Partnership Changes in
Ownership Exercises
48. Presented below is the condensed balance sheet of the partnership of KK, LL and
MM who shae profits and losses in the ratio of 6:3:1.
Cash
Other assets
85,000
415,000
Liabilities
KK, Capital
LL, Capital
80,000
252,000
126,000
MM, Capital
42,0000
The partners agree to sell NN 20% of their respective capital and profit and loss
Total
500,000
interests for
a total investment
of P 90,000. TheTotal
payment by NN500,000
is to be paid directly to
the partners. What is the capital of the old partners after admission of NN?
The capital balances after admssion :
KKP252,000 x 80% = 201,600
LL P126,000 x 80% = 100,800
MM P 42,000 x 80% = 33,600
49. On June 30,2012, the balance sheet of Western Marketing, a
partnership is summarized as ffs:
Sundry assets
West, Capital
Tem, Capital
150,000
90,000
60,000
West and Tem share profit and losses at a 60:40 r They agreed to
take in Cuba as a new partner, who purchases 1/8th interest of
West and Term for P 25,000. What is the amount of Cuba’s
capital to be taken up if book value method is used?. What is the
gain of West and Tem?
Amount paid
25,000
Less: BV of interest acquired
150,000 x 1/8
Gain of West and Tem
18,750
50. The capital accounts of NN, VV and JJ
on June 1, 2013 are
presented below with their respective p & l ratios:
NN
VV
JJ
139,200
208,800
96,000
1/2
1/3
1/6
On June 1, 2013, LL is admitted to the partnership where LL
purchased, for P 132,000, a proportionate interest from NN and
JJ in the net assets and profit of the partnership. As a result of
the transaction, LL acquired a 1/5 interest in the net assets and
profits of the firm. What is the combined gain realized by NN and
JJ upon the sale of a portion of their interest in the partnership
to LL? What is the new capital balance of NN and JJ?
Amount paid 132,000
Less: Book value of interest acquired
(139,200 + 208,800 + 96,000) x 1/5
Gain
43,200
New capitalization :
88,800/5 = 444,000
VV 208,800
LL 88,800 297,600
NN & JJ 146,400
NN (59.0%)
86,376
JJ (41.0%) 60,024
88,800
51. PP contributed P 24,-000 and CC contributed P 48,000 to
form a partnership and they agreed to share profits in the ratio of
their original contribution. During the first year of operations,
they made a profit of P16,290 : PP withdrew P 5,050 and CC P
8,000. At the start of the following year, they agreed to admit GG
into the partnership. He was to receive a 1/4th interest in the
capital and profit upon payment of P30,000 to PP and CC, whose
capital accounts were to be reduced by transfers to GGs capital
account of amounts sufficient to bring them back to their capital
ratio.
How should the P 30,000 paid by GG be divided between PP and
CC?
57. OO and TT are partners with capital accounts P 60,000 and P
20,000, respectively. Profits and losses are divided in the ratio of
60:40. OO and TT. OO and TT decided to form a new partnership
with GG, who invested land valued at P 15,000 for a 25% capital
interest in the new partnership. GGs cost of the land was P
12,000. The partnership elected to use the bonus method to
record the admission of GG into the partnership. GGs capital
account should be credited for ?
Since bonus method is recognized, the total agreed capital of
the partnership should equal to the total contributed capital.
Total agreed capital (60,000 + 20,000 + 15,000) 95,000
Multiplied by GGs capital interest
20%
Agreed capital to be credited to GG
19,000
55. CC and DD are partners who share profits and losses in the
ratio of 7:3, respectively. On October 21, 2012, their respective
capital accounts were as follows :
CC
35,000
DD
30,000
Total
65,000
On that date they agreed to admit EE as a partner with a 1/3
interest in the capital and profits; and upon his investment of P
25,000. The new partnership will begin with a total capital of P
90,000.Immediately after EEs admission, what are the capital
balances of CC, DD and EE?
Capital before admission
Investment EE
Capital after investment
65,000
25,000
90,000
Capital credit of EE (1/3 x 90,000)
30,000
Capital investment of EE
25,000
Bonus to EE
5,000
Capital balances after admission :
CC
31,500
DD
28,500
EE
30,000
Total Capital after 90,000
56. The capital accounts for the partnership of LL and MM at Oct
31, 2013 are as follows :
LL, Capital
80,000
MM, Capital
40,000
Total
120,000
The partners share profits and losses in the ratio of 3:2.
The partnership is in desperate need of cash, and the partners
agree to admit NN as a partner with 1/3 interest in the capital and
profits and losses upon his investment of P 30,000. Immediately
after NNs admission, what should be the capital balances of LL,
MM and NN, respectively, assuming bonus is to be recognized?
Total contributed capital
(80,000 + 40,000 + 30,000) 150,000
% Credit to NN
1/3
Capital credit
50,000
Actual investment
30,000
Bonus to NN
20,000
Capital Balances after Admission
LL (80,000 – 12,000) 68,000
MM(40,000 – 8,000) 32,000
NN
50,000
150,000
59.In the AD partnership, Allen’s capital is P 140,000 and Daniel’s is
P 40,000. They share income in the ratio of 3:1, respectively. They
decide to admit David into the partnership. Each of the following
questions is independent of the others.
Allen and Daniel agree that some of the inventories are obsolete.
The inventory account is decreased before David is admitted. David
invests P 40,000 for a 1/5th interest. What is the amount of
inventory written down?
David’s investment
40,000
% interest bought
1/5th
Agreed capital after adjustment 200,000
Unadjusted capital after investment 220,000
Asset write down
20,000
60. Using the same information in the preceding, David directly
purchases a 1/5th interest by paying Allen P 34,000 and Daniel P
10,000. The land account is increased before David is admitted.
By what amount is the land account increased?
Total purchase :
Allen
34,000
Daniel
10,000
Total
44,000
% interest bought 1/5th
Adjusted capital 220,000
Original capital 180,000
Increase in land value 40,000
61. David invests P 40,000 for a 1/5th interest in the total capital
of P220,000. The journal entry to record the entry of David will
be :
Cash
40,000
Allen, Capital
3,000
Daniel, Capital
1,000
David, Capital
44,000
Interest sold to David :
Allen (170,000 x 1/5)
Daniel (50,000 x 1/5)
34,000
10,000
62. On June 30, 2013, the statement of financial position for the
partnership of CC, MM and PP, together with their respective profit
and loss ratios, were as follows:
Assets (at cost)
P 180,000
CC, loan
9,000
CC, capital (20%)
42,000
MM, capital(20%)
39,000
PP, capital(60%)
90,000 180,000
CC decided to retire from the partnership. By agreement, their
assets are to be adjusted to their fair values of P216,000. at June 30,
2013. It was agreed that the partnership would pay CC P51,200 for
CCs partnership interest including CCs loan which is to be repaid in
full. No goodwill is to be recognized. After CCs retirement , what is
the balance of MMs capital account?
Capital balances after adjustment :
Agreed upon adjustment (216,000 – 180,000)
Share of partners
CC(20%)
7,200
MM(20%)
7,200
PP (60%)
21,600
Capital after adjustment
CC (42,000 + 7,200)
49,200
MM (39,000 + 7,200)
46,200
PP (90,000 + 21,600)
111,600
Settlement to CC
Cash payment
51,200
Loan
9,000
Capital payment
42,200
BV of capital
49,200
Bonus to old partners 7,000
Sharing of bonus :
MM (7,000 x 2/8)
1,750
PP (7,000 x 6/8)
5,250
Capital of MM after retirement of CC
MM, Capital (46,200 + 1,750) 47,950
36,000
63. The Dec 31, 2013 Statement of Financial Position of the BB, CC and
DD partnership is summarized as follows:
Cash
Other assets, at cost
100,000
500,000
600,000
CC, loan
BB, capital
CC, Capital
100,000
100,000
200,000
DD, Capital
200,000
600,000
BB, CC and DD share profits and losses in the ratio of 20%, 30%, and
50% , respectively. CC is retiring from the partnership and the partners
have agreed that “Other assets” should be adjusted to their value of
P600,000 as at Dec 31, 2013. They further agreed that CC will receive
P 244,000 cash for his interest exclusive of the loan, which is to be
paid in full. No goodwill implied by CCs payment will be recognized.
What will be BB and DD capital balances after retirement?
Capital balances after adjustment :
Agreed upon adjustment
100,000
Share of partners
BB(20%)
20,000
CC(30%)
30,000
DD (50%)
50,000
Capital after adjustment
BB (100,000 + 20,000)
120,000
CC (200,000 + 30,000)
230,000
DD (200,000 + 50,000)
250,000
Settlement to CC
Cash payment for capital
244,000
230,000
Bonus to retiring partner
14,000
Sharing of bonus :
BB (2/7 X 14,000)
(4,000)
DD (5/7 x 14,000)
(10,000)
Capital of MM after retirement of CC
BB, Capital (120,000 – 4,000) 116,000
DD, Capital (250,000 – 10,000) 240,000
BV of capital
64. The partners’ capital (sharing in parenthesis) of Nunn, Owen,
Park & Quan, LLP on May 31, 2012, were as follows :
Nunn (20%)
60,000
Owen (20%)
80,000
Park (20%)
70,000
Quan (40%)
40,000
Total partners’ capital(20%) 250,000
On may 31, 20112, with the consent of Nunn, Owen and Quan :
a. Park retired from the partnership and was paid P50,000 cash
in full settlement of his interest in the partnership.
b. Reed was admitted into the partnership with a P 20,000 cash
investment for a 10% interest in the net assets of Nunn,
Owen and Quan.
What is the amount of capital to be credited to Reed ? What are
the new capital balances of the old partners?
Settlement to Park:
BV of interest
70,000
Payment
50,000
Bonus to remaining partners 20,000
Sharing
Nunn (20,000 x 2/8)
5,000
Owen (20,000 x 2/8)
5,000
Quan (20,000 x 4/8)
10,000
Capital balances after retirement of Park:
Nunn (20%)
65,000
Owen (20%)
85,000
Quan (40%)
50,000
Entry of Reed
Investment of Reed
20,000
Interest bought
10 %
New capitalization
200,000
Total capital after entry
220,000
Assumed overvaluation of assets (20,000)
Capital balances of old
Nunn (20,000 x 2/8)
60,000
Owen (20,000 x 2/8)
80,000
Quan (20,000 x 4/8)
40,000