PARTNERSHIP DISSOLUTION

PROBLEM 1: A & B Partnership admits C as a new partner. The partnership statement of financial
position immediately before the admission of C is shown below:

Cash 26,000
Accounts Receivable 120,000
Inventory 180,000
Total Assets 326,000

Accounts Payable 92,000

A, Capital (60% interest in P/L) 170,000
B, Capital (40% interest in P/L) 94,000
Total Liabilities and Equity 326,000

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.

CASE 1: C acquires half of B’s interest for P100,000.

Requirements:
a. Provide the entry to record the admission of C.
b. Determine the balances of the partner’s capital accounts following the admission of C.
c. Determine the profit or loss sharing ration of the partners after the admission of C.
CASE 2: C invests P71,250 cash to the partnership in exchange for a 20% interest.

Scenario A: C’s capital account is credited for the fair value of the 20% interest he acquired.
Requirements:
a. Provide the journal entry to record the admission of C.
b. Compute the capital balances of the partners following the admission of C.
c. Determine the profit or loss sharing ratio of the partners after the admission of C.

Scenario B: C’s capital account is credited for P100,000.

Requirements:
a. Provide the journal entry to record the admission of C.
b. Compute for the capital balances of the partners following the admission of C

CASE 3: If Partner C is to invest sufficient cash to obtain 2/5 interest in the partnership, how much
would Partner C contribute to the new partnership?
 PROBLEM 2: On April 1, 20x1, Partner A decided to retire from ABC Partnership. The partners
agreed that the partnership shall pay Partner A P360,000 for his capital. On this date, the partners’
adjusted capital balances are as follows:

A, Capital (50%) 320,000

B, Capital (30%) 192,000

C, Capital (20%) 128,000

Partner’s Equity 640,000

Requirements:
a. Provide the entry to record the retirement of A.
b. Compute for the capital balances of the remaining partners after A’s retirement

PROBLEM 3: Carrot joins the partnership of Apple and Banana. Before the admission of Carrots, the
partnership statement of financial position shows the following information:

Cash 30,000 Accounts Payable 80,000

Accounts Receivable 140,000 Apple, Capital (60%) 515,000
Inventory 200,000 Banana, Capital (40%) 275,000
Equipment 500,000 Total Liabilities and
870,000
Total Assets 870,000 Equity

The following adjustments are determined:

a. The recoverable amount of the accounts receivable is P120,000.
b. The inventory has a net realizable value of P160,000.
c. The equipment has a fair value of P450,000.
d. Unrecorded liabilities amount to P20,000.
CASE 1: Carrots acquires half of Banana’s interest for P800,000.
Requirements:
a. Provide the entry to record the admission of Carrots.
b. Determine the balances of the partners’ capital accounts after the admission of Carrots.
c. Determine the profit or loss sharing ration of the partners after the admission of Carrots.

CASE 2: Carrots invests P165,000 cash to the partnership in exchange for a 20% interest. Carrot’s
capital account is credited for the fair value of the 20% interest he acquired.
Requirements:
a. Provide the journal entry to record the admission of Carrots.
b. Compute for the capital balances of the partners following the admission of Carrots.
c. Determine the profit or loss sharing ratio of the partners after the admission of Carlos.

CASE 3: Carrots invests P100,000 cash to the partnership in exchange for a 20% interest. Carrot’s
capital account is credited for the fair value of the interest acquired.
Requirements:
a. Provide the journal entry to record the admission of Carrots.
b. Compute for the capital balances of the partners following the admission of Carrots.
CASE 4: Carrots invests P165,000 cash to the partnership in exchange for a 20% interest. C’s
capital account is credited for P125,000.
Requirements:
a. Provide the journal entry to record the admission of Carrots.
b. Compute for the capital balances of the partners following the admission of Carrots.

CASE 5: If Carrots is to invest sufficient cash to obtain 2/5 interest in the partnership, how much
would Carrots contribute to the new partnership?

PROBLEM 4: ABC Partnership’s statement of financial position on January 1, 20x1, shows the following
capital balances:

A, Capital (50%) 320,000

B, Capital (30%) 192,000
C, Capital (20%) 128,000
Partner’s Equity 640,000

On September 1, 20x1, Partner A decided to retire from ABC Partnership. The partnership earned
profit of P800,000 from January 1 to August 31, 20x1. The partners had the following capital
withdrawals during the period:
A 40,000
B 60,000
C 30,000
CASE 1: The partners agreed that the partnership shall pay Partner A P700,000 for his capital.
Requirements:
a. Provide the entry to record the retirement of A.
b. Compute for the capital balances of the remaining partners after A’s retirement
c. Determine the profit or loss sharing ratio of the remaining partners after the retirement of A.

CASE 2: The partners agreed that the partnership shall pay Partner A P650,000 for his capital.
Requirements:
a. Provide the entry to record the retirement of A.
b. Compute for the capital balances of the remaining partners after A’s retirement.
PROBLEM 5: On January 1, 20x1, A, B, and C formed a partnership. A contributed cash of P100,000
and a delivery equipment with an original cost of P120,000 and a fair value of P50,000. B contributed
P160,000 cash. C contributed office equipment with historical cost of P100,000 and fair value of
P120,000. The partnership earned profit of P120,000 in 20x1.
Requirement: Compute for the adjusted balances of the partners’ respective capital accounts on
December 31, 20x1.

Scenario 1: On January 1, 20x2, D was admitted to the partnership when he purchased a proportionate
interest from A and B representing 20% interest in the net assets and profits of the firm for P100,000.
The net assets of the firm as of this date approximate their fair values.
Requirements:
a. Provide the entry to record the admission of D.
b. Compute for the capital balances of the partners after the admission of D.

Scenario 2: Ignore the facts in ‘Scenario 1.’ In addition, assume that the partners’ profit and loss
sharing ratio is 40:40:20. On December 31, 20x1, B decided to withdraw from the partnership. The
partners agreed that the partnership shall pay B P164,000 for his capital.
Requirements:
a. Provide the entry to record the withdrawal of B.
b. Compute for the capital balances of the partners after the withdrawal of B.
c. Compute for the P and L sharing ratio of the remaining partners after the withdrawal of B.
PROBLEM 6: On January 1, 20x1, A and B agreed to form a partnership. Their contributions are shown
below:

A B
Cash 11,000 22,354
Accounts Receivable 234,536 567,890
Inventory 120,035 260,102
Land 603,000
Building 428,267
Equipment 50,345 34,789
Other Assets 2,000 3,600
Total Assets 1,020,916 1,317,002

Accounts Payable 178,940 243,650

Notes Payable 200,000 345,000
A, Capital 641,976
B, Capital 728,352
Total Liabilities and Equity 1,020,916 1,317,002

The partners agreed on the following adjustments:

a. Accounts receivable of the P20,000 in A’s books and P35,000 in B’s are uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in A’s and B’s respective books.
c. Other assets of P2,000 and P3,600 in A’s and B’s respective books are to be written off.

Requirements:
What are the adjusted capital balances of the partners respective capital accounts?
How much assets does the partnership have?

If Mr. C offers to join the partnership for a 20% interest, how much cash should he contribute?
 After Mr. C’s admission, the profit and loss sharing ration was agreed to be 40:40:20, based on capital
credits. How much should the cash settlement be between Partner A and Partner B?

The partnership earned profit of P325,000 in 20x1. Profits were distributed in the agreed manner.
Drawings were made in these amounts: A, P50,000; B, P65,000; and C, P28,000. How much are the
partners’ respective capital balances at the end of the year?

PROBLEM 7: Partner C decided to retire when the partners’ capital balances are: A, capital, P600,000;
B, capital, P600,000; and C, capital, P400,000. It was agreed that Partner C is to take the
partnership’s fully decorated equipment with a fair value of P24,000. The historical cost of the
equipment is P36,000. The partners share in profits and losses equally.
Requirement: Compute for the capital balances of the remaining partners after the retirement of C.

PROBLEM 8: The existing partners are A and B with the following capital balances and profit and loss
sharing ratios:

A, Capital – January 1, 20x1 160,000

B, Capital – Jan 1, 20x1 40,000
 CASE 1: You decided to admit C into the partnership on July 1, 20x1 when he or she acquires half of
the interest of B for P30,000. AB Partnership earned profit of P50,000 for the six months ended June
30, 20x1. The net assets of the partnership approximate fair values on this date.
Requirements:
a. Provide the entry to record the admission of C.
b. Compute for the capital balances and the profit and loss sharing ratios of the
partners immediately after the admission of C.
c. Is the transaction favorable on the part of B? Why?

CASE 2: You decided to admit C into the partnership on July 1, 20x1 when he or she invests an amount
that reflects the fair value of a 20% interest in the partnership. AB Partnership earned profit of P50,000
for the six months ended June 30, 20x1. The net assets of the partnership approximated fair values on
this date.
Requirements:
a. Provide the entry to record the admission of C.
b. Compute for the capital balances and the profit and loss sharing ratios of the
partners immediately after the admission of C.
CASE 3: You decided to admit C into the partnership on January 1, 20x1 when he or she invested
P60,000 cash to the partnership in exchange for 20% interest. The net assets of the partnership
approximate fair values on this date except for a piece of land carried in the books at P500,000 but
with a fair value of P600,000.
Requirements:
a. Provide the entry to record the admission of C.
b. Compute for the capital balances and the profit and loss sharing ratios of the partners
immediately after the admission of C.

CASE 4: You decided to admit C into the partnership on January 1, 20x1 when he or she invests
P50,000 to the partnership in exchange for 20% interest. The net assets of the partnership
approximate fair values on this date.

On July 1, 20x1, Partner B decided to retire. The partnership pays B P120,000 in full settlement of his
or her interest. ABC Partnership earned profit of P100,000 for the six months ended June 30, 20x1.
The net assets of the partnership approximate fair values on this date.
Requirements:
a. Provide the entry to record the retirement of C.
b. Compute for the capital balances and the profit and loss sharing ratios of the
partners immediately after the admission of C.