CHAPTER 3 – PARTNERSHIP DISSOLUTION ACC C102 Financial Accounting & Reporting 2 Prepared by: Ariel Serrano, CPA PRACTICE TESTS Case 1. Assume that X and Y are partners sharing profits and losses equally with capital balances of P40,000 each as at dissolution date after the capital accounts have been updated. Z was admitted as a new partner when X and Y sold to Z ¼ of their interest for P30,000. What will be the entry to record the admission of partner Z? And how will the partnership equity look like after the admission of partner Z? Case 2. Using illustration in Case 1, but assume instead that Z is admitted as a new partner when Y sells 25% interest to Z for P20,000. The current partners after a careful review of the assets agreed that the difference in purchase price and the book value is attributable to the revaluation of land. How will this transaction be different in terms of journal entries and the composition of partnership equity after the admission of partner Z? Case 3. Assume that partners X and Y with updated capital balances of P50,000 each and sharing profit and loss equally agreed to admit Z. Z is to invest cash of P50,000 for a 1/3 interest in the partnership. Present the balances of the three partners upon admission of the new partner. Case 4. Assume that partners X and Y with updated capital balances of P50,000 each and sharing profit and loss equally agreed to admit Z. Z is to invest cash of P60,000 for a 1/3 interest in the partnership. Before admission, X and Y agreed to revalue the properties by P20,000. Prepare the journal entries to record: (1) the revaluation of properties prior to admission, and (2) the admission of partner Z. Case 5. Assume that partners X and Y with updated capital balances of P50,000 each and sharing profit and loss equally agreed to admit Z. Z is to invest cash of P80,000 for a 1/3 interest and is to be credited for P60,000, the difference is to be given as bonus to X and Y. Prepare the journal entry to record the admission of partner Z. What will the partnership equity look like upon the admission of the new partner? CHAPTER 3 – PARTNERSHIP DISSOLUTION ACC C102 Financial Accounting & Reporting 2 Prepared by: Ariel Serrano, CPA Case 6. A, B and C have capital balances of P40,000, P50,000 and P30,000 respectively, sharing profits in the ratio of 5:3:2. With the consent of A and B, C withdrew from the partnership. Net income prior to withdrawal amounted to P27,000. If the updated capital balance of partner C at the time of withdrawal is P31,200 but received P36,200 as settlement, how will the difference be treated and what is the effect on the remaining partners’ capital balances? Case 7. Assume the same facts in Case 6 except that partner C received as settlement cash of P20,000 and an office computer worth P15,000. What is the journal entry to record the withdrawal of the partner? Case 8. A, B and C are partners dividing profits and losses in the ratio of 3:2:1 respectively. They decided to incorporate the partnership and call it ABC Corporation. The partnership books were closed and the statement of financial position was determined on January 31, 2021: ASSETS Cash Accounts Receivable Inventories Furniture & Fixture Accumulated Depreciation Totals 350,000 500,000 750,000 800,000 (300,000) LIABILITIES & PARTNERS’ EQUITY Accounts Payable 100,000 Notes Payable 250,000 A, Capital 750,000 B, Capital 500,000 C, Capital 200,000 2,100,000 Totals 2,100,000 ABC Corporation is authorized to issue 10,000 shares of common stock with a par value of P500 per share. The partners will be issued enough shares for their net assets subject to the following adjustments: 1. 5% provision for doubtful accounts 2. 10% write down on inventories 3. Furniture & fixture has a fair market value of P360,000 Prepare the journal entries to record the net assets in the books of ABC Corporation. CHAPTER 3 – PARTNERSHIP DISSOLUTION ACC C102 Financial Accounting & Reporting 2 Prepared by: Ariel Serrano, CPA Case 9. A and B are partners sharing profit in the ratio of 6:4, respectively and with capital balances of P25,000 each. C, the new partner, paid B P10,000 for ½ of his interest. a. Determine the partners’ equity just after the admission and make the corresponding entry. b. Suppose there was no revised profit and loss agreement, what would be the revised profit and loss ratio? Case 10. A, B and C are partners whose sharing ratio in the assets and earnings of the business is 4:5:1 respectively. Presented below is the balance sheet just before dissolution: Cash Other Assets Totals 85,000 Liabilities 415,000 A, Capital B, Capital C, Capital 500,000 Totals 80,000 252,000 126,000 42,000 500,000 C wants to retire from the partnership on June 30, 2020. Estimated profit from January 1 to date of retirement is P120,000 and partner C made a cash withdrawal of P2,000 prior to retirement. Required: a. Update the capital account of partner C. b. If partner B buys his capital and net profit share for P70,000, what would be the journal entry to record partner C’s retirement? c. Ignore B. If the partnership pays a total of P50,000 for all C’s interest, what will be the entry to record C’s retirement given that the assets are properly valued?
