CHAPTER 3 Partnership Dissolution

1. It is the change in the relation of the partners caused by any partner

ceasing to be associated in the carrying on of the business.
a. dissolution c. incorporation
b. liquidation d. break-up
2. The admission of a new partner effected through purchase of interest
from (an) existing partner(s) is
a. recorded in the partnership's books as a debit to cash or other
asset and credit to the incoming partner's capital account.
b. recorded in the partnership's books as a transfer within equity.
c. recorded in the partnership's books as a transfer from equity to
liability.
d. not recorded in its entirety.
3. After the admission of a new partner, the total partnership capital
increased by the fair value of the new partner's net contributions to the
partnership. The admission was accounted for
a. under the goodwill method.
b. as partnership formation.
c. as a purchase of interest.
d. as an investment in the partnership.
4. In the A&B partnership, A and B had a capital ratio of 3:1 and a profit
and loss ratio of 2:1, respectively. The bonus method was used to
record C's admittance as a new partner. What ratio would be used to
allocate, to A and B, the excess of C's contribution over the amount
credited to C's capital account?
a. A and B's new relative capital ratio
b. A and B's new relative capital profit and loss ratio
c. A and B's old capital ratio
d. A and B's old profit and loss ratio
(AICPA)

5. When Partner D retired, the partnership paid D an amount that was

lower than the balance of his capital account. Which of the following
statements is incorrect?
a. The partnership assets decreased as a result of D's retirement.
b. The other partners' capital balances increased.
c. The partnership assets were not affected.
d. The number of capital accounts in the partnership chart of
accounts decreased.
COMPUTATIONAL

Use the following information for items 1 to 4:

A&B Partnership admits C as a new partner. The statement of financial

position before the admission of C is shown below:

Cash 26,000 Accounts payable 62,000

Accounts 120,000 A, Capital (60% interest 170,000
receivable in P/L)
Inventory 180,000 B, Capital (40% interest 94,000
in P/L)
Total Assets 326,000 Total liabilities and 326,000
equity

The following adjustments are determined:

 The recoverable amount of the accounts receivable is
P116,400.
 A P25,000 recovery of a previous write-down on the inventory
should be recognized.
 Prepaid assets of P3,600 and accrued liabilities of P4,000
should be recognized.
(AICPA - Adapted)

1. C acquires half of B's interest in the partnership for P100,000. How

much is the capital balance of B after the admission of C?
a. 47,000 c. 51,200
b. 21,500 d. 182,600
2. C invests P71,250 cash for a 20% interest in the net assets and profits
of the partnership. C's capital account is credited for the fair value of
the 20% interest he acquired. How much is the capital balance of B
after the admission of C?
a. 102,400 c. 86,400
b. 94,000 d. 120,400
3. C invests P100,000 cash for a 20% interest in the partnership's net
assets and profits. If the bonus method is used, how much is the
capital balance of B after the admission of C?
a. 165,350 c. 100,000
b. 111,600 d. 77,000
4. If no bonus is allowed, how much should C invest in order to obtain.
2/5 interest in the partnership?
 a. 190,000 c. 285,000
b. 185,000 d. 220,000
5. A, B and C are partners with the following capital balances and
interests: A (20% ) P50,000; B (30%) P70,000; and C (50%) P130,000.
D purchases 10% partnership interest from A and B for P30,000. How
much would be credited to D's capital under the following scenarios?
 <List A> D's capital credit is based on the book values of the
selling partners' capital balances.
 <List B> D's capital credit reflects the fair value of his interest in
the partnership's net assets. The partnership's net assets on D's
admission date are fairly valued.

<List A> <List B> <List A> <List B>

a. 12,000 25,000 25,000

30,000
b. 25,000 12,000 12,000
30,000
6. The admission of a new partner to a 20% interest in a partnership for
an investment of P18,000, but with a capital credit based on P75,000
total contributed capital, will result in
a. bonus to the old partners.
b. bonus to the new partner.
c. goodwill to the old partners.
d. goodwill to the new partner.
(RPCPA - Adapted)

7. The capital accounts and profit and loss sharing ratios of A, B 'and C
are Capital P/L as
A 139,200 1/2 follows:
B 208,800 1/3
C 96,000 1/6

On this date, D is admitted to the partnership when he purchased, for

P132,000, a proportionate interest from A and B in the net assets and
profits of the partnership. As a result of the transaction, D acquired
one-fifth interest in the net assets and profits of the firm. What is the
combined gain realized by A and B upon the sale of a portion of their
interest in the partnership to D?
 a. 0 c. 62,400
b. 43,200 d. 82,000
(AICPA)

8. The capital balances of partners Ming and Piw are P80,000 and
P40,000, respectively. They share in profits and losses in the ratio of
3:2. They have a desperate need for cash and they agree to admit
Andre as a new partner with a 1/3 interest in of both capital and
profits upon the latter's capital infusion P30,000. No goodwill is to be
recognized. After Andre's admission, the respective capital balances of
Ming, Piw and Andre are:
a. 50,000, 50,000 & 50,000. c. 68,000, 32,000 & 50,000.
b. 66,667,33,333 & 50,000. d. 80,000, 40,000 & 30,000.
(RPCPA - Adapted)

9. Blau and Rubi are partners who share profits and losses in the ratio of
6:4, respectively. On May 1, 2003, their respective capital accounts
were as follows:
Blau 60,000
Rubi 50,000

On that date, Lind was admitted as a partner with a one-third interest

in capital and profits for an investment of P40,000. The new
partnership began with a total capital of P150,000. Immediately after
Lind's admission, Blau's capital should be

a. 50,000. c. 56,667.
b. 54,000. d. 60,000.
(AICPA)

Use the following information for items 10 and 11:

The partners in ABC Co. had the following capital balances and P/L
sharing percentages: A (50%) P320,000; B (30%) P192,000; and C
(20%) P128,000.

10. A decided to retire and sold his interest to B for P360,000. The
entry on A's retirement included a
a. debit to B's capital for P24,000.
b. debit to C's capital for P16,000.
c. credit to B's capital for P360,000.
d. credit to B's capital for P320,000.
 11. A withdrew and the partnership paid him P360,000. How much is
the capital balance of C after A's withdrawal?
a. 112,000 c. 168,000
b. 116,800 d. 172,000
12. ABC Partnership's net assets were P1,000,000 as of Jan. 1, 20x1.
Partner A retires from the partnership on June 30, 20×1. The
partnership earned profit of P300,000 for the six months ended June
30, 20x1. Partners A, B and C share profits and losses equally. If
Partner A was paid P200,000 for his interest in the partnership, how
much is the adjusted net assets of the partnership immediately after
Partner A's retirement? (No goodwill is recognized.)
a. 800,000 c. 1,100,000
b. 900,000 d. Answer cannot be determined
13. The net assets of ABC Co. on June 30, 20x1 before closing entries
consisted of the following: A (20%), P300,000; B (30%), P500,000; and
C (50%), P200,000. Profit for the six months ended June 30, 20x1 was
P1,800,000. C withdraws on July 1, 20x1 and receives P1,000,000 cash
and fully depreciated equipment with fair value of P600,000 from the
partnership. What is the capital balance of A right after C's
withdrawal?
a. 780,000 c. 700,000
b. 1,220,000 d. 1,800,000

Use the following information for items 14 and 15:

A, B and C are partners with capital balances of P300,000, P300,000

and P200,000, respectively. The partners share in profits and losses
equally. C is to retire and it is agreed that he would take furniture with
carrying amount of P65,000 and a note for the balance of his interest.
The fair value of the furniture is P50,000; however, a brand-new
furniture would cost P80,000.

14. C's acquisition of the furniture would result in

a. reduction in capital of P5,000 each for A and B only.
b. reduction in capital of P7,500 each for A and B only.
c. reduction in capital of P15,000 for C.
d. reduction in capital of P55,000 for C.
(RPCPA)

15. The amount of the note issued to C is

a. 120,000. c. 145,000.
b. 135,000. d. 150,000.
(RPCPA)