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ACCT 2A&B: Accounting for Partnership & Corporation

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ACCT 2A&B: Accounting for Partnership & Corporation I


Accounting for Partnership Dissolution
I. CONCEPTUAL SKILLS
A. Multiple Choices.
Choose the letter of the best answer.

1. A decree by the court is necessary to dissolve a general partnership based on three of the following
grounds. Which one will not require such decree but will cause the automatic dissolution of the partnership?
A. The business of the partnership can only be carried on at a loss
B. A partner is shown to be of unsound mind
C. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business
D. A partner is civilly interdicted

2. Which of the following will not cause the automatic dissolution of a general partnership?
A. Death of a partner
B. Insolvency of a partner
C. When the partnership business becomes unlawful
D. Insanity of a partner

3. The change in the relation of the partners caused by any ceasing to be associated in the carrying on the
business is known as
A. Termination of the partnership
B. Dissolution of the partnership
C. Winding up of partnership affairs
D. Liquidation of the partnership business

4. A partners interest in the partnership is his share of the profits and surplus which he may assign to a third
person. Which of the following statements concerning such right is correct?
A. The conveyance of a partners interest will cause the dissolution of the partnership
B. The assignee has a right to interfere in the management of the partnership business
C. The assignee has the right to receive the profits which the assigning partner would otherwise be entitled
to
D. The assignee has a right to interfere in the management of the partnership business

5. Which of the following will not cause the automatic dissolution of a limited partnership?
A. Death of a general partner
B. Death of a limited partner
C. Insolvency of a general partner
D. Insanity of a general partner

6. If the total contributed capital exceeds the agreed capital with the new partners investment is the same as
his capital credit, then the admission of the new partner involved a(n)
A. Upward asset revaluation
B. Downward asset revaluation
C. Bonus to the old partners
D. Bonus to the new partner

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ACCT 2A&B: Accounting for Partnership & Corporation
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7. A person may become a partner in a partnership by all of the following methods except
A. Investing in the partnership with a bonus to the new partner
B. Making a loan to the partnership
C. Investing in the partnership with a bonus to the old partners
D. Purchasing a partners interest

8. If a new partner purchases his interest from an old partner, the only entry on the partnership books is a
credit to the purchasers capital account with a debit to the
A. Bonus account
B. Cash account
C. Capital account of the selling partner
D. Capital accounts of other partners

9. Which of the following does not result in the dissolution of a partnership?


A. Marriage of a partner
B. Withdrawal of a partner
C. Addition of a new partner
D. Death of a partner

10. A new partner may be admitted into a partnership by any of the following except
A. Investing in the partnership
B. Purchasing preferred stock of the partnership
C. Purchasing a partners interest
D. Both A and C

11. The accounting treatment for the sale of the interest of a retiring partner to an outsider or to the remaining
partners is the same as
A. Admission of a partner by purchase
B. Admission of a partner by investment
C. Sale of interest to the partnership
D. Both A and B

12. When the partnership purchases a retiring partners interest, the settlement to the retiring partner includes
the following except
A. Notes payable
B. Depreciation expense
C. Cash
D. Equipment

13. The following should be considered in determining the interest of a retiring partner except
A. Share in asset adjustment
B. Receivable from the partnership
C. Payable to a co-partner
D. Share in profits and losses

14. When a partnership purchases the interest of a retiring partner at less than book value, there must be a
A. Bonus to remaining partners
B. Bonus to retiring partner
C. Bonus to remaining partners/ negative asset revaluation or both
D. Bonus to retiring partner/ positive asset revaluation or both

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15. A partner may withdraw his interest at an amount equal to all of the following, except at
A. Less than book value
B. Future expected value
C. More than book value
D. Book value

16. When Jay retired from the partnership with Kay and Boris, the final interest is less than Jays capital
balance. Under the bonus method, the difference
A. Had no effect on the capital of Kay and Boris
B. Was recorded as asset adjustment
C. Increases the capital balances of Kay and Boris
D. Was a revenue

17. The withdrawal of a partner of his interest at more than book value results in a
A. Bonus from remaining partners
B. Gain to remaining partners
C. Loss to remaining partners
D. Gain or loss depending on the tax basis

18. If the agreed capital is equal to the total contributed capital with the capital credit and contribution of the old
and new partners being the same, there exists a
A. Positive asset revaluation
B. Negative asset revaluation
C. No asset revaluation and bonus
D. Asset revaluation and bonus

19. If the capital credit of the new partner is less than his contribution with no adjustment in asset values, then
the admission resulted in a
A. Bonus to the old partners
B. Bonus to the new partner
C. No bonus
D. Both A and B

20. A partner who withdraws his interest at carrying value receives assets
A. With indeterminate value
B. Less than his capital interest
C. Above his capital interest
D. Equal to his capital interest

B. TRUE OR FALSE.
Write A if the statement is not incorrect otherwise, write B.

21. A newly-admitted partner is liable for partnership debts contracted before his admission to the extent of his
contribution, unless there is a contrary stipulation.
22. A partner may associate another person with him in his share but the person admitted shall not be admitted
to the partnership without the consent of all the partners.
23. A general partnership is automatically dissolved by reason of the insanity of a partner.
24. After dissolution, a partnership is still bound by the act of a partner authorized to act for the partnership with
respect to the completion of transactions begun before dissolution.
25. A limited partner may assign his interest to another person.
26. Admission of a new partner will always change total capital.

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27. When a new partner is admitted, the partnership may continue operations based on a new contract among
the partners.
28. The total assets of the partnership will increase upon admission of a new partner by purchase of interest.
29. A partnership dissolution will always lead to a partnership liquidation.
30. If the agreed capital exceed the total contributed capital, the difference may be a positive asset revaluation.
31. A new partner may be admitted without an investment and without the recognition of capital.
32. The agreed capital can never be less than the total contributed capital.
33. A retiring partners interest is always payable in the form of cash.
34. A partner who desires to withdraw from the partnership may, without the consent of the other partners, sell
all or part of his interest either to an outsider, to the other partner, or the partnership itself.
35. Accounting for the withdrawal of a partner when one of the remaining partners buys the retiring partners
interest is not the same as when an outside person buys a retiring partners interest.
36. The sale of interest of the retiring partner to a new partner will require the recognition of a gain or loss on the
partnership books.
37. Loans made by the partnership to the partners, as recorded on the partnership books, reduces the interest
of the retiring partner.
38. Accounting for the sale of a retiring partners interest to the continuing partners is the same as sale to the
partnership.
39. The withdrawal of an existing partner dissolves the partnership; but the addition of a new partner does not.
40. The partnership must measure net income (loss) for the fraction of the year up to the withdrawal date of
withdrawing partner and allocate profit or loss according to the existing agreement.

II. COMPUTATIONAL AND ANALYTICAL SKILLS


Supply the answer.

Problem 1:
Bee, Dee, Gee, Lee, & Vee are partners who share earnings in the ratio of 4:7:3:6:5, respectively. On Sept. 1, 2011,
their capital balances are as follows:

Bee P 188,520
Dee 176,800
Gee 192,170
Lee 179,010
Vee 203,900

During the first two months of 2011, the partnership had revenue totaling P 170,000; expenses of P 79,000. On Nov.
2, 2011, Zee is to be admitted for a 25% interest in the partnership by purchase from the partners for P 225,000.

Questions to answer:
1. How much of Gees capital will be transferred to Zee?
2. How much of Vees capital will be transferred to Zee?
3. What is Lees capital balance after admission of Zee?
4. What is Zees capital balance after admission?
5. How much of the proceeds will go to Bee?
6. How much of the proceeds will go to Vee?
7. How much of the proceeds will go to Dee?
8. How much is the personal gain (loss) of Gee?
9. How much is the personal gain (loss) of Dee?

Problem 2:

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ACCT 2A&B: Accounting for Partnership & Corporation
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Mia, Camille, and Diane are partners having capital balances of P 320,000, P 450,000, and P 370,000, respectively.
They share profits in the ratio of 20:30:50, respectively. They admit Frances and Martha into the partnership. Martha
purchases one-third of Camilles interest and two-fifths of Dianes interest for P 360,000. Frances is admitted to the
partnership with an investment of P 690,000 for her 40% interest in the partnership.

Questions to answer:
10. How much is the capital of Martha after the admission?
11. How much of the proceeds will go to Camille?
12. How much is the personal gain (loss) of Diane?
13. What is the capital to be credited to Frances?
14. How much was deducted from the capital balance of Diane immediately after the admission of
Frances and Martha?
15. How much is the share of Mia in the bonus to be given to Frances?
16. What is the capital balance of Camille immediately after the admission of Frances and Martha?

Problem 3:
The capital accounts of the partnership of Rico, Lyn, & Ji on July 1, 2013 are P 149,200, 218,800, 106,000,
respectively. Their share in the profit and loss are as follows: one-half for Rico; one-third for Lyn; and one-sixth for Ji.
On July 1, 2013, Ry is admitted to the partnership Ry purchased, for P 97,000, a proportionate interest from Rico and
Ji in the net assets and profits of the partnership. As a result of a transaction, Ry acquired a one-fifth interest in the
net assets and profits of the firm.

Questions to answer:
17. How much is the total realized personal gain of Rico and Ji?
18. How much was deducted from the capital of Ji?
19. What is the capital balance of Lyn after the admission of Ry?

Problem 4:
The following statement of financial position is for the partnership of Ray, AE, & Shtern, who share profits and losses
in the ratio of 2:7:1 respectively:

Assets Liabilities and Equity


Cash P 115,000 Liabilities P 180,000
Other assets 85,000 Ray, Capital 425,000
AE, Capital 175,000
Shtern, Capital 120,000
Total assets: P 900,000 Total Liabs & Cap. P 900,000

Assumption 1: Assuming that the net assets are fairly valued, and that the partnership wishes to admit Yessir as a
new partner with two-fifth interest in capital. Yessir invested machine with market value of P 270,000 and P 210,000
cash.
Determine the following:
20. Capital to be credited to Yessir.
21. Bonus to AE.
22. Total assets of the partnership after admission of Yessir.

Assumption 2: Assuming that the net assets are fairly valued, and that the partnership wishes to admit Yessir as a
new partner with three-eight interest in capital. Yessir invested P 180,000 cash.
Determine the following:
23. Bonus to Yessir.
24. Amount that was deducted from Rays capital.

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25. Capital balance of Shtern after the admission of Yessir.

Assumption 3: The partnership wishes to admit Yessir as a new partner with one-fourth interest in capital. Yessir
invested P 260,000 cash. According to the appraiser, their assets were undervalued.
Determine the following:
26. Change in Shterns capital after adjustment for revaluation of assets.
27. Capital balance of AE immediately after the admission of Yessir.
28. Capital balance of Ray after the admission of Yessir.

Assumption 4: The partnership wishes to admit Yessir as a new partner with one-third interest in capital. Yessir
invested P 430,000 cash. According to the appraiser, their assets were overvalued.
Determine the following:
29. Bonus to Shtern
30. Bonus to Yessir
31. Capital balance of Ray after admission of Yessir
32. Capital balance of Yessir after admission

Problem 5:
Partners Pat, Ri, & Anne have capital balances of P 140,000, P 128,000, P 132,000, respectively on December 31,
2012. The partners share profits and losses in the ratio of 5:8:7, respectively. During the calendar year 2013, the
partnership suffered a loss of P 112,400 and the withdrawal of each partner as follows: Pat P 12,500; Ri P 8,000 ;
Anne P 10,500. Anne is not happy with the partnership operation and has decided to withdraw as of Dec. 30, 2013.
Anne received P 90,560 cash in settlement of her interest in the partnership.

Questions to answer:
33. What is the balance of Pats capital account prior to withdrawal of Anne?
34. Assuming all assets are fairly valued, What is the capital balance of Ri immediately after the
retirement of Anne?
35. Assuming the difference is attributable to the undervaluation of land, How much is the increase in
Pats capital?
36. Using the information in # 35, What is the capital balance of Ri after the retirement of Anne?

Problem 6:
The partnership of Eunice, Gina, and Joy has reached an impasse as Joy is no longer willing to contribute the
amount of time and effort to the partnership that she has previously given. The partners share profits in the ratio of
6:2:2, respectively. The partners have the following capital balances just prior to Joys withdrawal from the
partnership: Eunice P 80,000; Gina P 78,500; Joy - P 82,500.

Questions to answer:
37. If Eunice purchases 35% of Joys interest and Gina purchases the remainder for P 90,000, what is
the balance of Ginas capital immediately after the withdrawal of Joy?
38. Assuming that the partners agree that the partnership will purchase Joys interest for P 90,000, What
is the balance of Eunices capital account immediately after the withdrawal of Joy?
39. Assuming that the partners agree that the partnership will purchase Joys interest for P 90,000 and
will revalue the partnership based on the price Joy is willing to accept for her interest in the
partnership, What is the total capital of the partnership immediately after the withdrawal of Joy?

Problem 7:

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ACCT 2A&B: Accounting for Partnership & Corporation
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Queenie, Roy, & Satir are partners with capital balances of P 67,000, P 76,000, P 87,000, respectively. They share
profits equally. Queenie decides to withdraw from the partnership. Queenie received P 52,000 in settlement of her
interest.
Questions to answer:
40. If the bonus method is used, what is the capital balance of Satir after the retirement of Queenie?
41. If the asset revaluation is used and Goodwill exists in the partnership books, is impaired because of
the decrease in the net cash flows of the cash generating units, what is the capital balance of Roy
after the retirement of Queenie?
42. Using the information in # 41, what is the total partnership capital after the retirement of Queenie?

~~~~
The most difficult phase of life is not when no one understands you; It is when you dont
understand yourself.

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ACCT 2A&B: Accounting for Partnership & Corporation
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*Suggested Key*

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ACCT 2A&B: Accounting for Partnership & Corporation
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I. CONCEPTUAL SKILLS
A. Multiple Choices.
1. D 11. A
2. D 12. B
3. B 13. C
4. C 14. A
5. B 15. B
6. B 16. C
7. B 17. A
8. C 18. C
9. A 19. A
10. B 20. D
B. True or False
21. A 31. A
22. A 32. B
23. B 33. B
24. A 34. B
25. A 35. B
26. B 36. B
27. A 37. A
28. B 38. B
29. B 39. B
30. A 40. A
II. COMPUTATIONAL & ANALYTICAL SKILLS
1. P 50,772.50 34. P 69,871
2. P 55,525 35. P 6,000
3. P 150,637.50 36. P 84,640
4. P 257,850 37. P 132,125
5. P 45,514 38. P 74,375
6. P 48,955 39. P 188,500
7. P 41,372 40. P 94,500
8. (P 3,942) 41. P 61,000
9. (P 9,198) 42. P 133,000
10. P 298,000
11. P 173,250
12. P 38,750
13. P 732,000
14. P 169,000
15. P 8,400
16. P 287,400
17. P 45,960
18. P 21,200
19. P 218,800
20. P 480,000
21. P -0-
22. P 680,000
23. P 157,500
24. P 31,500
25. P 104,250

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ACCT 2A&B: Accounting for Partnership & Corporation
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26. P 6,000
27. P 217,000
28. P 437,000
29. P 7,000
30. P-0-
31. P 425,000
32. P 360,000
33. P 99,400

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