Problem 1: True or False

1. False
2. False
3. True
4. False
5. False

Problem 2: For classroom discussion

Capital P/L ratios

A, Capital 150,000 30%
B, Capital 250,000 70%
Total 400,000 100%

Part 1: ADMISSION OF A NEW PARTNER

Case 1: Purchase of interest from one partner
1. C purchase 10% interest out of the 30% interest of A for ₱100,000.
The net assets of the firm as of this date approximately their fair values.

Requirement: Provide journal entry to record the transaction.

A, Capital (150,000 x 10%/30%) 50,000

C, Capital 50,000

Case 2: Purchase of interest from more than one partner

2. C purchases proportionate interest from A and B representing 10% interest in the partnership for
₱100,000. The net assets of the firm as of this date approximately their fair values.

Requirements:
a. Provide journal entry to record the admission of C.
b. Compute for the capital balances of the partners after the admission of C.
A, Capital (400,000 x 10%x30%) 12,000
B, Capital (400,000 x10%x70%) 28,000
C, Capital 40,000

A B C Totals
Capital, beg. 150,000 250,000 - 400,000
Sale of interest to Banana -12,000 -28,000 40,000 0
Capital, end. 138,000 222,000 40,000 400,000

Case 3: Revaluation
3. C purchases proportionate interest from A and B representing 10% interest in the partnership for ₱100,000.
However, before the admission of C, it was found out that the building of the partnership is undervalued by ₱200,000.

Requirement: Provide the journal entries to record the revaluation of the building and the admission of C.

Building 200,000
A, Capital (200,000 x 30%) 60,000
B, Capital (200,000 x70%) 140,000

A B Total
Unadjusted capital 150,000 250,000 400,000
Share in revaluation 60,000 140,000 200,000
Adjusted capital 210,000 390,000 600,000

C's admission is recorded as follows

A, Capital (600,000 x 10%x30%) 18,000
B, Capital (600,000 x 10%x70%) 42,000
C, Capital 60,000

Case 4: Investment to the partnership

4. Disregard Case #3 above. C purchase 10% interest in the partnership by investing ₱100,000 cash to the business.
The net assets of the firm as of this date approximate their fair values.

Requirement:
a. Provide the journal entry to record the admission of c.
b. Compute for the capital balances of the partners after the admission of C.
c. compute for the new P/L ratios of the partners.

Requirement A.
Journal entry
Cash 100,000
C, Capital 100,000

Requiremnt B.
Capital balances
A B C Total
Capital Beg. 150,000 250,000 - 400,000
Admission of C 100,000 100,000
Capital, end. 150,000 250,000 100,000 500,000

Requirement C.
New P/L ratios
A (100% - 10%) x 30%/100% 27%
B (100% - 10%) x 70%/100% 63%
C 10%
100%

Case 5: Investment to the partnership-Bonus method

5. Disregard Case #3 above. C purchases 10% interest in the partnership by investing ₱100,000 cash to the business.
The partners decided to give C a capital credit of ₱80,000 to compensate for the old partners' efforts in establishing the business.
The net assets of the firm as of this date approximate their fare values.
Requirements:
a. Provide the journal entry to record the admission of C
b. Compute for the capital balances of the partners after the admission of C

Requirement A.
Cash 100,000
C, Capital 80,000
A, Capital (100k-80k)x30%)* 6,000
B, Capital (100k-80k)x70%)* 14,000

Requirement B.
A B C Total
Capital, before admission 150,000 250,000 400,000
Admission of C 100,000 100,000
Bonus to old partners 6,000 14,000 -20,000 0
Capital, after admission 156,000 264,000 80,000 500,000

Case 6: Amount of investent to the partnership

6. Disregard Case #3 above. The net assets of the firm as of this date approximate their fare values. If C wants to invest directly to the business
for a 10% interest and no bonus shall be allowed, how much should C invest.

Solution:
Net assets before admission 400,000
Divide by: (100% - 10% interest of C) 90%
Net assets after admission 444,444
Multiply by: C interest in net assets 10%
C investment 44,444

PART 2: WITHDRAWAL OF A PARTNER

Case 7: Purchase of interest by remaining partner

7. A does not like the idea of admitting C to the partnership. Accordingly, A decided to withdraw from the partnerhip
and sell his interest to B for ₱220,000. The net assets of the firm as of this date approximate their fair values.

Requirement: Provide journal entry to record A's withdrawal.

A, Capital 150,000
B, Capital 150,000

Case 8: Purchase of interest by partnership

8. A does not like the idea of admitting C to the partnership. Accordingly, A decided to withdraw from the
Partnership. The partnership acquires the interest of A for ₱220,000. The net assets of the firm as of this date
Approximate their fair values.

Requirement: Provide the journal entry to record A's withdrawal.

A, Capital 150,000
B, Capital 70,000
Cash 220,000
Solution:
Net assets before admission 400,000
Investment of C 100,000
Net assets after admission 500,000
C interest in net assets 10%
C's capital credit 50,000
Investment of C 100,000
Bonus -50,000