Admission of new partner through purchase of interest

Capital balances and profit and loss ratios of partners in KitaKita Partnership as of
December 01, 2020 are summarized as follows:

Capital Accounts P/L ratios Alex, Capital

P500,000 70% Empoy, Capital P300,000 30%

In the cases that follow, provide the necessary journal entries and compute for the revised
profit or loss sharing agreement after the dissolution.

Case 1: Purchase of interest from one partner On December 1, 2020, Paolo was admitted to
the partnership when he purchased one-half of Alex's interest in the partnership for
P300,000. The net assets of the firm as of this date approximate their fair values.

Alex, Capital 250,000.00

Paolo, Capital 250,000.00

Partner OLD P/L Transfer NEW P/L

Alex 70% -35% 35%
Empoy 30% 0% 30%
Paolo 0% 35% 35%

Case 2: Purchase of interest from all partners On December 1, 2020, Paolo was admitted to
the partnership when he purchased one-half of Alex and Empoy’s interest in the partnership
for consideration of P300,000 and P100,000, respectively. The net assets of the firm as of
this date approximate their fair values.

Alex, Capital 250,000.00

Empoy, Capital 150,000.00
Paolo, Capital 400,000.00

Partner OLD P/L Transfer NEW P/L

Alex 70% -35% 35%
Empoy 30% -15% 15%
Paolo 0% 50% 50%

Case 3: Purchase of interest from all partners after asset revaluation On December 1, 2020,
 Paolo was admitted to the partnership when he purchased one-half of Alex and Empoy’s
interest in the partnership for consideration of P320,000 and P180,000, respectively. The
partnership’s recorded land is undervalued.

Land 200,000.00
Alex, Capital 140,000.00
Empoy, Capital 60,000.00

Alex, Capital 320,000.00

Empoy, Capital 180,000.00
Paolo, Capital 500,000.00

Paolo's Payment for a 50% interest 500,000.00

Capitalization rate of Paolo 50%
Agreed Capital 1,000,000.00
Contributed (Book Value) of Capital 800,000.00 Capital of Old Partners
Adjustment of land 200,000.00 Only for Old Partners

Contribute Capital
Asset Adjusted Transfer of
Partner d (BV) of after
Revaluation Capital Interest
Capital admission

Alex 500,000.00 140,000.00 640,000.00 (320,000.00) 320,000.00

Empoy 300,000.00 60,000.00 360,000.00 (180,000.00) 180,000.00
Paolo - - - 500,000.00 500,000.00

Partner OLD P/L Transfer NEW P/L

Alex 70% -35% 35%
Empoy 30% -15% 15%
Paolo 0% 50% 50%

Case 4: Purchase of interest from one partner and goodwill is awarded to incoming partner
On December 1, 2020, Paolo was admitted to the partnership when he purchased one-half
of Alex’s interest in the partnership for consideration of P250,000. The partnership decided
to recognize goodwill for Paolo in the amount of P50,000.

Goodwill 50,000.00
Alex,
Capital 250,000.00
Paolo,
Capital 300,000.00

Partner OLD P/L Transfer NEW P/L

Alex 70% -35% 35%
Empoy 30% 0% 30%
Paolo 0% 35% 35%

Case 5: Purchase of interest from one partner and goodwill is awarded to old partners On
December 1, 2020, Paolo was admitted to the partnership when he purchased one-half of
Alex’s interest in the partnership for consideration of P267,500. The partnership decided to
recognize goodwill for Alex and Empoy.

Goodwill 50,000.00
Alex, Capital 35,000.00
Empoy, Capital 15,000.00

Alex, Capital 267,500.00

Paolo, Capital 267,500.00

Paolo's Payment for Alex's 50%

interest 267,500.00
Capitalization rate (50% of Alex) 50%
Agreed Capital of Alex 535,000.00
Contributed (BV) Capital of Alex (500,000.00)
Goodwill (Share of Alex - 70%) 35,000.00

Total Goodwill 50,000.00

Alex's Share 35,000.00

Empoy's Share 15,000.00
 Contributed (BV) Adjusted Transfer of Capital after
Partner Goodwill
of Capital Capital Interest admission

Alex 500,000.00 35,000.00 535,000.00 (267,500.00) 267,500.00

Empoy 300,000.00 15,000.00 315,000.00 - 315,000.00
Paolo - - - 267,500.00 267,500.00

Partner OLD P/L Transfer NEW P/L

Alex 70% -35% 35%
Empoy 30% 0% 30%
Paolo 0% 35% 35%

Admission of new partner through investment

Capital balances and profit and loss ratios of partners in KitaKita Partnership as of
December 01, 2020 are summarized as follows:

Capital Accounts P/L ratios Alex, Capital

P500,000 70% Empoy, Capital P300,000 30%

In the cases that follow, provide the necessary journal entries and compute for the revised
profit or loss sharing agreement after the dissolution.

Case 1: On December 1, 2020, Paolo was admitted to the partnership when he invested
P200,000 cash. He will be credited 20% interest in the partnership as the result of his
investment. The net assets of the firm as of this date approximate their fair values.

Cash 200,000.00
Paolo, Capital 200,000.00

Alex, Capital 500,000.00

Empoy, Capital 300,000.00
Additional Cash Investment 200,000.00
Contributed Capital 1,000,000.00
Paolo's Agreed Capital 200,000.00

Case 2: On December 1, 2020, Paolo was admitted to the partnership when he invested
P200,000 cash. He will be credited 10% interest in the partnership as the result of his
investment. The net assets of the firm as of this date approximate their fair values.

Cash 200,000.00
Paolo, Capital 100,000.00
Alex, Capital 70,000.00
Empoy, Capital 30,000.00

Alex, Capital 500,000.00

Empoy, Capital 300,000.00
Additional Cash Investment 200,000.00
Contributed Capital 1,000,000.00
Paolo's Agreed Capital 100,000.00

Paolo's Cash Investment 200,000.00

Paolo's Agreed Capital (100,000.00)
Bonus to Old Partners 100,000.00

Case 3: On December 1, 2020, Paolo was admitted to the partnership when he invested
P200,000 cash. He will be credited 30% interest in the partnership as the result of his
investment. The net assets of the firm as of this date approximate their fair values.

Cash 200,000.00
Alex, Capital 70,000.00
Empoy, Capital 30,000.00
Paolo, Capital 300,000.00

Alex, Capital 500,000.00

Empoy, Capital 300,000.00
Additional Cash Investment 200,000.00
Contributed Capital 1,000,000.00
Paolo's Agreed Capital 300,000.00

Paolo's Agreed Capital 300,000.00

Paolo's Cash Investment (200,000.00)
Bonus to Paolo 100,000.00
Case 4: On December 1, 2020, Paolo was admitted to the partnership when he invested
P500,000 cash. He will be credited 1/3 interest in the partnership as the result of his
investment. Also Alex and Empoy agreed to revalue the building before Paolo’s admission.

Cash 500,000.00
Paolo, Capital 500,000.00

Building 200,000.00
Alex, Capital 140,000.00
Empoy, Capital 60,000.00

Paolo's Cash Investment 500,000.00

Paolo's Interest in the Partnership 33.33%
Total Agreed Capital 1,500,000.00

Alex, Capital 500,000.00

Empoy, Capital 300,000.00
Additional Cash Investment 500,000.00
Contributed Capital 1,300,000.00

Adjustment for Building 200,000.00

Paolo's contribution was used to determine the agreed capital because we are sure that
the capital of the old partners need to be adjusted further for the revaluation of the building.
We can only base the total agreed capital on the capital/contribution of a partner whose
capital as is already the agreed capital (partner level).

Comparison can also be made as follows:

OLD (Alex and Empoy) NEW (Paolo)

Contributed Capital 800,000.00 500,000.00
Capitalization Rate 66.67% 33.33%
Total Agreed Capital 1,200,000.00 1,500,000.00
We cannot base the total agreed capital on the old partners' contributed capital since doing so
will result to total agreed capital of 1,200,000. As is, without the adjustment for the building,
contributed capital is already at 1,300,000. We are expecting a higher agreed capital due to the
building's undervaluation. Hence, we will base the agreed capital on the contributed capital of
the new partner divided by his corresponding interest, 1/3 or 33.33%.

1,500,000.0
Total Agreed Capital 0
Paolo's Interest in the
Partnership 33.33%
Paolo's Agreed Capital 500,000.00

Case 5: On December 1, 2020, Paolo was admitted to the partnership when he invested
P300,000 cash. He will be credited 25% interest in the partnership as the result of his
investment. Also Alex and Empoy agreed to recognize goodwill.

Contributed Capital 1,100,000.00

Paolo's Cash Investment 300,000.00

Paolo's Interest in the Partnership 25.00%
Total Agreed Capital 1,200,000.00

Goodwill 100,000.00

Cash 300,000.00
Paolo, Capital 300,000.00

Goodwill 100,000.00
Alex, Capital (70%) 70,000.00
Empoy, Capital(30%) 30,000.00

Withdrawal as a result of death of a partner

On January 1, 2008, the partnership of D, E and F started with an initial contribution from the
partners of P100,000, P200,000 and P300,000, respectively. The partners stipulated that in
case of death of any partner, the parties will compute profits up to the nearest month and to
provide for 20% annual interest for the deceased partner interest prior to its settlement. On
July 1, 2008, D was heart-attacked and instantly died. The newly hired accountant of the
partnership prepared the following entries during the year:

7/1/8 D, capital 100,000

Payable to D’s estate 100,000 To set-
up D’s capital as a liability

12/31/8 Interest expense 10,000

Payable to D’s estate 10,000 To
recognize interest on D’s estate

12/31/8 Sales 700,000 Inventory, end 50,000

Purchases 300,000 Operating
expenses 160,000 Interest expense
10,000 Profit and loss summary
280,000 To close nominal accounts

12/31/8 Profit and loss summary 280,000

E, capital (40%) 160,000 F, capital (30%) 120,000 To close profit
and loss to E and F’s remaining P&L sharing ratio.

Profits were evenly earned throughout the year. Compute the correct capital balances of E
and F as of December 31, 2008, respectively.

P302,333; P453,500 c. P298,666; P440,500

P332,657; P399,493 d. P320,000; P460,000

Incorporation

Assume that Hinata, Tobio and Kei are partners dividing profit and loss in the ratio of 3:2:1
respectively. They decided to incorporate the business on July 1, 2010 and call it the
Haikyuu Corporation. They invited three more friends to join them for a total cash investment
of P1,000,000 in exchange for 2 000 shares of stock. The partnership's financial position
appear as follows:

ASSETS LIABILITIES & OWNERS' EQUITY Cash 350,000

Accounts Payable 100,000 Accounts Receivable 500,000 Notes Payable 250,000
Inventories 750,000 Hinata, Capital 750,000 Furniture and Equipment 800,000
Tobio, Capital 500,000 Accumulated Depreciation (300,000) Kei, Capital 500,000
Total 2,100,000 Total 2,100,000
The Haikyuu Corporation was authorized to issue 10,000 shares of common stock with a par
value of P500 per share. The partners received common shares equal to their net assets
after agreeing to adjust the following: 5% provision for doubtful accounts based on accounts
receivable; 10% write down on inventories, market value of furniture and equipment is
P300,000.

Prepare the necessary journal entries for both the partnership and the corporation.