PROBLEM 4: MULTIPLE CHOICE

1. It is the charge in the relation of the partners caused by any partner being disassociated from the business.
a. Formation
b. Operations
c. Dissolution
d. Liquidation

2. Which of the following is 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 is increased by the incoming partner’s contribution.
c. The incoming partner’s 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 the following information for the next eight questions:

The partners’ capital account n AB Partnership before the admission of a new partner are as follows:

Capital accounts P/L ratios

A, Capital 200,000 60%

B, Capital 120,000 40%
320,000

3. C purchases 20% interest in the partnership from A for ₱120,000.

How much is the capital balance of A after the admission of C?

A, Capital (200,000 x 20% x 60%) 24,000

C, Capital 24,000

a. 133,333
b. 24,000
c. 96,000
d. 148,000

4. C purchase 20% interest in the partnership proportionately from A and B for ₱120,000.
How much is the gain or loss record in the partnership books?

A, Capital (320,000 x 20% x 60%) 38,400

B, Capital (320,000 x 20% x 40%) 25,600
C, Capital (320,000 x 20%) 64,000

A B C Total
Capital Beg. 200,000 120,000 - 320,000
Credit 64,000 64,000
Debit -38,400 -25,600 -64,000
Capital, end. 161,600 94,400 64,000 320,000

a. 48,000
b. 56,000
c. 60,000
d. 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

6. C acquires 20% interest in the partnership by investing ₱120,000 to the business.

No bonus is given to C. How much is the capital balance of A after the admission of C?

A, Capital 200,000
B, Capital 120,000
Total capital of existing partnership 320,000
Divide by: (100% less 20% interest of C) 80%
total capital of new partnership 400,000
Multiply by: Interest of C 20%
Investment of C 80,000

A B C Total
Capital, before admission 200,000 120,000 320,000
Investment of C -80,000 -80,000
Capital, after admission 200,000 120,000 -80,000 240,000

a. 200,000
b. 264,000
c. 240,000
d. 0

7. What is the P/L ratio of B after the admission of C?

New P/L ratio

A (100% - 20%) x 60% 48%
B (100% -20%) x 40% 32%
C 20%
100%

a. 22%
b. 28%
c. 32%
d. 40%

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

9. Before the admission of C, B decides to retire. The partnership pays B ₱180,000 in settlement of his partnership interest. How much is the capital balance of A after th
a. 200,000
b. 140,000
c. 260,000
d. 320,000

10. Using the case in #8 above, how much is the total equity of the partnership after the retirement of B?
a. 320,000
b. 440,000
c. 240,000
d. 500,000
pital balance of A after the retirement of B?