Palcon, Penelope C.

BSA-1B
CHAPTER 13: Partnership Dissolution
PROBLEM 4: MULTIPLE CHOICE

1. It is the change in the relation of the partners caused by any partner being disassociated
from the business.
a. Formation
b. Operation
c. Dissolution
d. Liquidation
2. Which of the following is the correct when a new partner is admitted through purchase
of interest from existing partners?
a. The incoming partner’s contribution is recorded in the partnership books.
b. Partnership capital increased by the incoming partner’s contribution.
c. The incoming partners contribution is not recorded in the partnership books.
d. This is not allowed under the law. The new partner can only purchase interest
from the partnership and not from the partners themselves.

Use of following information from the next eight questions:

The partner’s capital accounts in AB Partnership before the admission of new partner are as
follows:
Capital accounts P/L ratios
A, Capital 200,000 60%
B, Capital 120,000 40%
320,000

3. C purchase one-fourth of A’s capital interest in the partnership. How much is the capital
balance in the partnership of A after the admission of C?
a. 150,000
b. 24,000
c. 96,000
d. 148,000
SOLUTION 3

A's, Capital (200,000*1/4) ₱ 50,000

C's, Capital ₱ 50,000
to record the admission of C to partnership

A B C Total
Capital, beg. ₱ 200,000 ₱ 120,000 - ₱ 320,000
Sale of Interest to C -₱ 50,000 ₱ 50,000 -
Capital, end. ₱ 150,000 ₱ 120,000 ₱ 50,000 ₱ 320,000

4. C purchase one-third of A’s and B’s capital interest in the partnership for P120,000. How
much is the B’s capital balance after the admission of C and how much is the total gains
(loss) that is recognized in the partnership’s books.
a. 80,000; 13,333
b. 80,000; 0
c. 60,000;(13,333)
d. 60,000; 0

5. Using the case in #4 above, how much is the total equity of the partnership after the
admission of C?
a. 320,000
b. 440,000
c. 240,000
d. 200,000

SOLUTION 4-5

A's, Capital (200,000*1/3) ₱ 66,666.67

B's, Capital (120,000*1/3) ₱ 40,000.00
C's Capital ₱ 106,667

A B C Total
Capital, beg. ₱ 200,000 ₱ 120,000 - ₱ 320,000
Sale of Interest to C -₱ 66,667 -₱ 40,000 ₱ 106,667 -
Capital, end. ₱ 133,333 ₱ 80,000 ₱ 106,667 ₱ 320,000
 A B Total
Debit to capital accounts ₱ 66,667 ₱ 40,000 ₱ 106,667
Excess allocated based on P/L ratio
(120k payment of C- 106,667 credit to C) x 60%; 40% 7,999.80 ₱ 5,333 ₱ 13,333
Share in the payment of C ₱ 74,666 ₱ 45,333 ₱ 120,000
Debit to capital account ₱ 66,667 ₱ 40,000 ₱ 106,667
Personal gain (loss) ₱ 8,000 ₱ 5,333 ₱ 13,333

6. C acquires 25% in the partnership by investing P100,000 to the business. Under the
bonus method, how much is the capital balance of A after the admission of C?
a. 194,000
b. 204,000
c. 206,000
d. 212,000
7. What is the P/L ratio of B after the admission of C in #6 above?
a. 22%
b. 28%
c. 32%
d. 30%

Solution 6-7

Net assets before admission ₱ 320,000

Investment of C ₱ 100,000
Net assets after admission ₱ 420,000
D's interest in net assets 25%
C's capital credit ₱ 105,000
Investment of C ₱ 100,000
Bonus to C ₱ 5,000

Cash ₱ 100,000
A's Capital (5K x60%) ₱ 3,000
B's Capital (5K x40%) ₱ 2,000
C's Capital (320K+100K) x25% ₱ 105,000
to record the admission of C to the partnership
 A B C Total
Capital, before admission ₱ 200,000 ₱ 120,000 ₱ 320,000
Investment of C ₱ 100,000 ₱ 100,000
Bonus to C -₱ 3,000 -₱ 2,000 ₱ 5,000 -
Capital, after admission ₱ 197,000 ₱ 118,000 ₱ 105,000 ₱ 420,000

New P/L ratio

A (100%-25%) x60% 45%
B (100%-25%) x40% 30%
C 25%
100%

8. Before the admission of C, B decides to retire. A acquires B’s interest for 180,000. How
much is the capital balance of A after the retirement of B?
a. 200,000
b. 264,000
c. 280,000
d. 320,000

Solution 8

B, Capital 120,000
A, Capital 120,000

A B Total
Balance before retirement 200,000 120,000 320,000
Payment to B 120,000 -120,000 -
Balance after retirement 320,000 - 320,000

9. Before the admission of C, B decides to retire. The partnership pays B P180,000 as

settlement of his partnership interest. How much is the capital balance of A after the
retirement of B?
a. 200,000
b. 140,000
c. 260,000
d. 320,000
 Solution 9

B, Capital 120,000
A, Capital 60,000
Cash 180,000

A B Total
Balance before retirement 200,000 120,000 320,000
Payment to B -180,000 -180,000
Bonus to B -60,000 60,000 -
balance after retirement 140,000 0 140,000

10. How much are the total equity of the partnership after the retirement of B in #’s 8 and 9
above, respectively?
a. 320,000; 140,000
b. 440,000; 180,000
c. 140,000; 140,000
d. 320,000; 320,000