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Chapter 4 Dissolution Q A Final

Basic Accounting (Palawan State University)

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EXERCISES

Exercise 4-1 (Admission of New Partner under Various Assumptions)

Camus and Cuenco are partners who have capital balances of P90,000 and P60,000 and who
share profits 60% and 40% respectively. They agree to admit Cerda as a partner upon his
payment of P90,000.

Instructions: Give the journal entries to record each of the following independent assumptions:

1. One-third of the capital balances of the old partners are transferred to the new partner,
Camus and Cuenco dividing the cash between themselves.

2. One-third of the capital balances of the old partners are transferred to the new partner,
Camus and Cuenco dividing the cash between themselves. However, before recording the
admission of Cerda, asset revaluation is undertaken on the firm books so that Cerda’s
capital may be equal to the amount paid for the interest.

3. The cash is invested in the business and Cerda is credited with a ¼ interest in the firm,
the bonus method being used in recording his investment.

4. The cash is invested in the business and Cerda is credited with the full amount of his
investment, which is to be 25% of the new firm capital.

5. The cash is invested in the business and Cerda is credited for P120,000 which includes a
bonus from Camus and Cuenco.

Answer
1. Camus, Capital (90,000 x 1/3) 30,000
Cuenco, Capital (60,000 x 1/3) 20,000
Cerda, Capital 50,000

2. Other Assets 120,000

Camus, Capital (P120,000 x 75%) 90,000
Cuenco, Capital (P120,000 x 25%) 30,000

Camus, Capital [(P90,000 + P90,000) x 1/3] 60,000

Cuenco, Capital [(P60,000 + P30,000) x 1/3] 30,000
Cerda, Capital 90,000

3. Cash 90,000
Cerda, Capital 60,000
Camus, Capital (P30,000 x 60%) 18,000
Cuenco, Capital (P30,000 x 40%) 12,000

4. Cash 90,000
Other Assets 120,000
Camus, Capital (P120,000 x 60%) 72,000
Cuenco, Capital (P120,000 x 40%) 48,000
Cerda, Capital 90,000
AC CC Asset Rev

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Old P270,000 P150,000 P120,000

New 90,000 90,000 ------
P360,000 P240,000 P120,000

5. Cash 90,000
Camus, Capital (P30,000 x 60%) 18,000
Cuenco, Capital (P30,000 x 40%) 12,000
Cerda, Capital 120,000

Exercise 4-2 (Admission of a New Partner; Bonus and Asset Revaluation Method)
At the end of fiscal year 2014, the capital accounts and the profit and loss sharing ratio for the
partners of C3 Co. are presented below. At this date, it is agreed that a new partner, Canda, is to
be admitted to the firm.
Capital P&L Ratio
Capco P 100,000 50%
Cular 80,000 30%
Cruz 60,000 20%

Instructions: For each of the following situations involving the admission of Canda into the
partnership, give the journal entry to record his admission.

1. Canda purchases one-fourth of Cular’s interest in the firm paying Cular P50,000.

2. Canda buys a one-quarter interest in the firm for P70,000 by purchasing one-fourth of the
interest of each of the three partners. Asset revaluation is made prior to admission of
Canda.

3. Canda invests P115,000 and receives a one-quarter interest in capital and profits of the
business, bonus being allowed on the admission.

Answer
1. Cular, Capital 20,000
Canda, Capital 20,000

2. Other Assets 40,000

Capco, Capital 20,000
Cular, Capital 12,000
Cruz, Capital 8,000
P70,000  ¼ = P280,000 – (P100,000 + P80,000 + P60,000) = P40,000

Capco, Capital (P100,000 + P20,000) x ¼ 30,000

Cular, Capatil (P80,000 + P12,000) x ¼ 23,000
Cruz, Capital (P60,000 + P8,000) x ¼ 17,000
Canda, Capital 70,000

3. Cash 115,000
Canda, Capital 88,750.00
Capco, Capital P26,250 x 50% 13,125
Cular, Capatil P26,250 x 30% 7,875

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Cruz, Capital P26,250 x 20% 5,250

AC CC Bonus
Old P266,250 P240,000 P26,250
New 88,750 115,000 (26,250)
P355,000 P355,000 P ------

Exercise 4-3 (Admission of a New Partner by Purchase)

Partners Catral and Clemente are considering the admission of Conti into the partnership. Catral
and Clemente share income and loss in the ratio of 3:1, respectively. Catral’s capital balance is
P480,000 and Clemente’s capital balance is P360,000.

Instructions: Prepare entries to record the admission of Conti into the partnership under each of
the following independent assumptions:

1. Conti acquired one-third of the interest of Catral paying P160,000.

2. Conti acquired one-third of the interest of Clemente paying P70,000.

3. Conti acquired a one-fourth interest from the old partners paying P126,000. Asset
revaluation has to be made prior to the admission of Conti.

Answer
1. Catral, Capital 160,000
Conti, Capital 160,000
P480,000 x 1/3 = P160,000

2. Clemente, Capital 120,000

Conti, Capital 120,000
P360,000 x 1/3 = P120,000

3. Catral, Capital P336,000 x ¾ 252,000

Clemente, Capital P336,000 x ¼ 84,000
Other Assets 336,000
P126,000 1/4 = P504,000 – P840,000 = P336,000

Catral, Capital 57,000

Clemente, Capital 69,000
Conti, Capital 126,000
(P480,000 – P252,000) x 1/4 = P57,000
(P360,000 - P84,000 ) x 1/4 = P69,000

Exercise 4-4 (Admission of a New Partner by Purchase and by Investment)

Carlos and Cruz, partners have capital balances of P200,000 and P300,000, respectively. They
admit Caparas and Carpio into the partnership. Caparas purchases one-fourth of Carlos’ interest
for P56,000 and one-third of Cruz’s interest for P72,000. Carpio is admitted to the partnership
with an investment of P120,000 for which he is to received an ownership equity of P120,000.

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Instructions:
1. Present the entries in general journal form to record the admission into the partnership of
(a) Caparas, and (b) Carpio.
2. What are the capital balances of each partner after the admission of Caparas and Carpio?

Answer
1a. Carlos, Capital (P200,000 x ¼) 50,000
Cruz, Capital (P300,000 x 1/3) 100,000
Caparas, Capital 150,000

1b. Cash 120,000

Carpio, Capital 120,000

2. Carlos (P200,000 – 50,000 = P150,000) 150,000

Cruz (P300,000 – 100,000 = P200,000) 200,000
Caparas 150,000
Carpio 120,000

Exercise 4-5 (Admission of a New Partner by Investment)

Cuenca and Claudio share profits equally and have equal investments in their partnership. The
partnership’s net asset are carried on the books at P500,000. Cabral is admitted into the
partnership with a one-fourth interest in profits and net assets. Cabral pays P200,000 cash into
the partnership for his interest.

Instructions: Prepare journal entries to show two possible methods of recording the admission of
Cabral on the partnership books.

Answer
1. Bonus Method
Cash 200,000
Cuenca, Capital (P25,000 / 2) 12,500
Claudio, Capital (P25,000 / 2) 12,500
Cabral, Capital 175,000
AC CC Bonus
Old P525,000 P500,000 P25,000
New 175,000 200\,000 (P25,000)
P700,000 P700,000 -----

2. Asset Revaluation Method

Cash 200,000
Other Assets 100,000
Cuenca, Capital (P100,000 / 2) 50,000
Claudio, Capital 50,000
Cabral, Capital 200,000
AC CC Asset Rev.
Old P600,000 P500,000 P100,000
New 200,000 200,000 ------
P800,000 P700,000 P100,000

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Exercise 4-6 (Admission of a New Partner by Investment)

The capital balances and the income and loss sharing ratio of the partners Choy, Chua and Cheng
are as follows
Capital P&L Ratio
Choy P 150,000 3/7
Chua 125,000 2/7
Cheng 100,000 2/7

The partnership has been successful and the partners have decided to invite Chiu to join them.
Chiu has been admitted into the partnership with a one-fifth capital interest for a cash investment
of P120,000.

Instructions: Prepare the entries to record the admission of Chiu under the (1) bonus method and
(2) asset revaluation method.

1. Cash 120,000
Choy, Capital (P21,000 x 3/7) 9,000
Chua, Capital (P21,000 x 2/7) 6,000
Cheng, Capital (P21,000 x 2/7) 6,000
Chiu, Capital 99,000
AC CC Bonus
Old P396,000 P375,000 P21,000
New 99,000 120,000 (21,000)
P495,000 P495,000 -------

2. Other Assets 105,000

Choy, Capital (P105,000 x 3/9) 45,000
Chua, Capital 30,000
Cheng, Capital 30,000

Cash 120,000
Chiu, Capital 120,000
AC CC Asset Rev
Old P480,000 P375,000 P105,000
New 120,000 120,000 -
P600,000 P495,000 P105,000

PROBLEMS

Problem 4-1 (Admission of a New Partner under Various Assumptions)

Carmen and Centeno are partners with capital balances of P160,000 and P80,000. They share
profits 60%, 40% respectively. The partners agree to admit Corrales as a member of the firm.

Instructions: Give the required entries on the partnership books to record the admission of
Corrales under each of the following assumptions:

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1. Corrales purchases a ¼ interest in the firm. One-fourth of each partner’s capital is to be

transferred to the new partner. Corrales pays the partners P60,000, which divided
between them in proportion to the equities given up.

2. Corrales purchases a 1/3 interest in the firm. One-third of each partner’s capital is to be
transferred to the new partner. Corrales pays the partners P120,000, which is divided
between them in proportion to the equities given up. Before Corrales’ admission, asset
revaluation is undertaken and recorded on the firm books so that Corrales’ 1/3 interest
will be equal to the amount of his payment.

3. Corrales’ invests P120,000 for a ¼ interest in the firm. Asset revaluation is recorded on
the firm books prior to the admission.

4. Corrales invests P120,000 for a 50% interest in the firm. Carmen and Centeno transfer
part of their capital to that of Corrales as a bonus.

5. Corrales invests P160,000 in the firm. P40,000 is to be considered a bonus to partners

Carmen and Centeno.

6. Corrales invests P160,000 in the firm and allowed a bonus to Carmen and Centeno of
P20,000 upon his admission.

7. Corrales invests P100,000 for a ¼ interest in the firm. The total firm capital after his
admission is to be P340,000.

8. Corrales invests P110,000 for a ¼ interest in the firm. The total firm capital after his
admission is to be P440,000.

9. Corrales invests P96,000 for a 1/3 interest in the firm. The total firm capital after his
admission is to be P336,000.

Problem 4-2 (Admission of a New Partner under Various Assumptions)

Coral and Corpuz are partners with capital balances of P180,000 and P120,000, respectively.
They share profits and losses in the ratio of 4:1. They agree to admit Calma to the partnership.

Instructions: Journalize the admission of Calma to the partnership for each of the following
independent assumptions:

1. Calma is admitted to a one-third interest in capital with a contribution of P150,000.

2. Calma is admitted to a one-fourth interest in capital with a contribution of P120,000.

Total capital of the partnership is to be P420,000.

3. Calma is admitted to a one-fourth interest in capital upon contributing P60,000. The total
capital of the new partnership is to be P360,000.

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4. Calma is admitted to a one-fourth interest in capital by the purchase of one-fourth of the

interest of Coral and Corpuz for P82,500. Total capital of the new partnership is to be
P300,000.

5. Same conditions as in (4), except that the new partnership capital is to be P330,000 due to
the asset revaluation undertaken prior to the admission of Calma.

6. Calma is admitted to a one-fifth interest in capital upon contributing P90,000. Total

capital of the new partnership is to be P450,000.

Problem 4-3 (Admission of a New Partner under Various Assumptions)

In 2012, Castillo and Cordova established a partnership. Their operations have been very
successful. Since Castillo devotes full-time to the business and Cordova part-time, they share
profits and losses in the ratio of 7:3, respectively. At the beginning of 2014, Coloma expressed
his interest of joining the partnership. The capital balances of Castillo and Cordova on this date
are P560,000 and P840,000, respectively.

Instructions:
1. Prepare the entries to record the admission of Coloma into the partnership under each of
the following independent assumptions:

a. Coloma invests P350,000 cash for a one-fifth interest in the partnership.

b. Coloma invests P500,000 cash for a one-fourth interest in net assets; the bonus
method is used.

c. Coloma invests P700,000 for a one-fourth interest; the asset revaluation method is to
be used.

d. Coloma pays Castillo and Cordova a total of P550,000 for one-fourth of the
respective capital interest.

e. Coloma pays Castillo and Cordova a total of P350,000 for one-fifth of their respective
capital interest; no asset revaluation is undertaken prior to the admission of Coloma.

2. Assuming Coloma paid a total of P600,000 to Castillo and Cordova for two-fifths of their
respective capital balances, prepare a schedule determining the amount of cash to be
transferred to Castillo and Cordova.

Problem 4-4 (Admission of a New Partner by Investment)

The following statement of financial position is for the partnership of Cortes, Canda and Cena,
who share profits and losses in the ratio of 3:2:1 respectively.

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ASSETS LIABILITIES AND CAPITAL

Cash P 90,000 Liabilities P210,000

Other Assets 810,000 Cortes, Capital 420,000
Canda, Capital 240,000
Cena, Capital 30,000
Total Assets P 900,000 Total Liabilities & P 900,000
Capital
Instructions:

1. Assume that the assets and liabilities are valued fairly, and that the partnership wishes to
admit Cruz as a new partner with one-fifth interest in capital. Without recording bonus,
determine what Cruz’s contribution should be.

2. If Cruz contributes P210,000 for a one-fifth interest, determine the new capital balances
of each partner using: (a) the bonus method, and (b) the asset revaluation method.

Problem 4-5 (Admission of a New Partner by Purchase and by Investment)

The following are the capital accounts of the partners in the 3C Store on June 30, 2014:

Capital P&L Ratio

Charlaine P 150,000 2/5
Chuncie 125,000 2/5
Cathy 100,000 1/5

On July 1, 2014, Chesca invests P90,000 in the business for a one-eight interest in net assets.
Profits are to be shared equally after the admission.

Instructions:

1. Give two alternative solutions, in journal entry form, to record Chesca’s admission to the
firm. Which method/solution will be preferred by Cathy?

2. Give two alternative journal entries to record Chesca’s admission, if instead of investing,
she purchases a one-eight interest ratably from all partners.

Problem 4-6 (Admission of a New Partner by Purchase and by Investment)

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Cabal, Cadiz, Caldea, business partners of a firm carrying their names, have agreed on a profit
and loss ratio of 20:30:50, respectively. On December 31, 2014, the books of their partnership
showed the following credit balances:

Cabal – P150,000; Cadiz – P180,000; Caldea – P300,000

On January 1, 2015, Camo was admitted as a new partner under the following terms and
conditions:

a. Camo will share 20% in the profit and loss ratio, while the ratio of the original partners
will remain proportionately the same as before Camo’s admission.

b. Camo will pay P25,000 for 1/6 of Cadiz’s share.

c. Camo will contribute P150,000 in cash to the partnership.

d. Total capital of the partnership after Camo’s admission will be P800,000 of which
Camo’s capital account will be shown as P160,000.

Instructions:

1. Using the following suggested format, prepare a schedule showing the capital of each
partner after the admission of partner Camo.
Cabal Cadiz Caldea Camo Total
Capital credit balances before P150,000 180,000 300,000 P630,000
the admission of Camo

2. What is the profit and loss ratio of all the partners after Camo’s admission?

Problem 4-7 (Admission of a New Partner by Investment; Statement of Changes in Partners’

Equity)

Corona and Calderon are partners whose capital accounts on December 31, 2013, before the
firm’s books are closed, are P250,000 and P150,000 respectively. The drawing account for
Corona shows a debit balance of P41,000; for Calderon, a debit balance of P34,000. The
partnership agreement with regards to profits provides that (1) each partner is to be allowed an
annual salary of P45,000 and (2) Corona is to received 60% and Calderon 40% of the profits
after allowance of salaries.

The income summary account on December 31 has a credit balance of P70,000 before any entry
for the allowance of salaries, and this balance is closed into the partners’ capital accounts. The
balance of the drawing accounts are also closed into the capital accounts.

On January 2, 2014, Calixto is admitted as a partner upon the investment of P100,000 into the
firm. The partners allow a bonus on the investment so that Calixto may have a 1/3 interest in the

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firm. The new agreement provides that profits are to be distributed as follows: Corona, 35%;
Calderon, 25%; and Calixto, 40%. Salaries are not allowed.

On December 31, 2014 the partners’ drawing accounts have debit balances as follows: Corona –
P37,500; Calderon – P25,000; and Calixto – P34,000. The income summary account has a
P75,000 debit balance. Accounts are closed.

The partnership was sold in January, 2015 for P87,500. Cash settlement was made to the
partners.

Instructions: Prepare a statement of changes in partners’ equity, showing all of the changes that
took place since January 1, 2013.

MULTIPLE CHOICE

MC 4-1 If the total contributed capital exceeds the agreed capital with the new partner’s
investment is the same as his capital credit, then the admission of the new partner
involved a
a. bonus to new partner c. negative asset revaluation
b. bonus to old partners d. positive asset revaluation

MC 4-2 If the agreed capital is equal to the total contributed capital with the capital credit and
contribution of the old and new partners being the same, there exists
a. asset revaluation and bonus c. no asset revaluation and no bonus
b. negative asset revaluation d. positive asset revaluation

MC 4-3 If the capital credit of the new partner is less than his contribution with no adjustment
in asset values, then the admission resulted in a
a. bonus to the old partners c. no bonus
b. bonus to the new partner d. both A and B

MC 4-4 Calibo and Camos are partners with capital balances of P60,000 and P80,000 and
sharing profits and losses 40% and 60% respectively. If Cueva is admitted as partner

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paying P50,000 in exchange for 50% of Calibo’s equity, the entry in the partnership
books should be as follows:

a. Calibo, Capital 50,000

Cueva, Capital 50,000

b. Calibo, Capital 30,000

Cueva, Capital 30,000

c. Cash 45,000
Other Assets 15,000
Cueva, Capital 60,000

d. Cash 60,000
Calibo, Capital 15,000
Cueva, Capital 45,000

MC 4-5 Chan, Ching and Chen are partners who share profits and losses in the ratio of 5:3:2,
respectively. They agree to sell Chat 25% of their respective capital and profits and
losses ratio for a total payment directly to the partners in the amount of P140,000.
They agree that the asset revaluation of P60,000 is to be recorder prior to admission
of chat. The condensed statement of financial position of the CCC Partnership is
presented on the next page.

ASSETS LIABILITIES AND CAPITAL

Cash P 60,000 Liabilities P100,000

Other Assets 540,000 Chan, Capital 250,000
Ching, Capital 150,000
Chen, Capital 100,000
Total Assets P 600,000 Total Liabilities & P 600,000
Capital

The capitals of Chan, Ching and Chen respectively after the payment and admission of
Chat are
a. P187,500; 112,500; 75,000
b. P210,000; 126,000; 84,000
c. P280,000; 168,000; 112,000
d. P250,000; 150,000; 100,000

MC 4-6 C2 Partnership had a net income of P24,000 for the month ended September 30,
2014. Carreon purchased an interest in the C2 Partnership of Calvo and Calma by
paying Calvo P72,000 for half of his capital and half of his 50% profit sharing
interest. At this time, the capital balance of Calvo was P96,000 and the capital

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balance of Calma was P168,000. Carreon should receive a credit to his capital
account of
a. P36,000 c. P72,000
b. P48,000 d. P84,000

MC 4-7 Cheng, Chavez and Chato are partners sharing profits and losses in the ratio of 4:3:3,
respectively. The condensed statement of financial position of their partnership as of
December 1, 2014 is presented below.

ASSETS LIABILITIES AND CAPITAL

Cash P 100,000 Liabilities P 80,000

Other Assets 260,000 Cheng, Capital 120,000
Chavez, Capital 80,000
Chato, Capital 80,000
Total Assets P 360,000 Total Liabilities & P 900,000
Capital

All the partners agree to admit Cua as 1/6 partner in the partnership without any asset
revaluation nor bonus. Cua shall contribute assets amounting to
a. P20,000 c. P70,000
b. P56,000 d. P120,000

MC 4-8 On May 1, 2014, the business accounts of Cordova and Constacio appear below:

Assets Cordova Constancio

Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture and Fixtures 50,345 34,789
Other Assets 2,000 3,600
P 1,020,916 P 1,317,002

Equities
Accounts Payable P 178,940 P 243,650
Notes Payable 200,000 345,000
Cordova, Capital 641,976
Constancio, Capital 728,352
P 1,020,916 P 1,317,002

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Cordova and Constancio agreed to form a partnership contributing their respective assets
and equities subject to the following adjustments:

a. Accounts Receivable of P20,000 in Cordova’s books and P35,000 in Constancio’s are

uncollectible

b. Inventories of P5,500 and P6,700 are worthless in Cordova’s and Constancio’s respective
books.

c. Other Assets of P2,000 and P3,600 in Cordova’s and Constancio’s respective books are
to be written off.

The capital accounts of the partners after the adjustments will be

Cordova Constancio
a. P 614,476 P 683,052
b. 615,942 717,894
c. 640,876 712,345
d. 613,576 683,350

MC 4-9 Using the information in MC 4-8, how much assets does the partnership have?
a. P2,237,918 c. P 2,337,918
b. 2,265,118 d. P 2,365,218

MC 4-10 Using the information in MC 4-8, and assuming Cuyugan offered to join for a
20% interest in the firm, how much cash should he contribute?
a. P 324,382 c. P 337,487
b. P 330,870 d. P 344,237

MC 4-11 Using the information in MC4-8 and assuming after Cuyugan’s admission, the
profit and loss sharing ratio was agreed to be 40:40:20 based on capital credits,
how much should the cash settlement be between Cordova and Constancio?
a. P32,272 c. P33,602
b. P 32,930 d. P34,288

MC 4-12 Using the information in MC4-8 and assuming that during the first year of
operations the partnership earned and income of P 325,000 and that this was
distributed in the agreed manner. Assuming further that drawings were made in
these amounts: Cordova, P50,000; Constancio, P65,000; and Cuyugan, P28,000,
how much are the capital balances of the partners after the first year?

Cordova Constancio Cuyugan

a. P750,627 P735,177 P372,223
b. P728,764 P713,764 P361,382
c. P757,915 P742,315 P375,837
d. P743,121 P727,827 P368,501

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MC 4-13 Conrado, Cosio and Cosme are partners whose capital balances and share in
profits are as follows:
Condrado P250,000 50%
Cosio 150,000 25%
Cosme 100,000 25%

Cueto is admitted into the partnership by paying P60,000 for 1/3 share in equity
of Cosio and by contributing P200,000. The partners agree to the total
capitalization to P750,000, 1/3 of which is Cueto’s capital credit. Cueto’s share in
net income is also 1/3 and the old partners are to divide net income in the old ratio
among themselves.

The profit and loss sharing ratio among Conrado, Cosio and Cosme after the
admission of Cueto is
a. 50%, 25%, 25%, respectively
b. 30%, 15%, 15% respectively
c. 2/6, 1/6, 1/6, respectively
d. 1/3, 1/3, 1/3, respectively

MC 4-14 Using the information in MC 4-13, the amount of the asset revaluation is equal to
a. P15,000 c. P120,000
b. P50,000 d. P200,000

MC 4-15 Using the information in MC 4-13, the capital balances of the old partners after
the admission of Cueto are
a. P250,000, P150,000, P100,000 respectively
b. P275,000, P112,500, P112,500 respectively
c. P250,000, P100,000, P100,000 respectively
d. P250,000, P200,000, P100,000 respectively

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Test Material No. 14 Rating _____

TRUE or FALSE

Instructions: Encircle the letter T if the statement is true and the letter F if the statement is
false.

T F 1 Admission of a new partner by investment will change total assets and

total capital.

T F 2 Asset revaluation and bonus are one and the same thing.

T F 3 When a new partner is admitted, the partnership may continue operations

based on a new contract among themselves.

T F 4 The total assets of the partnership may increase upon admission of a new
partner by purchase of interest

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T F 5 A new partner may be admitted into the partnership with the consent of
the majority of the old partners.

T F 6 A partnership dissolution will always lead to a partnership liquidation.

T F 7 Bonus to a new partner is given by the old partners.

T F 8 If the agreed capital exceed total contributed capital, the difference may be
positive asset revaluation.

T F 9 If the capital credit of the partner is less than his investment, the difference
is always recorded as an asset revaluation.

T F 10 The admission of a new partner in an existing partnership dissolves the

old partnership.

T F 11 A new partner may be admitted without an investment and without the

recognition of capital interest.

T F 12 The agreed capital can never be less than the total contributed capital.

T F 13 When a new partner enters an existing partnership by purchasing a partner's

interest, the cash paid to the selling partner for the partnership interest is
always equal to the new partner's capital balance.

T F 14 A bonus given to the old partners by a new partner increases the capital
account balances of the old partners.

T F 15 Admission of a new partner by purchase of interest is a personal transaction

between the selling partner and the buying partner. Hence, any indicated
gain in the transaction is not recognized in the partnership books.

T F 16 In the admission of a new partner by purchase, the new partner may pay
more than, less than or equal to the book value of the interest sold by any
or all of the old partners.

T F 17 Asset revaluation may be recorded upon the admission of a new partner

whether by purchase or by investment.

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T F 18 In the admission of a new partner by investment, agreed capital must always

equal to contributed capital.

T F 19 The sale of a partner's interest in an existing partnership is a personal

transaction between the selling partner/partners and the buying or new
partner.

T F 20 Both asset revaluation and bonus affect total assets and total capital.
are to be used as partnership books, for the purpose of arriving at agreed
values.

Test Material No. 15 Rating _____

IDENTIFICATION

Instructions: Write the word or group of words that identify each of the following statements.

1 The term that apply to the excess of agreed capital over total
contributed capital

2 It can be determinded by dividing the new partner's contibution

by his fraction of interest.

3 The transfer of capital from one partner to another.

4 The contribution of both the new and the old partners.

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5 The change in the relation of the partners casued by any one of them
ceasing to be associated in the carrying out of the business.

6 It represents a partners's equity or capital in the partnership.

7 This refers to the termnation of the life of an existing partnership.

8 It is a personal transaction between the partner who sells his interest

and a third party (buyer) who thereafter becomes a partner.

9 The amount of new capital set by the patners for the partnership
which need not necessarily equal contributed capital.

10 Type of admission wherein the new partner is admitted by buying

the whole interest or a portion thereof of one or more old partners.

11 A type of admission where assets are contributed to the partnership.

12 The increase in the capital of the old partnes, other than the asset
revaluation, which reduces the capital of the new partner.

13 This refers to the termination of the business activities carried on by

the partnership.

14 The interest or equity of a partner in the partnership upon admission.

15 The situation in the admission of a new partner by investment wherein

the two alternative solutions are the bonus and the asset revaluation
method.

16 The basis for the computation of the total partnership capital wehen
the amount of a new partner's contribution has to be determined.

17 The equity of a partner in the partnership that is usually expressed

in fraction.

18 The decrease in the capital balances of the old partners, upon

admission of a new partner, brought about by some partnership
assets which may not be properly valued.

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19 The difference between the consideration made and the interest

transferred in an admission by purchase.

20 The basis of an old partner in evaluating whether to prefer the bonus

or asset revaluation method in the admission of a new partner.

Test Material No. 19 Rating _____

MULTIPLE CHOICE – Theory and Problems

Instructions: Encircle the letter of the best answer. Show supporting computations in good
form in a separate work sheet.

1. A person may become a partner in a partnership by all of the following methods except
a. investing in the partnership with a bonus to the new partner
b. making a loan to the partnership
c. investing in the partnership with a bonus to the old partners
d. purchasing a partner’s interest

2. If a new partner purchases his interest from an old partner, the only entry on the
partnership books is a credit to the purchaser’s capital account with a debit to the
a. bonus account
b. cash account

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c. capital account of the selling partner

d. capital accounts of other partners

3. Which of the following does not result in the dissolution of a partnership?

a. Marriage of a partner
b. Withdrawal of a partner
c. Addition of a new partner
d. Death of a partner

4. A new partner may be admitted into a partnership by any of the following except
a. investing in the partnership
b. purchasing preferred stock of the partnership
c. purchasing a partner’s interest
d. both a and c

5. Cabrera, Capulong and Castor are partners with capital balances of P250,000, P150,000,
and P100,000, respectively. The partners share income and losses equally. For an
investment of P250,000 cash, Concio is to be admitted as a partner with a one-fourth
interest in capital and income. Based on this information, the amount of Concio’s
investment can best be justified by which of the following?
a. Assets of the partnership’s net assets was less than the fair value immediately prior to
Concio’s investment.
b. The book value of the partnership’s net assets was less than the fair value
immediately prior to Concio’s investment.
c. Concios admission into the partnership does not involve a bonus nor an asset
revalutaion.
d. Concio will receive a bonus from the other partners upon his admission to the
partnership.

6. If A is the total capital of a partnership before the admission of a new partner, B is the
total capital of the partnership after the investment of new partner, C is the amount of the
new partner’s investment, and D is the amount of capital credit to the new partner, there
is
a. neither bonus nor asset revaluation if B=A+C and D>C
b. a bonus to the old partners if B>(A+C) and D<C
c. a bonus to the new partner if B=A+C and D<C
d. an asset revaluation to the old partners if B>(A+C) and D=C

7. Cuenco and Cuizon are partners with a capital ratio of 3:1 and a profit and loss ratio of
2:1, respectively. The bonus method was used to record Calasin’s admittance as a new
partner. What ratio should be used to allocate to Cuenco and Cuizon the excess of
Calasin’s contribution over the amount credited to his capital account?
a. Cuenco and Cuizon’s old profit and loss ratio
b. Cuenco and Cuizon’s old capital ratio
c. Cuenco and Cuizon’s new relative profit and loss ratio
d. Cuenco and Cuizon’s new relative capital ratio

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8. Cunanan invests P160,000 in a partnership for a one-fifth interest. Prior to Cunanan’s

admission, the partnership had two partners with capital balances of P190,000 each. If no
asset revaluation is recognized prior to Cunanan’s admission, what amount is credited to
his capital account?
a. P90,000 c. P135,000
b. P108,000 d. P160,000

9. Colladio’s interest in the partnership is P112,000. Cuervo buys Collado’s interest for
P120,000. How much is the capital balance of Cuervo after purchase?
a. P108,000 c. P112,000
b. P110,000 d. P120,000

10. Cortez, Cuerdo and Claudio are partners with capital balances of P180,000, P100,000 and
P120,000, respectively. Condo is admitted into the partnership with a one-fourth interest
upon payment of P160,000. If the old partners share profits and losses in the ratio of 2/5,
2/5, and 1/5, then the capital account of Cortez after the admission of Conde will show a
balance of
a. P160,000 c. P184,000
b. P180,000 d. P188,000

11. Castro contributes P120,000 for a one-sixth interest in a partnership. The total capital
balances of the partners prior to the admission of Castro is P360,000. If the no asset
revaluation is made prior to the admission of Castro, what amount is credited to the
capital account of Castro upon his admission?
a. P80,000 c. P120,000
b. P96,000 d. P160,000

12. Conn and Cass form a partnership and have capital balances of P100,000 and P200,000,
respectively. If they agree to admit Charr into the partnership, how much will he have to
invest to have a one-third interest?
a. P100,000 c. P150,000
b. P120,000 d. P200,000

13. Cardel desires to purchase a one-fourth capital and profit and loss interest in the
partnership of Cariaso, Carino and Carillo. The three partners agree to sell Cardel one-
fourth of their respective capital and profit and loss interest in exchange for a total
payment of P200,000. The profit and loss ratio and capital balances of the partners are as
follows: Cariaso (60%) – P400,000; Carino (30%) – P200,000; and carillo (10%) –
P100,000. If assets are to be revalued prior to the admission of Cardel, what would be the
capital balances of Cariaso, Carino and Carillo after the admission of Cardel?
a. P300,000;P150,000;P75,000 c. P385,000;P192,500;P97,500
b. P345,000;P172,500;P82,500 d. P460,000;P230,000;P110,000

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14. Based on the information in No. 13 and assuming assets are fairly valued, what would be
the capital balances of Cariaso, Carino and Carillo after the admission of Cardel?
a. P300,000;P150,000;P75,000 c. P385,000;P192,500;P97,500
b. P345,000;P172,500;P82,500 d. P460,000;P230,000;P110,000

15. Based on the information in No. 13 and assuming assets are fairly valued and that Cardel
purchases a one-fourth capital and profit and loss interest from Cariaso for P200,000,
what would be the capital balances of Cariaso, Carino and Carillo after the admission of
Cardel?
a. P400,000;P200,000;P100,000 c. P300,000;P150,000;P75,000
b. P300,000;P200,000;P100,000 d. P100,000;P50,000;P25,000

16. Based on the information in No. 13 and assuming assets are fairly valued and that Cardel
purchases a one-fourth capital and profit and loss from the partnership paying P200,000,
what would be the capital balances of Cariaso, Carino and Carillo after the admission of
Cardel?
a. P300,000;P150,000;P75,000 c. P385,000;P192,500;P97,500
b. P345,000;P172,500;P82,500 d. P460,000;P230,000;P110,000

17. Coral, Camus and Cerda are partners sharing profits in the ratio of 4:4:2, respectively. As
of December 21, 2013, their capital balances were P190,000 for Coral, P160,000 for
Camus, P120,000 for Cerda.

On January 1, 2014, the partners admitted Cordero as a new partner and according to
their agreement, Cordero will contribute P160,000 in cash to the partnership and also pay
P20,000 for 15% of Camus’ share. Cordero will be given a 20% share in profits while the
original partners’ share will be proportionately the same as before. After the admission of
Cordero, the total capital will be P660,000 and Cordero’s capital be P140,000.

The amount of asset revaluation upon the admission of Cordero is

a. P24,000 c. P50,000
b. P30,000 d. P160,000

18. Based on the information in No. 17, the bonus to Cerda upon the admission of Cordero is
a. P8,800 c. P22,000
b. P17,600 d. P44,000

19. Based on the information in No. 17, the capital of Camus after the admission of Cordero
is
a. P160,000 c. P168,600
b. P165,600 d. P189,600

20. Based on the information in No. 17, the partners’ profit and loss ratio after the admission
of Cordero is
a. 20%,20%,20%,20% c. 32%,32%,16%,20%
b. 25%,25%,25%,25% d. 40%,40%,20%,20%

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Test Material No. 17 Rating _____

PROBLEMS

Problem A

Cosme, Canlas and Cura are partners with profit and loss ratio of 30%, 50% and 20%,
respectively. Their capital balances are: Cosme – P150,000; Canlas – P300,000; Cura – P50,000.
Corazon is admitted into the partnership by investing P150,000.

Instructions: Compute for the amount of asset revaluation or bonus in each of the following
independent cases. Journal entries are not required. Use the space provided for the supporting
computations in good form (Example: No asset revaluation; Bonus to new partner – P30,000).
Corazon is allowed:

1. 1/5 interest in the partnership with a capital credit equal to his investment.

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2. 1/5 interest in the partnership with total agreed capital of P650,000.

3. 30% interest in the partnership with total agreed capital of P650,000.

4. 15% interest in the partnership with total agreed capital of P750,000.

5. 1/5 interest in the partnership, bonus being allowed.

Problem B

Partners Cueva, Costal and Cison share profits and losses 4:2:4 respectively. The statement of
financial position at Septemeber 30, 2014 follows:

ASSETS LIABILITIES AND CAPITAL

Cash P 80,000 Liabilities P 200,000

Other Assets 720,000 Cueva, Capital 148,000
Costal, Capital 260,000
Cison, Capital 192,000
Total Assets P 800,000 Total Liabilities & P 800,000
Capital

The assets and liabilities are recorded at their current fair values. Cinco is to be admitted as a
new partner with a 20% capital interest and a 20% share of profits and losses in exchange for a
cash investment. Asset revaluation or bonus will not be considered.

Instructions: Determine the amount to be contributed by Cinco.

Problem C

Canete desires to purchase a one-fourth capital and profit and loss interest in the partnership of
Carandang, Cojuangco and Capistrano. The three partners agree to sell Canete one-fourth of their
respective capital and profit and loss interest in exchange for a total payment of P120,000. The
capital accounts and the respective percentage interests in profits and losses immediately before
the sale to Canete are as follows:

Capital % Interest in
Profits % Losses
Carandang P 240,000 60%
Cojuangco 120,000 30%
Capistrano 60,000 10%
P 420,000 100%

Asset revaluation is to be undertaken prior to the admission of Canete.

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Imstructons: Determine the capital balances of Carandang, Cojuangco and Capistrano, after
the admission of Canete.

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