ADVANCED ACCOUNTING 1: CHAPTER 3 – DISSOLUTION, PROBLEM 5

Given:
A (60%) P100,000
B (30%) P60,000
C (10%) P20,000

Case #1: D purchases one-half of A’s capital interest for P70,000.

A 60 B 30 C 10 D TOTAL
Capital, beg. 100,000 60,0000 20,000 - 180,000
Sale of interest (50,000) 50,000 a
Capital, end 50,000 60,000 20,000 50,000 180,000

a
100,000 (50%) = 50,000

Journal entry:
A, Capital 50,000
D, Capital 50,000

Case #2: D purchases 20% interest in partnership from A, B, and C for P60,000.

A 60 B 30 C 10 D TOTAL
Capital, beg. 100,000 60,0000 20,000 - 180,000
Sale of interest b
(20,000) (12,000) (4,000) 36,000 a
Capital, end 80,000 48,000 16,000 36,000 180,000

a
180,000 (20%) = 36,000
b
100,000 (20%) = 20,000
60,000 (20%) = 12,000
20,000 (20%) = 4,000

Journal entry:
A, Capital 20,000
B, Capital 12,000
C, Capital 4,000
D, Capital 36,000
 ADVANCED ACCOUNTING 1: CHAPTER 3 – DISSOLUTION, PROBLEM 5

Case #3: D invests P70,000 cash for a 20% interest in the partnership’s net assets
and profits.

A 60 B 30 C 10 D TOTAL
Capital, beg. 100,000 60,0000 20,000 - 180,000
Investment of D 70,000 70,000
Total contributed 250,000
capital
Bonus to old 12,000 6,000 2,000 (20,000)
partners b
Capital, end 112,000 66,000 22,000 50,000 a 250,000

New P/L ratio

A (100%-20%) * 60% 48%
B (100%-20%) * 30% 24%
C (100%-20%) * 10% 8%
D 20%
100%

a
250,000 (20%) = 50,000
b
20,000 (60%) = 12,0000
20,000 (30%) = 6,000
20,000 (10%) = 2,000

Journal entry:
Cash 70,000
D, Capital 50,000
A, Capital 12,000
B, Capital 6,000
C, Capital 2,000

Case #4: D wants to infuse capital to partnership for a 10% interest in the net
assets and profits. The partners determine that the net assets are fairly valued
except for land carried at P365,000 but has a fair value of P410,000.

Required investment
Net assets 225,000
Divide by: 90%
250,000
Multiply by: 10%
D’s required investment 25,000
 ADVANCED ACCOUNTING 1: CHAPTER 3 – DISSOLUTION, PROBLEM 5

Case #5: C withdraws from the partnership and sells his interest to B for P30,000.

A 60 B 30 C 10 TOTAL
Capital, beg. 100,000 60,0000 20,000 180,000
Sale of interest 20,000 (20,000)
Capital, end 100,000 80,000 - 180,000

New P/L ratio

A 60% / 90% 66.67%
B 30% / 90% 33.33%
100%

Journal entry:
C, Capital 20,000
B, Capital 20,000

Case #6: C retires and the partnership settles his interest for P32,000.

A 60 B 30 C 10 TOTAL
Capital, beg. 100,000 60,0000 20,000 180,000
Sale of interest (8,000) (4,000) (20,000) (32,000)
Capital, end 92,000 56,000 - 148,000

New P/L ratio

A 60% / 90% 66.67%
B 30% / 90% 33.33%
100%

Journal entry:
C, Capital 20,000
A, Capital 8,000
B, Capital 4,000
Cash 32,000

Case #7: The partnership is converted into a corporation. The corporation issues
6,000, 3,000 and 1,000 ordinary shares to A, B, and C respectively with par value of
P10.

Incorporation
Net assets 180,000
Total par value of shares issued (6,000 + 3,000 + 1,000) * 10 100,000
Share premium 80,000