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ADVANCE ACCOUNTING 1

BS Accountancy (Christ the King College)

Studocu is not sponsored or endorsed by any college or university

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NAME: Date:
Professor: Section: Score:

ACCOUNTING FOR SPECIAL TRANSACTIONS

FIRST GRADING EXAMINATION

1. AAA and BBB are partners with capital of P60,000 and P20,000, respectively.
Profits and losses are divided in the ratio of 60:40. AAA and BBB decided to form a
new partnership with CCC, who invested land valued at P15,000 for a 20% capital
interest in the new partnership. CCC’s cost of the land was P12,000 the
partnership elected to use the bonus method to record the admission of CCC into
the relationship. CCC’s capital account should be credited for
a. P12,000 c. P16,000
b. P15,000 d. P19,000
60+20+15= 95 x 20%=19

2. AAA and BBB formed partnership in 2009. The partnership agreement provides for
annual salary allowances of P55,000 for AAA and P45,000 for BBB. The partners
share profits equally and losses in a 60:40 ratio. The partnership had earnings of
P80,000 for 2009 before any allowance to partners. What amount of these earnings
should be credited to each partner’s capital account?
AAA BBB AAA BBB
a. P40,000 P40,000 c. P 44,000 P
36,000
b. 43,000 37,000 d. 45,000
35,000
B

3. The partnership agreement of AAA and BBB provides that interest at 10% per year
is to be credited to each partner on the basis of weighted-average capital balances.
A summary of BBB’s capital account for the year ended December 31, 2009, is as
follows:
Balance, January 1 P 140,000
Additional investment, July 1 40,000
Withdrawal, August 1 15,000

What amount of interest should be credited to BBB’s capital account for 2009?
a. P15,250 c. P16,500
b. P15,375 d. P17,250

4. AAA and BBB are partners who share profits and losses on the ratio of 6:4,
respectively. On May 1, 2009, their respective capital accounts were as follows:
AAA P 60,000
BBB 50,000

On the date, CCC was admitted as a partner with one-third interest in capital and
profits for an investment of P40,000. The new partnership began with total capital
of P150,000. Immediately after CCC’s admission, AAA’s capital should be
a. P50,000 c. P56,667
b. P54,000 d. P60,000

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5. AA and BB formed a partnership in 20x1 and made the following investments and
capital withdrawals during the year:

AA BB

Investments Draws Investments

Draws
March 1………………P30, 000 P 20, 000
June 1………………………… P10, 000
P10,000
August 1………………20, 000
2,000
December 1……………………. 5, 000

The partnership’s profit and loss agreement provides for salary of which P30,000 was
paid to each partner for 20x1. AA is to receive a bonus of 10% on net income after
salaries and bonus. The partners are also to receive interest of 8% on average annual
capital balances affected by both investments and drawings. Any remaining profits are
to be allocated equally among the partners.

Assuming the net income of P60, 000 before salaries and bonus, determine how the
income would be allocated among the partners.

a. AA, P31, 138; BB, P28, 862 c. AA, P30, 633; BB, P29, 376
b. AA, P33, 537; BB, P26, 463 d. AA, P30, 684; BB, P29, 316
D

Use the following information to answer the next two questions

The following condensed balance sheet is presented for the partnership of AAA and
BBB, who share profits and losses in the ratio of 60:40, respectively:
Cash P 45,000 Accounts payable P 120,000
Other assets 625,000 AAA, capital 348,000
BBB, loan 30,000 BBB, capital 232,000
Total P 700,000 Total P 700,000

The assets and liabilities are fairly valued on the balance sheet. AAA and BBB decide
to admit CCC as a new partner with 20% interest.

6. What amount should CCC contribute in cash or other assets?

a. P110,000 c. P140,000
b. P116,000 d. P145,000

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D 348,000 + 232,000 = 580 ÷ 80% x 20% = 145,000

7. Instead of admitting a new partner, AAA and BBB decide to liquidate the
partnership. If other assets are sold for P500,000, what amount of the available
cash should be distributed to AAA?
a. P255,000 c. P327,000
b. P273,000 d. P348,000
B

8. The following condensed balance sheet is presented for the partnership of BBB and
AAA, who share profits and losses on the ratio of 60:40, respectively:
Other assets P 450,000
BBB loan 20,000
P 470,000

Accounts payable P 120,000

BBB, capital 195,000
AAA, capital 155,000
Total P 470,000
The partners have decided to liquidate the partnership. If the other assets are sold
P385,000, what amount of the available cash should be distributed to BBB?
a. P136,000 c. P159,000
b. P156,000 d. P195,000

9. On December 31, 1998, the partners of MNP Partnership decided to liquidate their
business. Immediately before liquidation, the following condensed balance sheet
was prepared:

Cash P 50,000 Liabilities P 375,000

Noncash assets 900,000 Nieva, loan 80,000
Perez, loan 25,000
Munoz, capital (50%) 312,500
Nieva, capital (30%) 107,500
____ Perez, capital (20%) 50,000
Total P 950,000 Total P 950,000

The noncash assets were sold for P400,000. Assuming Perez is the only solvent
partner, what amount of additional cash will be invested by Perez? (rounded to the
nearest peso)
a. P 37,143
b. 25,000
c. 5,250
d. 0

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10. The partners of the M & N Partnership started liquidating their business on July 1,
2004, at which time the partners were sharing profits and losses 40% to M and 60%
to N. The balance sheet of the partnership appeared as follows:

M & N Partnership
Balance Sheet – July 1, 2004

Assets Liabilities & Capital

Cash……………………. P 8,800 Accounts payable………… P32,
400
Receivable……………… 22,400 M, capital………………… P31, 000
Inventory…………...….. 39,400 M, drawing………… 5,400 25,
600
Equipment…..P65, 200 N, capital………………… .P33, 200
Accumulated N, drawing……………………. 200 33, 000
depreciation 30, 800 34, 400 N, loan…………………………………… 14,
000
Total…………………… P105, 000 Total…………………………………… P105, 000

During the month of July, the partners collected P600 of the receivables with no loss.
The partners also sold during the month the entire inventory on which they realized a
total of P32,400.

How much of the cash was paid to M’s capital on July 31, 2004?
a. P -0- c. P5, 400
b. 25, 600 d. 320
D

11. After all noncash assets have been converted into cash in the liquidation of the AA
and JJ partnership, the ledger contains the following account balances:

Debit Credit

Cash……………………………………………… P 34, 000

Accounts payable………………………………………………………… P25, 000
Loan payable to AA……………………………………………………….. 9,000
AA, capital…………………………………………… 8,000

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JJ, capital……………………………………………………………… 8,000

Available cash should be distributed; P25,000 to accounts payable and;

a. P9, 000 loan payable to AA c. P1,000 to AA and P8, 000 to JJ

b. P4, 500 each to AA and JJ d. P8,000 to AA and P1, 000 to JJ
C

12. After incurring losses resulting from very unprofitable operation, the Alphabets
Partnership decided to liquidate when the partners’ capital balances were:

A, capital (40%) P 80,000

B, capital (40%) 130,000
C, capital (20%) 96,000

The non-cash assets were sold in installment. Available cash were distributed to
partners in every sale of non-cash assets. After the second sale of non-cash assets, the
partners received the same amount of cash in the distribution. And from the third sale
of non-cash assets, cash available for distribution amounts to P 28,000, and non-cash
assets has a book value of P 12,500. Using cash priority program, what amount did C
received in the third installment of cash?
a. P 11,600
b. 8,000
c. 5,600
d. 0
C
28,000 x 20% = 5,600

13. The partnership of AA, BB, and CC was dissolved on June 30, 20x1 and account
balances after non-cash assets were converted into cash on September 1, 2004 are:

Cash……………………………P50, 000 Accounts payable P120, 000

AA, capital (30%) 90, 000
BB, capital (30%) (60, 000)
CC, capital (40%) (100, 000)

Personal assets and liabilities of the partners at September 1, 20x1 are:

Personal Personal
Assets Liabilities
AA………………………………………………………….. P80, 000 P90, 000
BB………………………………………………………… 100, 000 61, 000

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CC………………………………………………………… 192, 000 80, 000

If CC contributes P70, 000 to the partnership to provide cash to pay the creditors,
what amount of AA’s P90, 000 partnership equity would appear to be recoverable?

a. P90,000 c. P79, 000

b. 81,000 d. None
B

14. Partners Able, Baker, and Chapman, who share profit and loss equally, have the
following personal assets, personal liabilities, and partnership capital balances:

Able Baker__ Chapman_

Personal assets P 30,000 P 80,000 P 60,000
Personal Liabilities 25,000 50,000 72,000
Capital balances 50,000 (32,000) 70,000

After applying the doctrine of marshaling of assets, the capital balances of Able, Baker,
and Chapman, respectively, would be
a. P 50,000 P(2,000) P 58,000
b. 48,000 0 58,000
c. 49,000 0 57,000
d. 34,000 0 54,000
C

15. A, B and C are partners in a textile distribution business, sharing profits and losses
equally. On December 31, 2004, the partnership capital and the partners’ drawing
were as follows:

A B C Total
Capital P100,000 P80,000 P300,000 P480,000
Drawing 60,000 40,000 20,000 120,000

The partnership was unable to collect on its trade receivables, and it was forced to
liquidate. The operating profits for 2005 amounted to P72,000, and was all exhausted
including the partnership assets. Unsettled creditors’ claim at December 31, 2005

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amounted to P84,000. B and C have substantial private resources, but A has no

available free assets.

The final cash distribution to C was:

a. P 162,000
b. P 108,000
c. P 84,000
d. P 78,000

16. A, B and C are partners with capital balance of P 350,000, P 250,000 and P 350,000
and sharing profits 30%, 20% and 50% respectively. Partners agree to dissolve the
business and upon liquidation, all of the partnership assets are sold and sufficient
cash is realized to pay all the claims except for P50,000. C is personally insolvent,
but the other two partners are able to meet any indebtedness to the firm. On the
remaining claim against the partnership, A is to absorb.

a. P 40,000
b. P 15,000
c. P 30,000
d. P 25,000

17. A, B, and C are partners in ABC Partnership and share profits and losses, 5:3:2,
respectively. The partners have agreed to liquidate the partnership. Prior to
liquidation, the partnership balance sheet shows the following book values.

Cash P 25,200
Non-cash 297,600
Notes, payable to C 38,400
Other liabilities 184,800
A, capital 72,000
B, capital (12,000)
C, capital 39,600

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Liquidation expenses of P 16,800 are paid. Non-cash assets with a book value of P
240,000 are sold for P 216,000.

How much cash should C receive?

a. P 74,571
b. P 46,458
c. P 39,600
d. P 37,600

18. Partners Bee, Cee, Dee and Gee who share profits 5:3:1:1, respectively, decide to
liquidate their partnership. Capital balances before liquidation are:

Bee P 60,000
Cee 40,000
Dee 30,000
Gee 10,000
The partners agree to the following:
(1) Partnership’s computer equipment with a book value of P12,000 is to be taken over
by partner Bee at a price of P15,000.
(2) Partnership’s liabilities are to be paid off and the balance of cash on hand, P30,000
is to be divided in a manner that will avoid the need for any possible recovery of cash
from a partner.

How much of the P30,000 cash be distributed to Partner Cee?

a. P 10,000
b. P 0
c. P 20,000
d. P 15,000

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19. A and B decided to liquidate their partnership business on June 1, 2005, under
lump-sum liquidation. The partners had been sharing profits and losses on a 60:40
ratio. The balance sheet prepared on the day of liquidation began was as follows:

Assets Liabilities and Capital

Cash P 18,000 Accounts payable P 42,000
Receivables 75,000 A, loan 24,000
Inventory 90,000 A, capital 102,000
Other 84,000 B, capital 99,000
Total P267,000 Total P267,000

During June, one-third of the receivables was collected; P45,000 of inventory was sold
at an average of 70% of book value; other assets were sold for P36,000.

How much should A and B receive upon liquidation?

A B
a. P32,100 P36,400
b. P 8,100 P27,400
c. P40,200 P41,800
d. P59,100 P54,400

A
Carrying amount of non-cash (75 + 90 + 84) 249
Amount realized from sale (1/3 x 75) + (70% x 45) + 36 (92.5)
Loss on realization (156.5)

Cash 18 + 92.5 = 110.5 – 42 = 68.5 cash available to partners less capital balance
225K = (156.5)

20. A, B, and C, who divide profits and losses 50%, 30%, and 20%, respectively, have
the following December 31, 20x1 account balances:

A, drawing (Dr.)………………………………………………………… P 12, 000

C, drawing (Cr.)………………………………………………………..… 4,800
Accounts receivable- A……………………………………………….… 7, 200
Loans payable- B…………………………………………………………... 14, 400
A, capital…………………………………………………………………. 59, 400

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B, capital……………………………………………………………………. 44, 400

C, capital………………………………………………………………..… 39, 000

On this data, the partnership’s assets are P211,200 (including cash of P64, 200).The
partnership is liquidated and C receives P33,000 in final settlement. How much is the
total loss on realization?

a.P10,800 c. P54,000
b. 31,200 d. 64,200
C

21. A and B share partnership profits and losses in a 7:3 ratio. Their post-closing trial
balance on January 31 show before liquidation:

Cash………………………………………P 30, 000

Accounts receivable, net………….……... 380, 000
Inventory……………………………… 260, 000
Furniture, net…………………………… 120, 000
Accounts payable…………………………………………………P165, 000
A, capital…………………………………………………………...350, 000
B, capital………………………………………………………. 275, 000

C offered to buy for P760,000 the partnership assets including liabilities but excluding
cash and after certain assets are to be restated at their fair values as follows:

Accounts receivable ……………………………………………….. P350,000

Inventory ……………………………………………………………… 250,000
Furniture ……………………………………………………………… 135,000

How much will A and B receive as final settlement of their partnership interest?

a. P 570, 000 c. P790, 000

b. 760, 000 d. 625, 000
C

22. AAA and BBB partnership’s balance sheet at December 31, 2009, reported the
following:
Total Assets P 100,000
Total liabilities 20,000
AAA, capital 40,000
BBB, capital 40,000

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On January 2, 2010, AAA and BBB dissolved their partnership and transferred all
assets and liabilities to a newly formed corporation. At the date of incorporation,
the fair value of the net assets was P12,000 more than the carrying amount in the
partnership’s books, which was assigned to tangible assets. AAA and BBB were
each issued 5,000 shares of the corporation’s P1 par value common stock.
Immediately following incorporation, additional paid-in capital in excess of par
should be credited for
a. P68,000 c. P77,000
b. P70,000 d. P82,000

D 80K + 12K = 92K – 10K = 82K

23. When property other than cash is invested in a partnership, at what amount should
the noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

24. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed

land with carrying amount of ₱400,000 and fair value of ₱800,000. The land has an
unpaid mortgage of ₱200,000 which is assumed by the partnership. How much is
the correct valuation of B’s capital immediately after the partnership formation?
a. 400,000
b. 500,000
c. 600,000
d. 800,000

Solution:

Partners
A B hip
Cash 500,000 - 500,000
Land (at fair 800,000
value) 800,000
Total 500,000 800,000 1,300,000

Mortgage 200,000
payable - 200,000
A, capital 500,000 500,000
B, capital (800K – 600,000
200K) 600,000
Total 500,000 800,000 1,300,000

25. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital
equally even though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in
identifiable assets. The partners agree that the difference in the amount of
contribution and the amount of credit to the partner’s capital shall be treated as
compensation for the expertise that the partner will be bringing to the partnership.
How much is the correct valuation of A’s capital immediately after the partnership
formation?
a. 84,000
b. 92,000

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c. 100,000
d. 108,000

Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

26. A and B formed a partnership. The following are their contributions:

A B

Cash 500,000 -

Accounts receivable 100,000 -

700,00
Building 0

700,00
Total 600,000 0

A, capital 600,000

700,00
B, capital 0

700,00
Total 600,000 0

Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the
partnership. Partner B promised to pay for the mortgage himself.

How much is the correct valuation of A’s capital immediately after the partnership
formation?
a. 460,000
b. 580,000
c. 650,000
d. 720,000

Solution:
Partners
A B hip
Cash 500,000 - 500,000
Accounts
receivable
(100K – 20K) 80,000 - 80,000
Building (700K – 650,000 650,000

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50K)
Total 580,000 650,000 1,230,000

A, capital 580,000 580,000

B, capital 650,000 650,000
Total 580,000 650,000 1,230,000

27. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital
equally even though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in
identifiable assets. The partners agree that the difference in the amount of
contribution and the amount of credit to the partner’s capital shall be treated as
cash settlement between the partners. The compound entry to record the partners’
contributions includes a credit to B’s capital account in the amount of
a. 84,000
b. 92,000
c. 100,000
d. 108,000

Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

The cash settlement among the partners is not recorded in the partnership’s books
because this is not a transaction of the partnership but rather a transaction among the
partners themselves.

28. If the partnership agreement does not specify how income is to be allocated, profits
and loss should be allocated
a. Equally.
b. In proportion to the weighted average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on
behalf of the partnership.
d. In accordance with their capital contributions.

29. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s
capital account has a net increase of ₱50,000. Partner A made contributions of
₱10,000 and capital withdrawals of ₱60,000 during the year. How much was the
share of B in the partnership profit for the year?
a. 100,000
b. 150,000
c. 200,000
d. 180,000

Solution:

Step 1:
A, Capital
- beg.
Withdrawa 60,00 10,00
ls 0 0 Additional investment
? Share in profit
end. 50,00

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Step 2:
A, Capital
- beg.
Withdrawa
ls 60,000 10,000 Additional investment
100,0 Share in profit
00 (squeeze)
end. 50,000

Step 3: 100,000 ÷ 40% = 250,000 partnership profit

Step 4: B’s share: 250,000 x 60% = 150,000

30. The partnership agreement of A, B and C stipulates the following:

 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000,
respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be
given to Partner A, the managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each
to B and C.

The average capital investments of partners during the year are as follows:
A ₱100,000
B 60,000
C 120,000

The partnership earns profit of ₱100,000.

How much is the share of Partner C in the partnership profit?

a. 47,600
b. 32,200
c. 19,200
d. 33,200

Solution:
A B C Total
100,00
Amount being allocated
0
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (100K - 20K) x 10% 8,000 8,000
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x
10%) 10,000 6,000 12,000 28,000
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%) 17,600 13,200 13,200 44,000
47,60 100,00
As allocated
0 19,200 33,200 0

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31. The partnership agreement of A and B provides that interest at 10% per year is to
be credited to each partner on the basis of weighted-average capital balances. A
summary of B’s capital account for the year ended December 31, 20x1 is as follows:

252,0
Balance, Jan. 1, 20x1 00
Additional investment, 72,0
July 1 00
(27,0
Withdrawal, August 1 00)
297,0
Balance, Dec. 31, 20x1 00

How much is the interest on B’s weighted average capital?

a. 27,675
b. 33,633
c. 37,214
d. 23,322

Solution:
Balance, Jan. 1, 20x1 12/12
252,000 252,000
Additional investment, July 1 6/12
72,000 36,000
Withdrawal, August 1 5/12
(27,000) (11,250)
Weighted average capital
276,750
Multiply by: 10%

Interest
27,675

32. Red and White formed a partnership in 2003. The partnership agreement provides
for annual salary allowances of ₱55,000 for Red and ₱45,000 for White. The
partners share profits equally and losses in a 60/40 ratio. The partnership had
earnings of ₱80,000 for 2003 before any allowance to partners. What amount of
these earnings should be credited to each partner’s capital account?
Red White
a. 40,000 40,000
b. 43,000 37,000
c. 44,000 36,000
d. 45,000 35,000

Solution:
Red White Total
Amount being allocated 80,000
Allocation:
1. Salaries 55,000 45,000 100,000
2. Allocation of remaining profit
(80K profit – 100K salaries) = -20K (12,000) (8,000) (20,000)

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(-20 x 60%); (-20K x 40%)

As allocated 43,000 37,000 80,000

33. Fox, Greg, and Howe are partners with average capital balances during 2002 of
₱120,000, ₱60,000, and ₱40,000, respectively. Partners receive 10% interest on
their average capital balances. After deducting salaries of ₱30,000 to Fox and
₱20,000 to Howe, the residual profit or loss is divided equally. In 2003 the
partnership sustained a ₱33,000 loss before interest and salaries to partners. By
what amount should Fox’s capital account change?
a. 7,000 increase.
b. 11,000 decrease.
c. 35,000 decrease.
d. 42,000 increase.

Solution:
Fox Greg Howe Total
Amount being allocated (33,000)
Allocation:
1. Salaries 30,000 - 20,000 50,000
2. Interest on capital 12,000 6,000 4,000 22,000
3. Allocation of balance
(-33K – 50K - 22K) = -105K / 3 (35,000) (35,000) (35,000) (105,000)
As allocated 7,000 (29,000) (11,000) (33,000)

34. The partnership agreement of Axel, Berg & Cobb provides for the year-end
allocation of net income in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over
₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over
₱150,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2003 net income was ₱250,000 before any allocations to partners.
What amount should be allocated to Axel?
a. 101,000
b. 103,000
c. 108,000
d. 110,000

Solution:
Axel Berg Cobb Total
Amount being allocated 250,000
Allocation:
1. Bonus to A
First 100K (100K x 10%) 10,000 10,000
Over 100K [(250K - 100K) x
30,000 30,000
20%]
2. Bonus to Berg and Cobb
(250K - 10K - 30K - 150K) x 5% 3,000 3,000 6,000
3. Allocation of bal. (204K / 3) 68,000 68,000 68,000 204,000
As allocated 108,000 71,000 71,000 250,000

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35. The partnership agreement of Reid and Simm provides that interest at 10% per
year is to be credited to each partner on the basis of weighted-average capital
balances. A summary of Simm’s capital account for the year ended December 31,
2003, is as follows:

140,00
Balance, January 1 0
Additional investment, 40,00
July 1 0
(15,0
Withdrawal, August 1 00)
165,00
Balance, December 31 0

What amount of interest should be credited to Simm’s capital account for 2003?
a. 15,250
b. 15,375
c. 16,500
d. 17,250

B [140K + (40K x 6/12) – (15K x 5/12) = 153.75K x 10% = 15,375

36. Blau and Rubi are partners who share profits and losses in the ratio of 6:4,
respectively. On May 1, 2003, their respective capital accounts were as follows:

Blau 60,000
Rubi 50,000

On that date, Lind was admitted as a partner with a one-third interest in capital and
profits for an investment of ₱40,000. The new partnership began with total capital of
₱150,000. Immediately after Lind’s admission, Blau’s capital should be
a. 50,000
b. 54,000
c. 56,667
d. 60,000

Solution:
Total capital after admission 150,000
Multiply by: Interest of Lind 1/3
Capital credit to Lind 50,000
Contribution of Lind (40,000)
Bonus to Lind 10,000
Multiply by: Old P/L ratio of Blau 60%
Deduction to Blau's capital 6,000

Interest of Blau before admission of Lind 60,000

Deduction to Blau's capital (6,000)
Adjusted capital of Blau after admission 54,000

37. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000,
respectively. Profits and losses are divided in the ratio of 60:40. Kern and Pate

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decided to form a new partnership with Grant, who invested land valued at ₱15,000
for a 20% capital interest in the new partnership. Grant’s cost of the land was
₱12,000. The partnership elected to use the bonus method to record the admission
of Grant into the partnership. Grant’s capital account should be credited for
a. 12,000
b. 15,000
c. 16,000
d. 19,000

Solution: (60K + 20K + 15K) = 95K total capital after admission x 20% = 19,000

Use the following information for the next two questions:

On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and
Grimm, together with their respective profit and loss sharing percentages were as
follows:

320,0
Assets, net of liabilities
00
160,0
Eddy, capital (50%) 00
96,00
Fox, capital (30%)
0
64,00
Grimm, capital (20%)
0
320,0
00

38. Eddy decided to retire from the partnership and by mutual agreement is to be paid
₱180,000 out of partnership funds for his interest. No goodwill is to be recorded.
After Eddy’s retirement, what are the capital balances of the other partners?
Fox Grimm
a. 84,000 56,000
b. 102,000 68,000
c. 108,000 72,000
d. 120,000 80,000

Solution:
Payment to Eddy 180,000
Capital balance of Eddy 160,000
Excess payment to Eddy 20,000

Fox Grimm
Capital balances before retirement 96,000 64,000
Share in excess payment to Eddy (12,000) (8,000)
Capital balances after retirement 84,000 56,000

39. Assume instead that Eddy remains in the partnership and that Hamm is admitted as
a new partner with a 25% interest in the capital of the new partnership for a cash
payment of ₱140,000. The bonus method shall be used to record the admission of
Hamm. Immediately after admission of Hamm, Eddy’s capital account balance
should be
a. 280,000

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b. 172,500
c. 160,000
d. 140,000

Solution:
Eddy, capital 160,000
Fox, capital 96,000
Grimm, capital 64,000
Investment of Hamm 140,000
Total partnership capital after admission 460,000
Multiply by: Interest of Hamm 25%
Capital credit to Hamm 115,000
Investment of Hamm 140,000
Bonus to old partners (25,000)

Eddy, capital (before admission) 160,000

Share in bonus to old partners (25K x 50%) 12,500
Eddy, capital (after admission) 172,500

The next two items are based on the following information:

The following condensed balance sheet is presented for the partnership of Alfa and
Beda, who share profits and losses in the ratio of 60:40, respectively:
45,0
Cash
00
625,0
Other assets
00
30,0
Beda, loan
00
700,0
00
120,0
Accounts payable 00
348,0
Alfa, capital
00
232,0
Beda, capital
00
700,0
00

40. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda
decide to admit Capp as a new partner with 20% interest. No goodwill or bonus is
to be recorded. What amount should Capp contribute in cash or other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000

D (348K + 232K) = 580K ÷ 80% = 725K capital after admission x 20% = 145,000

41. Instead of admitting a new partner, Alfa and Beda decide to liquidate the
partnership. If the other assets are sold for ₱500,000, what amount of the available
cash should be distributed to Alfa?
a. 255,000

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b. 273,000
c. 327,000
d. 348,000

Solution:
The total loss on the sale is computed as follows:
Sale of other assets 500,000
Carrying amount of other assets (625,000)
Total loss on sale (125,000)

The partial settlement to partners is computed as follows:

Alpha Beda Totals
Capital balances before liquidation 348,000 232,000 580,000
Receivable from Beda (20,000) (20,000)
Total 348,000 212,000 560,000
Allocation of loss
[125K x (60% & 40%)] (75,000) (50,000) (125,000)
Amounts received by the partners 273,000 162,000 435,000

42. The statement of financial position of the partnership of A, B and C shows the
following information:

22,
Cash 400
212,
Other assets 000
234,
Total assets 400
38,
Liabilities 400
76,
A, capital (50%) 000
64,
B, capital (25%) 000
56,
C, capital (25%) 000
Total liabilities and 234,
equity 400

The partners realized ₱56,000 from the first installment sale of non-cash assets with
total carrying amount of ₱120,000. How much did B receive from the partial
liquidation?
a. 25,000
b. 24,000
c. 16,000
d. 0

Solution:
A
B (25%) C (25%) Totals
(50%)
Cap. bal. before liquidation 76,000 64,000 56,000 196,000
Allocation of loss (78,000) (39,000) (39,000) (156,000

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)
Total (2,000) 25,000 17,000 40,000
Allocation of deficiency 2,000 (1,000) (1,000) -
Total - 24,000 16,000

43. The statement of financial position of the partnership of A, B and C shows the
following information:

40,
Cash 000
720,
Other assets 000
760,
Total assets 000
300,
Liabilities 000
64,
B, loan 000
20,
C, loan 000
250,
A, capital (50%) 000
86,
B, capital (30%) 000
40,
C, capital (20%) 000
Total liabilities and 760,
equity 000

The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the
settlement of the partners’ claims, how much additional contribution is required of
Partner C?
a. 50,000
b. 30,000
c. 20,000
d. None

Solution:
320,
Net proceeds 000
Carrying amount of all other (720,0
assets 00)
(400,0
Loss 00)

A
B (30%) C (20%) Totals
(50%)
Cap. bal. before liquidation 250,000 86,000 40,000 376,000
Payable to partners 64,000 20,000 84,000
Total 250,000 150,000 60,000 460,000
(400,000
Allocation of loss (200,000) (120,000) (80,000)
)
Total 50,000 30,000 (20,000) 520,000

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Additional contribution 20,000 20,000

Total 50,000 30,000 - 540,000

44. A, B and C are partners. Their respective personal assets, personal liabilities and
partnership capital balances are as follows:

A B C
90, 240,0 180,
Personal assets 000 00 000
Personal 75, 150,0 216,
liabilities 000 00 000
Capital 150, (96,0 210,
balances 000 00) 000

Which of the partners is personally insolvent?

a. A
b. B
c. C
d. B & C

Solution:
A B C
90,0 240, 180,
Personal assets 00 000 000
Personal (75,0 (150,0 (216,0
liabilities 00) 00) 00)
15,0 90, (36,0
Net free assets 00 000 00)

45. The equity section of the statement of financial position of the partnership of A, B
and C shows the following information:

64,
A, capital (40%) 000
104,
B, capital (40%) 000
76,
C, capital (20%) 800
Total liabilities and 244,
equity 800

Non-cash assets are sold in installment. Cash distributions are made to the partners as
cash becomes available. In the second sale of non-cash assets, the partners received
the same amount of cash in the distribution. In the third sale of non-cash assets, the
amount of cash available for distribution is ₱100,000. The carrying amount of the
remaining non-cash assets is ₱260,000. Under the cash priority program, how much
cash is distributed to B in the third installment payment?
a. 40,000
b. 38,400
c. 28,200
d. 0

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Solution: (100,000 x 40%) = 40,000

“It is the Lord who goes before you. He will be with you; he will not fail you or
forsake you. Do not fear or be dismayed.” – (Deuteronomy 31:8)

- END -

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