(19,000)
( 5,000)
117,000
P160,000
20%
32,000

Sammys contributed capital

Bonus to Pete & Carlos, 4:6
Therefore entry (a) is correct.
3-25:

d,

43,000
11,000

Should be P700,269.5

Capital balances, 8/1/010

Capital withdrawal
Balances before P/L distribution
Net income, 12/31, P100,000:
Interest
Salary to Maria
Balance, equally
Balances, 12/31/010
Capital withdrawal
Balances before P/L distribution
Net income, 7/1/011, P150,000:
Interest
Salary to Mara
Balance, 60:40
Balances before admission of Paz
Admission of Paz:
Cash investment
Goodwill to Maria and Ana,6:4
Balances, 7/1/011

Maria
P300,000
(25,000)
275,000

Ana
P1,500,000
(25,000)
1,475,000

6,250
40,000
11,250
332,500
(30,000)
302,500

31,250
11,250
1,517,500
(30,000)
1,487,500

37,500
40,000
22,500
1,850,000
(60,000)
1,790,000

8,312.5
48,000
33,450
392,262.5

37,937.5
22,300
1,547,737.5

46,250
48,000
55,750
1,940,000

276,000
668,262.5

184,000
1,731,737.5

* Total agreed capital (P800,000/25%)

Total contributed capital (P1,940,000 + P800,000)
Goodwill to Maria and Ana, 6:4

Paz
-

800,000
800,000

Total
P1,800,000
(50,000)
1,750,000

800,000
460,000*
3,200,000

P3,200,000
2,740,000
P460,000

54
Chapter 3
3-25: Continued

Balances after admission of Paz

Capital withdrawal
Balance before P/L distribution
Net income 12/31/011, P150,000:
Interest
Salaries
Balance, 45:30:25
Capital balance, 12/31/011

3-26:

Maria
P668,262.5
(12,000)
656,262.5

Ana
P1,731,737.5
(12,000)
1,719,737.5

Paz
P800,000
(12,000)
788,000

Total
P3,200,000
(36,000)
3,164,000

16,707
12,000
15,300
P700,269.5

43,293
12,000
10,200
P1,785,230.5

20,000
12,000
8,500
P828,500

80,000
36,000
34,000
P3,314,000

Total agreed capital of the new partnership (P84,000 / 30%)

Total contributed capital:
Old partners (P45,000 + P65,000) + P30,000
P140,000
New partner
84,000
Goodwill

P 280,000
224,000
P 56,000

If the P56,000 goodwill proved to be worthless, Warren would be charged 35% of

P56,000, or P19,600. However, the real harm to Warren would be that of having paid
more to enter the partnership than he should have. If the goodwill did not exist, then the
adjusted assets of the previous partners would have been P140,0000, which represents
70% of the total partnership value of P200,000. In that case, Warren would have only
paid P60,000 for a 30% interest in capital. Therefore, Warren would have paid extra
P24,000 (P84.000 against P60,000) for the goodwill that proved to be worthless.
3-27:

c
Allocation of profits under the original partnerships agreement:
Amor
P30,000
12,000
10,000
P52,000

Salaries
Bonus to Amor*
Remaining profits
Total

Bea
P30,000

Cora
P40,000

4,000
P34,000

6,000
P46,000

Total
P100,000
12,000
20,000
P132,000

*Bonus = 10% (Net income Bonus)

110% Bonus = 10% (Net income)
110% Bonus = P13,200
Bonus = P12,000

Partnership Dissolution Changs in Ownership Interest

55

3-27, Continued

Allocation of new partnership profits necessary to satisfy Bea:

Salaries
Remaining profits (Sch. 1)
Bonus to Dina, (Sch. 2)
Total

Amor
P30,000
42,000

Bea
P30,000
14,000

Cora
P40,000
42,000

P72,000

P44,000

P82,000

Dina
P30,000
42,000
20,000
P92,000

Total
P130,000
140,000
20,000
P290,000

Sch. 1:
In order for Bea to increase his allocation by P10,000, she would need to received a P14,000 allocation
based on the profit ratio. Therefore, the total amount of profit subject to this allocation would be P140,000
(P14,000 / 10%).

Sch. 2:
If the cumulative total of income allocated before the bonus to Dina is P270,000, then Dina would be
entitled to the P20,000 bonus under the revised agreement.
3-28:

Total capital of the new partnership (P56,000 / 70%)

Total fair value of the net assets of the original partnership :
(P530,000 P474,000)
Dina should pay
3-29:

P80,000
56,000
P24,000

a.
Fair value of the original partnership:
Value of recorded net assets
Value of goodwill
Total fair value

P268,000
40,000
P308,000

Total agreed capital of new partnership (P308,000 / 70%)

Total capital of the original partnership
Total contribution needed from Carlos
Fair value of recorded assets contributed
Fair value of intangible contributed
Necessary cash contribution

P440,000
308,000
132,000
(90,000)
(20,000)
P
22,000

56
Chapter 3

3-30:

1. b
Net income per books
Adjustments:
Accrued expenses
Inventory overstated
Unrecorded purchases
Income received in advance
Supplies
Corrected net income
Linas new P/L ratio (50% x 80%)

P50,000
2,400
(6,200)
(4,000)
3,000
1,800
P47,000
40%

Linas share
2.

3.

4.

P18,800

Computations:
Capital balances
Admission of Olga
Bonus to Olga (Sch. 1)
Balances, 1/1/010
Division of profit
Balances, 12/31/010
Sale of interest of L to M
Division of profit
Drawings
Balances, 12/31/011
Division of profit
Inventory overvalued
Balances before retirement
Settlement to Mina
Total goodwill
Balances, 12/31/012

Lina
P150,000

Mina
P90,000

Nina
P60,000

Olga

(14,000)
136,000
18,800
154,800
(154,800)

8,400)
81,600
11,280
92,880
154,800
100,000
(20,000)
327,680
65,000
(5,000)
387,680
(425,360)
37,680

(5,600)
54,400
7,520
61,920

40,000
28,000
68,000
9,400
77,400

100,000
(10,000)
151,920
65,000
(5,000)
211,920

100,000
(5,000)
172,400
65,000
(5,000)
232,400

37,680
249,600

37,680
270,080

Partnership Dissolution Changes in Ownership Interest

3-31:

Total
P340,000
40,000
340,000
47,000
387,000
300,000
(35,000)
652,000
195,000
(15,000)
832,000
(425,360)
113,040
P519,680

57

a
Correction in the problem:
Interest to be acquired by new partner in Partnership AA should be 30%.
Partnership
Fair value of original partnership:
Assets at book value
Liabilities at book and fair value
(a) Book value of original partnership
assets appreciation (depreciation)
(b) Net assets

AA

BB

CC

P500,000
(369,500)
130,500
(50,000)
80,500

P600,000
(410,000)
190,000
125,000
315,000

P800,000
(558,000)
242,000
50,000
292,000

Percent of new partnership represented by:

(c) Investment of new partner
(d) Fair value of the original partnership
(e) Fair value of new partnership
suggested by the fair value of the
original partnership (b / d)
(f) Fair value of original partnership
(g) Fair value of consideration that should
be conveyed by the Darna (e-f)

3-32:

30%
70%

25%
75%

20%
80%

P115,000
80,500

P420,000
315,000

P365.000
292,000

P34,500

P105,000

P73,000

1.a
2.a
3.b
4.b
Computations:
Maya

Rita

2008:
Balances, 12/31/07
Allocation of profit, sch. 1
Distributions
Balances, 12/31/08

P54,000
127,000
(100,000)
P81,600

P76,000
102,400
(100,000)
P78,400

2009:
Balances, 1/1/09
Admission of Hara *
Allocation of profit,sch. 1
Distributions
Balances, 12/31/09

P81,600
30,000
145,250
(80,000)
P176,850

P78,400
20,000
98,875
(80,000)
P117,275

Hara

Perla

Total
P130,000
230,000
(200,000)
P160,000

P 70,000
85,875
(80,000)
P 75,875

58

P160,000
120,000
330,000
(240,000)
P370,000

Chapter 3

3-32, Continued
Maya

Rita

Hara

2010:
Balances, 12/31/010
Sale of interest to Rita
Allocation of profit, sch. 1
Distributions
Balances, 12/31/08

P176,850
(176,850)
P
-

P117,272
176,850
100,000
(60,000)
P334,125

P75,875

2011:
Balances, 1/1/011

P334,125

Perla

Total

100,000
(80,000)
P95,875

P370,000
200,000
(140,000)
P430,000

P95,875

P430,000

Adjustment of net assets

Recognition of goodwill**
Sale of interest by Rita
Subtotal
Admission of Perla***
Balances, 12/31/011

(5,000)
20,875
(350,000)
P
-

(5,000)
P90,875
21,625
P112,500

75,000
P 75,000

(10,000)
20,875
(350,000)
P90,875
96,625
P187,500

Schedule 1:
2008 Allocation of profit:
Maya
40%
P80,000
46,000
1,600
P127,600

Profit and loss ratio

Salary
Bonus (see schedule 2)
Balance
Total

Rita
60%
P100,000
2,400
P102,400

Total
P180,000
46,000
4,000
P230,000

2009 Allocation of profit:

Profit and loss ratio
Salary
Bonus (see schedule 2)
Balance
Total

Maya
30%
P80,000
66,000
(750)
P145,250

Schedule 2:
2008 Bonus:
Maya (P230,000 x 20%)
2009 Bonus:
Maya (P330,000 x 20%)
Hara (P330,000 x 20%)

Rita
45%
P100,000
(1,125)
P98,875

Hara
25%
P70,000
16,500
(625)
P85,875

Total
P250,000
82,500
(2,500)
P330,000

P46,000
P66,000
16,500
P82,500

Partnership Dissolution Changes in Ownership

59

3-32, Continued
* Admission of Hara:
Total agreed capital of new partnership (P70,000 / 25%)
Total contributed capital (P160,000 + P70,000)
Goodwill to old partners

P280,000
230,000
P 50,000

** Sale of interest by Rita:

Settlement to Rita
Ritas adjusted capital balance
Goodwill traceable to Rita

P350,000
329,125
P 20,875

*** Admission of Perla:

Total agreed capital of the new partnership (P75,000 / 40%)
Total contributed capital of all the partners (P90,875 + P75,000)
Goodwill to Hara

P187,500
165,875
P 21,625

60

Chapter 3

SOLUTIONS TO PROBLEMS
(a)

Problem 3 1
1. Revaluation of Assets:
Total agreed capital (P75,000 25%).....................................P300,000
Total contributed capital........................................................ ._275,000
Upward revaluation of assets, P/L ratio..................................P 25,000
Entry
Assets................................................................................
Cash.................................................................................
Red, capital..................................................................

25,000
75,000
5,000

White, capital...............................................................
Blue, capital.................................................................
Green, capital...............................................................

10,000
10,000
75,000

2. Bonus Method:
Contributed capital of Green....................................................P 75,000
Agreed capital of Green (P275,000 x 25%).............................._68,750
Bonus to old partners, P/L ratio...............................................P 6,250
Entry:
Cash.................................................................................
Green, capital...............................................................
Red, capital..................................................................
White, capital...............................................................
Blue, capital.................................................................

75,000
68,750
1,250
2,500
2,500

(b) 1. Implicit Goodwill Method:

Total Implied Capital (P75,000 25).....................................P300,000
Total existing capital.............................................................. ._200,000
Implied Goodwill to old partners............................................P100,000
Entries:
Goodwill...........................................................................
Red, capital..................................................................
White, capital...............................................................
Blue, capital.................................................................

100,000
20,000
40,000
40,000

Red, capital (25% x P80,000)...........................................

White, capital (25% x p120,000)......................................
Blue, capital (25% x P100,000)........................................
Green, capital...............................................................

20,000
30,000
25,000

2. Red, capital (25% x P10,000)......................................................

White, capital (25% x P80,000)..................................................
Blue, capital (25% x P60,000)....................................................
Green, capital.......................................................................

15,000
20,000
15,000

75,000

50,000

Partnership Dissolution Changes in Ownership Interest

61

Problem 3 2
a.

(1) Bonus Method:

Contributed capital of Tomas.............................................................................
Agreed capital of Tomas (P640,000 x 20%)......................................................
Bonus to old partners, P/L ratio..........................................................................
BRUNO
MARIO
TOMAS
Balances before admission..................... P200,000
P300,000

Admission of Tomas............................... ___9,000

___3,000
_128,000
Balances after admission........................ P209,000
P303,000
P128,000
(2) Goodwill Method:
Total agreed capital (P140,000 20%). .........................................

P700,000

P140,000
_128,000
P 12,000
TOTAL
P500,000
_140,000
P640,000

Total contributed capital.................................................................

Goodwill to old partners, P/L ratio.................................................
BRUNO
MARIO
Balances before admission..................... P200,000
P300,000
Admission of Tomas............................... __45,000
__15,000
Balances after admission........................ P245,000
P315,000

_640,000
P 60,000
TOMAS
P

_140,000
P140,000

TOTAL
P500,000
_200,000
P700,000

(3) Goodwill with subsequent write-off.

Balances from A-2..................................

Goodwill written off, 4:4:2.....................

BRUNO
P245,000
( 36,000)
P209,000
BRUNO
P245,000
( 24,000)

MARIO
P315,000
( 12,000)
P303,000
MARIO
P315,000
( 24,000)

TOMAS
P140,000
( 12,000)
P128,000
TOMAS
P140,000
( 12,000)

TOTAL
P700,000
( 60,000)
P640,000
TOTAL
P700,000
( 60,000)

Balances..................................................

P221,000

P291,000

P128,000

P640,000

Balances from A-2..................................

Goodwill written off, 6:2:2.....................
Balances..................................................
b.

Problem 3 3
a.

b.

Total capital after admission (P76,000 + P104,000)........................................................

Total capital before admission (P60,000 + P80,000)........................................................
Goodwill recorded............................................................................................................

P180,000
_140,000
P 40,000

Total capital of the partnership (P180,000 75%)...........................................................

Less: Total capital of old partners plus Goodwill (P140,000 + 40,000)...........................
Cash payment by Barry.....................................................................................................

P240,000
_180,000
P 60,000

Total capital after admission (P52,000 + P68,000)..........................................................

Total capital before admission..........................................................................................
Bonus to Barry..................................................................................................................

P120,000
_140,000
P 20,000

Agreed capital of Barry (P120,000 75%) x 25%...........................................................

Less: Bonus ...................................................................................................................
Cash payment by Barry.....................................................................................................

P 40,000
__20,000
P 20,000

Chapter 3

62

Problem 3 4
a.

Total agreed capital (P60,000 20%)..................................................P300,000

Total contributed capital (P100,000 + P40,000 + P60,000)................ ._200,000
Goodwill to old partners, P/L ratio......................................................P100,000
Entry:
Cash. ..........................................................................................
Goodwill.....................................................................................
Gene, capital.........................................................................
Nancy, capital.......................................................................

60,000
100,000
80,000
20,000

Ellen, capital.........................................................................
b.

Cash.................................................................................................
Ellen, capital...............................................................................

60,000
60,000
60,000

No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c.

d.

Gene, capital.....................................................................................
Nancy, capital....................................................................................
Ellen, capital...............................................................................

20,000

Cash.................................................................................................
Ellen, capital...............................................................................

32,000

8,000
28,000
32,000

Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e.

Total agreed capital (P140,000 80%)................................................P175,000

Total contributed capital (P140,000 + P32,000)................................. ._172,000
Goodwill to new partner......................................................................P 3,000
Entry:
Cash. ..........................................................................................
Goodwill.....................................................................................
Ellen, capital.........................................................................

32,000
3,000
35,000

Problem 3 5
a.
b.

Cash.................................................................................................
Cherry capital.............................................................................

40,000
40,000

Total agreed capital (P120,000 + P50,000)..........................................P170,000

Cherry's interest...................................................................................____25%
Cherry's agreed capital.............................................................................42,500
Contributed capital............................................................................. .__50,000
Bonus to old partners, 70:30................................................................P 7,500

Partnership Dissolution Changes in Ownership Interest

Problem 3-5, continued:

Entry:
Cash. ..........................................................................................
Cherry, capital......................................................................
Helen, capital........................................................................
Cathy, capital........................................................................
c.

63

50,000

Total agreed capital (P120,000 + P25,000)..........................................P145,000

Cherry's interest...................................................................................____25%
Agreed capital of Cherry.........................................................................36,250
Contributed capital............................................................................. .__25,000
Bonus to new partner...........................................................................P 11,250

42,500
5,250
2,250

Entry:
Cash. ..........................................................................................
Helen, capital..............................................................................
Cathy, capital..............................................................................
Cherry, capital......................................................................
d.

36,250

Total agreed capital (P50,000 25%)..................................................P200,000

Total contributed capital (P120,000 + 50,000)......................................170,000
Goodwill to old partners, 70:30...........................................................P 30,000
Entry:
Cash
.....................................................................................
Goodwill.....................................................................................
Cherry, capital......................................................................
Helen, capital........................................................................
Cathy, capital........................................................................

e.

25,000
7,875
3,375

50,000
30,000
50,000
21,000
9,000

Total agreed capital (P120,000 75%)................................................P160,000

Total contributed capital (P120,000 + P25,000)................................. ._145,000
Goodwill to new partner......................................................................P 15,000
Entry:
Cash
.....................................................................................
Goodwill.....................................................................................
Cherry, capital......................................................................

25,000
15,000
40,000

Problem 3 6
a.

Total agreed capital (P600,000 3/4).................................................................

Santos interest.....................................................................................................
Contribution of Santos........................................................................................

P800,000
_____1/4
P200,000

b.

Total agreed capital (P630,000 3/4).................................................................

Santos' interest....................................................................................................
Contribution of Santos........................................................................................

P840,000
_____1/4
P210,000

64
Problem 3-6, continued:
c.

d.

e.

Chapter 3

Total agreed capital (P624,000 3/4)...........................................................................................

Less: Contributed capital of old partners.......................................................................................

P832,000
_600,000

Contributed capital of Santos........................................................................................................

P232,000

Total agreed capital (P600,000 3/4)...........................................................................................

Less: Goodwill ............................................................................................................................

P800,000
__10,000

Contributed capital........................................................................................................................
Contributed capital of old partners................................................................................................

790,000
_600,000

Contributed capital of Santos........................................................................................................

P190,000

Total agreed capital (Contributed).................................................................................................

P820,000

Less: Contributed capital of old partners.......................................................................................

_600,000

Contributed capital of Santos........................................................................................................

P220,000

Problem 3 7
a.

b.

c.

Tony, capital ........................................................................................................

Noel, capital......................................................................................................

40,000

Cash
........................................................................................................
Noel, capital......................................................................................................
(P180,000 2/3) x 1/3 = P90,000.

90,000

Cash.........................................................................................................................
Goodwill...................................................................................................................
Noel, capital......................................................................................................

56,000
4,000

40,000

90,000

60,000

Total agreed capital (P180,000 3/4)............................................................................P240,000

Total contributed capital (P180,000 + P56,000).............................................................._236,000
Goodwill to new partner.................................................................................................P 4,000
d.

Subas, capital
...............
Tony, capital
.............
Inventory........................
24,000

14,400
9,600

Cash.........................................................................................................................
52,000
Noel, capital......................................................................................................
52,000
Total agreed capital (P52,000 1/4)..............................................................................P208,000
Total capital before inventory write-down (180,000 + 52,000)......................................(232,000)
e.

Write-down to old partners capital.................................................................................( 24,000)

Land.. ....
92,000
Subas, capital..........
Tony, capital.
Subas, capital (P155,200 x 1/4)................................................................................
38,800
Tony, capital (P116,800 x 1/4)..................................................................................
29,200
Noel, capital......................................................................................................
Total resulting capital (P68,000 1/4)...........................................................................P272,000
Total capital of old partner (net assets)............................................................................_180,000
Increase in value of land................................................................................................P 92,000
Capital of old partner after revaluation of land:
Subas (P100,000 + P55,200)..................................................................................P155,200
Tony (P80,000 + P36,800)........................................................................................116,800

Partnership Dissolution Changes in Ownership Interest

Problem 3-7, continued:

f.

Cash.................................................................................................
Subas, capital....................................................................................
Tony, capital .....................................................................................
Noel, capital................................................................................

55,200
36,800

68,000

65

40,000
2,400
1,600

Agreed capital of Noel (P220,000 x 1/5)..............................................P 44,000

Contributed capital of Noel...................................................................._40,000
Bonus to Noel.......................................................................................P 4,000

44,000

g.

Cash................................................................................................. P60,000
Goodwill. ..........................................................................................
60,000
Noel, capital................................................................................
Subas, capital (P60,000 x 3/5)....................................................
Tony, capital (P60,000 x 2/5)......................................................

P 60,000
36,000
24,000

Total agreed capital (P60,000 1/5)....................................................P300,000

Total contributed capital (P180,000 + P60,000)................................. ._240,000
Goodwill to old partner, 3:2.................................................................P 60,000
Problem 3 8
a.

b.

c.

Conny, capital....................................................................................
Andy, capital (P8,000 x 3/4)..............................................................
Benny, capital (P8,000 x 1/4)............................................................
Cash. ..........................................................................................

40,000
6,000
2,000

Goodwill. ..........................................................................................
Conny, capital....................................................................................
Cash. ..........................................................................................

10,000
40,000

Goodwill (P5,000 1/5)....................................................................

Conny, capital....................................................................................
Andy, capital (P25,000 x 3/5)......................................................
Benny, capital (P25,000 x 1/5)....................................................
Cash
.....................................................................................

25,000
40,000

48,000

50,000

15,000
5,000
45,000

Problem 3 9
a.
b.

Spade, capital....................................................................................
Jack, capital................................................................................

120,000

Goodwill (P30,000 50%)................................................................

Ace, capital.................................................................................
Jack, capital................................................................................
Spade, capital..............................................................................

60,000

Spade, capital (P120,000 + P30,000)................................................

Jack, capital................................................................................

150,000

120,000
12,000
18,000
30,000
150,000

66

Chapter 3

Problem 3-9 (Continued)

c.

Spade, capital....................................................................................
Cash. ..........................................................................................

180,000

Ace, capital (P60,000 x 2/5)..............................................................

Jack, capital (P60,000 x 3/5).............................................................
Spade, capital..............................................................................

24,000
36,000

180,000

60,000

d.

e.

f.

g.

Land.................................................................................................
Ace, capital (20%).......................................................................
Jack, capital (30%).....................................................................
Spade, capital (50%)...................................................................

20,000

Spade, capital....................................................................................
Ace, capital (P50,000 x .40)..............................................................
Jack, capital (P50,000 x .60).............................................................
Cash. ..........................................................................................
Land. ..........................................................................................

130,000
20,000
30,000

Goodwill. ..........................................................................................
Spade, capital....................................................................................
Cash. ..........................................................................................

30,000
120,000

Goodwill (P30,000 50%)................................................................

Spade, capital....................................................................................
Ace, capital (P60,000 x 20%)......................................................
Jack, capital (P60,000 x 30%)....................................................
Cash. ..........................................................................................

60,000
120,000

4,000
6,000
10,000

60,000
120,000

150,000

12,000
18,000
150,000

Land................................................................................................. P40,000
Ace, capital (20%).......................................................................
Jack, capital (30%).....................................................................
Spade, capital (50%)...................................................................
Spade, capital (P120,000 + P20,000)................................................
Ace, capital (P10,000 x 40%)............................................................
Jack, capital (P10,000 x 60%)...........................................................
Land. ..........................................................................................
Note payable...............................................................................

8,000
12,000
20,000

140,000
4,000
6,000
100,000
50,000

Partnership Dissolution Changes in Ownership Interest

67

Problem 3 10
Case 1: Bonus of P10,000 to Eddy:
Eddy, capital...............................................................................
Charly, capital (P10,000 x 3/5)...................................................
Danny, capital (P10,000 x 2/5)...................................................
Cash .....................................................................................

70,000
6,000
4,000
80,000

Case 2: Partial Goodwill to Eddy:

Goodwill.....................................................................................
Eddy, capital...............................................................................
Cash .....................................................................................
Case 3: Bonus of P5,000 to remaining partner:
Eddy, capital...............................................................................
Charly, capital (P5,000 x 3/5)..............................................
Danny, capital (P5,000 x 2/5)...............................................
Cash .....................................................................................
Case 4: Total Implied Goodwill of P24,000:
Goodwill.....................................................................................
Eddy, capital...............................................................................
Charly, capital (P24,000 x 3/6)............................................
Danny, capital (P24,000 x 2/6).............................................
Cash .....................................................................................
Case 5: Other assets disbursed:
Eddy, capital...............................................................................
Other assets.................................................................................
Charly, capital (P60,000 x 3/6)............................................
Danny, capital (P60,000 x 2/6).............................................
Cash .....................................................................................
Case 6: Danny purchases Eddy's capital interest:
Eddy, capital...............................................................................
Danny, capital......................................................................

4,000
70,000
74,000
70,000
3,000
2,000
65,000
24,000
70,000
12,000
8,000
74,000
70,000
20,000
30,000
20,000
40,000
70,000
70,000

68

Chapter 3

Problem 3 11
a. 1/1/08

Building...............................................................
Equipment............................................................
Cash ....................................................................
Santos capital..............................................
To record initial investment.

52,000
16,000
12,000

12/31/08Reyes capital.........................................................

22,000

40,000

Santos capital..............................................
Income summary.........................................
To record distribution of loss as follows:

1/1/09

12,000
10,000

Interest.................................................................
Additional profit..................................................
Balance to Reyes.................................................

Santos
P 8,000
4,000
______

Total....................................................................

P12,000

Cash ....................................................................
Santos capital (15%)...........................................
Reyes capital (85%).............................................
Cruz capital.................................................

Reyes
P

Total
P 8,000
4,000
(22,000) (22,000)

P(22,000) (P10,000)
15,000
300
1,700
17,000

(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/09 Santos capital......................................................
Reyes capital........................................................
Cruz capital.........................................................
Santos drawings..........................................
Reyes drawings...........................................
Cruz drawings.............................................

10,340
5,000
5,000
10,340
5,000
5,000

To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 300].)
12/31/09 Income summary..................................................
Santos capital..............................................
Reyes capital...............................................
Cruz capital.................................................
To allocate P44,000 income figure as computed below:
Santos
Interest (20% of P51,700).................................... P10,340
15% of P44,000 income.......................................
6,600
Balance, 60:40..................................................... ______

Reyes

Cruz

P16,236

P10,824

Total....................................................................

P16,236

P10,824

P16,940

44,000
16,940
16,236
10,824

Partnership Dissolution Changes in Ownership Interest

Problem 3-11, continued:

69

Capital balances as of December 31, 2009

Initial investment, 2008.......................................
2008 profit...........................................................
Cruz investment...................................................
2009 drawings.....................................................
2009 profit...........................................................

Santos
P40,000
12,000
(300)
(10,340)
_16,940

Reyes
Cruz
P40,000
(22,000)
(1,700) P17,000
(5,000) (5,000)
_16,236 _10,824

Capital, 12/31/09.................................................

P58,300

P27,536

P22,824

1/1/010 Cruz capital.........................................................

Diaz capital.................................................
To transfer capital purchase from Cruz to Diaz
12/31/010

12/31/010

22,824
22,824

Santos capital......................................................
Reyes capital........................................................
Diaz capital.........................................................
Santos drawings..........................................
Reyes drawings...........................................
Diaz drawings.............................................
To close drawings accounts based on 20% of beginning capital
or P5,0000 (whichever is greater).
Income summary..................................................
Santos capital..............................................
Reyes capital...............................................
Diaz capital.................................................
To distribute profit for 2008 computed as follows:

11,660
5,507
5,000
11,660
5,507
5,000
Balances (above)
61,000
20,810
24,114
16,076

Santos
P11,660
9,150
______

Reyes

Diaz

Interest (20% of P58,300)....................................

15% of P61,000 profit..........................................
Balance, P40,190, 60:40......................................

P24,114

P16,076

Total....................................................................

P20,810

P24,114

P16,076

1/1/011 Diaz capital.........................................................

33,900
Santos capital (15%)...........................................
509
Reyes capital (85%).............................................
2,881
Cash............................................................
37,290
Diaz capital is [33,900 (P22,824 P5,000 +P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
b. 1/1/08

Building...............................................................
Equipment............................................................
Cash ....................................................................
Goodwill..............................................................
Santos capital..............................................
Reyes capital...............................................
To record initial investments. Reyes is credited with goodwill of
Santos investment.

70

52,000
16,000
12,000
80,000
80,000
80,000
P80,000 to match
Chapter 3

Problem 3-11, continued:

12/31/08

Reyes capital.......................................................
30,000
Santos capital..............................................
20,000
Income summary.........................................
10,000
Interest of P16,000 is credited to Santos (P80,000 x 20%) along with a base of
P4,000. The remaining profit is now a P30,000 loss which is attributed entirely to
Reyes.

1/1/09

Cash ....................................................................
15,000
Goodwill..............................................................
22,500
Cruz capital.................................................
37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill =
P15,000 + goodwill =
P15,000 + goodwill =
.80 goodwill
=
goodwill
=

20% (current capital + P15,000 + goodwill)

20% (P150,000 + P15,000 + goodwill)
P33,000 + .20 goodwill
P18,000
P22,500

12/31/09 Santos capital......................................................

20,000
Reyes capital........................................................
10,000
Cruz capital.........................................................
7,500
Santos drawings..........................................
Reyes drawings...........................................
Cruz drawings.............................................
To close drawings accounts based on 20% of beginning capital
Balances: Santos, p100,000; Reyes, P50,000; and Cruz, P37,500.
12/31/09 Income summary..................................................
Santos capital..............................................
Reyes capital...............................................
Cruz capital.................................................
To allocate P44,000 profit as follows:

20,000
10,000
7,500

44,000
26,600
10,400
6,960
Santos
P20,000
6,600
______

Reyes

Cruz

Interest (20% of P100,000)..................................

15% of P44,000 profit..........................................
Balance of P17,400, 60:40...................................

P10,440

P 6,960

Total....................................................................

P26,600

P10,440

P 6,960

Capital balances as of December 31, 2009:

Santos
Initial investment, 2008....................................... P80,000
2008 profit allocation...........................................
20,000
Additional investment..........................................
2009 drawings..................................................... (20,000)
2009profit allocation............................................ __26,600

Reyes
P80,000
(30,000)

Capitals, 12/31/09................................................ P106,600

P50,440

Cruz

P37,500
(10,000) (7,500)
_10,440 __6,960
P36,960

Partnership Dissolution Changes in Ownership Interest

71
Problem 3-11, continued:
1/1/010 Goodwill.......................................................................
26,588
Santos capital......................................................
3,988
Reyes capital.......................................................
13,560
Cruz capital........................................................
9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).

1/1/010

Cruz capital..................................................................
Diaz capital.........................................................
To transfer of capital purchase.

46,000

12/31/010 Santos capital...............................................................

Reyes capital................................................................
Diaz capital..................................................................
Santos drawings..................................................
Reyes drawings...................................................
Diaz drawings.....................................................
To close drawings accounts based on 20% of beginning capitals.

22,118
12,800
9,200

12/31/010 Income summary..........................................................

Santos capital......................................................
Reyes capital.......................................................
Diaz capital.........................................................
To allocate profit for 2008 as follows:

61,000

46,000

22,118
12,800
9,200

31,268
12,800
9,200
Santos
P22,118
9,150
______

Reyes

Diaz

Interest (20% of P110,588)..........................................

15% of P61,000............................................................
Balance of P29,732, 60:40...........................................

P17,839

P11,893

Totals............................................................................

P31,268

P17,839

P11,893

Santos
P106,600
3,988

Reyes
P50,440
13,560

Diaz

(22,118)
__31,268

(12,800)
_17,839

P46,000
(9,200)
_11,893

P119,738

P69,039

P48,693

Capital balances as of December 31, 2010:

12/31/07 balances.........................................................
Goodwill.......................................................................
Capital purchased.........................................................
Drawings......................................................................
Profit allocation............................................................
12/31/08 balances.........................................................
1/1/011

1/1/011
72

Goodwill.......................................................................
14,321
Santos capital......................................................
2,148
Reyes capital.......................................................
7,304
Diaz capital.........................................................
4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
Diaz capital..................................................................
53,562
Cash....................................................................
53,562
To record settlement to Diaz.
Chapter 3

Problem 3 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories..........................................................................................
Land ...................................................................................................
Building. .............................................................................................

26,000
40,000
20,000

Accumulated depreciation bldg........................................................

Accumulated depreciation equipment...............................................
Equipment...................................................................................
Jack capital.................................................................................
Jill capital...................................................................................
Jun capital...................................................................................
To adjust assets and liabilities of the partnership
to their current fair values.

20,000
30,000

(2) Cash ...................................................................................................

Jack capital.........................................................................................
Jill capital...................................................................................
Jun capital...................................................................................
To adjust capital accounts of the partners to 4:3:3 ratio.

4,000
18,000

(3) Jack capital.........................................................................................

Jill capital...........................................................................................
Jun capital...........................................................................................
Capital stock...............................................................................
To record issuance of stock to the partners.

100,000
75,000
75,000

20,000
58,000
34,800
23,200

20,200
1,800

250,000

New Books Opened for the New Corporation

Entries in the Books of the Partnership
(1) Inventories..........................................................................................
Land ...................................................................................................
Building. .............................................................................................
Accumulated depreciation bldg........................................................
Accumulated depreciation equipment...............................................
Equipment...................................................................................
Jack capital.................................................................................
Jill capital...................................................................................
Jun capital...................................................................................
To adjust assets and liabilities of the partnership.

26,000
40,000
20,000
20,000
30,000

(2) Cash ...................................................................................................

Jack capital.........................................................................................
Jill capital...................................................................................
Jun capital...................................................................................
To adjust capital accounts of the partners.

4,000
18,000

20,000
58,000
34,800
23,200

20,200
1,800

Partnership Dissolution Changes in Ownership Interest

Problem 3-12, continued:

(3) Stock of JJJ Corporation.....................................................................

Accounts payable.................................................................................
Loans payable Jill.............................................................................
Cash in bank...............................................................................
Accounts payable........................................................................
Inventories..................................................................................
Land...........................................................................................
Building. .....................................................................................

73

250,000
30,000
40,000
44,000
26,000
60,000
60,000
70,000

Equipment...................................................................................
To record transfer of assets and liabilities to
The corporation and the receipt of capital stock

60,000

(4) Jack capital.........................................................................................

Jill capital...........................................................................................
Jun capital...........................................................................................
Stock of JJJ Corporation.............................................................
To record issuance of stock to the partners.

100,000
75,000
75,000
250,000

Entries in the Books of the Corporation

(1) To record the acquisition of assets and liabilities from the partnership:
Cash in bank. ......................................................................................
Accounts receivable.............................................................................
Inventories..........................................................................................
Land ...................................................................................................
Building (net). .....................................................................................
Equipment (net)...................................................................................
Accounts payable........................................................................
Loans payable.............................................................................
Capital stock...............................................................................

44,000
26,000
60,000
60,000
70,000
60,000
30,000
40,000
250,000

Problem 3 13
1.
a.

Bonus Method
2010 journal entries
Jan. 1: Cash
Inventory
Equipment
Notes payable
Aquino, capital (50%)
Binay, capital (50%)
To record initial investments at fair value along with equal
capital balances.

40,000
12,000
48,000
10,000
45,000
45,000

74

Chapter 3

Problem 3-13: Continued

Oct. 1: Cash

12,000

Aquino, capital
To record additional investment of Aquino.
Dec. 31: Computation of the bonus:
Net profit before bonus
Net profit after bonus (P33,000 / 110%)

12,000

P33,000
30,000

Bonus

P 3,000

Computation of interest on average capital:

Aquino: Beginning capital: P45,000 x 9 months =
New balance :
P57,000 x 3 months =
Total

P405,000
171,000
P576,000

Average capital: P576,000 / 12 =

Interest rate
Interest credited to Aquino

P 48,000
10%
P 4,800

P45,000 x 10% =

Binay:

4,500

Allocation of P33,000 profit:

Bonus
Interest
Balance of income
Total

Aquino
P 3,000
4,800
12,420
P20,220

Closing Entry:
Aquino, Capital
Binay, capital
Aquino, drawing
Binay, drawing
To close P800 per month drawing accounts for the year.
Income summary
Aquino, capital
Binay, capital
To close profit for the year.

Binay
P4,500
8,280
P12,780

Total
P 3,000
9,300
20,700
P33,000

9,600
9,600
9,600
9,600
33,000
20,220
12,780

Partnership Dissolution Changes in Ownership Interest

75

Problem 3-13, continued:

b.

Statement of Changes in Partners Equity

Capital balances, beginning

Additional investments
Net income
Drawings

Aquino
P45,000
12,000
20,220
(9,600)

Binay
P45,000
12,780
(9,600)

Total
P 90,000
12,000
33,000
(19,200)

Capital balances, end

P67,620

P48,180

2011 journal entries:

Jan. 1: Admission of Roxas.
Total agreed capital of the new partnership (P115,800 + P66,000)
Roxas interest
Roxas agreed capital
Roxas contributed capital
Bonus to Aquino and Binay, 60:40
Cash

P115,800

P181,800
1/3
P 60,600
66,000
P 5,400

66,000

Roxas, capital
Aquino, capital
Binay, capital
To record admission of Roxas with bonus to original partners.

60,600
3,240
2,160

Several Withdrawal of Binay:

Years Binay capital balance
Later Settlement
Bonus to Binay, from Aquino and Roxas
Binay, capital
Aquino, capital
Roxas, capital
Cash
To record withdrawal of Binay with bonus from the
Remaining partners split equally.
2.
a.

Goodwill Method:
2010 Journal Entries:
Jan. 1: Cash
Inventory
Equipment
Goodwill
Note payable
Aquino, capital
Binay, capital
To record investments of the partners with goodwill
attributed to Aquino.

P78,000
90,000
P12,000
78,000
6,000
6,000
90,000

40,000
12,000
48,000
14,000
10,000
52,000
52,000

76

Chapter 3

Problem 3-13: Continued

Oct. 1: Cash

12,000

Aquino, capital
To record additional investment of Aquino.
De. 31: Bonus to Aquino (the same)

12,000
P3,000

Interest on average capital:

Aquino: Beginning capital:
New balance:
Average capital
Interest rate
Interest
Binay:

P52,000 x 10%

P52,000 x 9/12 =
P64,000 x 3/12 =

P39,000
16,000
P55,000
x 10%
P 5,500

P 5,200

Allocation of income of P33,000:

Bonus
Interest
Balance of income
Total

Aquino
P 3,000
5,500
11,580
P20,080

Closing Entries:
Aquino, Capital
Binay, capital
Aquino, drawing
Binay, drawing
To close out drawing accounts for the year.

Total
P 3,000
10,200
19,300
P33,000

9,600
9,600
9,600
9,600

Income summary
Aquino, capital
Binay, capital
To allocate profits computed above.
b.

Binay
P5,200
7,720
P12,920

33,000
20,080
12,920

Statement of Changes in Partners Equity

Capital balances, beginning

Additional investments
Net income
Drawings
Capital balances, end

Aquino
P52,000
12,000
20,080
(9,600)
P74,480

Binay
P52,000
12,920
(9,600)
P55,320

Total
P104,000
12,000
33,000
(19,200)
P129,800

Partnership Dissolution Changes in Ownership Interest

77

Problem 3-13, continued:

2011 Journal Entries:
Jan. 1: Admission of Roxas
Total agreed capital of the new partnership (P66,000 / 1/3)
Total contributed capital (P129,800 + P66,000)
Goodwill to old partners

P198,000
195,800
P 2,200

Goodwill
Aquino, capital (60%)
Binay, capital (40%)
To recognize goodwill based on Roxas investment.

2,200

Cash

66,000

1,320
880

Roxas, capital
To record admission of Roxas.
Several: Withdrawal of Binay
Years Binay capital balance
Later: Settlement
Goodwill to Binay (20%)

66,000

P78,000
90,000
P12,000

Total goodwill (P12,000/20%)

P60,000

Goodwill
Aquino, capital (40%)
Binay, capital (20%)
Roxas, capital (20%)
To recognize total goodwill.

60,000

Binay, capital
Cash
To record cash settlement to Binay.

90,000

24,000
12,000
12,000

90,000