Chapter 4 Dissolution Q A Final PDF

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EXERCISESExercise 4-1 (Admission of New Partner under Various Assumptions) Camus and Cuenco are partners who have capital balances of P90,000 and P60,000 and who share profits 60% and 40% respectively. They agree to admit Cerda as a partner upon his payment of P90,000.Instructions: Give the journal ...

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EXERCISES Exercise 4-1 (Admission of New Partner under Various Assumptions) Camus and Cuenco are partners who have capital balances of P90,000 and P60,000 and who share profits 60% and 40% respectively. They agree to admit Cerda as a partner upon his payment of P90,000. Instructions: Give the journal entries to record each of the following independent assumptions: 1. One-third of the capital balances of the old partners are transferred to the new partner, Camus and Cuenco dividing the cash between themselves. 2. One-third of the capital balances of the old partners are transferred to the new partner, Camus and Cuenco dividing the cash between themselves. However, before recording the admission of Cerda, asset revaluation is undertaken on the firm books so that Cerda’s capital may be equal to the amount paid for the interest. 3. The cash is invested in the business and Cerda is credited with a ¼ interest in the firm, the bonus method being used in recording his investment. 4. The cash is invested in the business and Cerda is credited with the full amount of his investment, which is to be 25% of the new firm capital. 5. The cash is invested in the business and Cerda is credited for P120,000 which includes a bonus from Camus and Cuenco. Answer 1.

2.

3.

4.

Camus, Capital (90,000 x 1/3) Cuenco, Capital (60,000 x 1/3) Cerda, Capital

30,000 20,000 50,000

Other Assets Camus, Capital (P120,000 x 75%) Cuenco, Capital (P120,000 x 25%)

120,000 90,000 30,000

Camus, Capital [(P90,000 + P90,000) x 1/3] Cuenco, Capital [(P60,000 + P30,000) x 1/3] Cerda, Capital

60,000 30,000

Cash Cerda, Capital Camus, Capital (P30,000 x 60%) Cuenco, Capital (P30,000 x 40%)

90,000

Cash Other Assets Camus, Capital (P120,000 x 60%) Cuenco, Capital (P120,000 x 40%) Cerda, Capital AC Old P270,000

90,000 60,000 18,000 12,000 90,000 120,000 72,000 48,000 90,000 CC P150,000

Asset Rev P120,000

New

5.

90,000 P360,000

90,000 P240,000

-----P120,000

Cash Camus, Capital (P30,000 x 60%) Cuenco, Capital (P30,000 x 40%) Cerda, Capital

90,000 18,000 12,000 120,000

Exercise 4-2 (Admission of a New Partner; Bonus and Asset Revaluation Method) At the end of fiscal year 2014, the capital accounts and the profit and loss sharing ratio for the partners of C3 Co. are presented below. At this date, it is agreed that a new partner, Canda, is to be admitted to the firm. Capital P&L Ratio Capco P 100,000 50% Cular 80,000 30% Cruz 60,000 20% Instructions: For each of the following situations involving the admission of Canda into the partnership, give the journal entry to record his admission. 1. Canda purchases one-fourth of Cular’s interest in the firm paying Cular P50,000. 2. Canda buys a one-quarter interest in the firm for P70,000 by purchasing one-fourth of the interest of each of the three partners. Asset revaluation is made prior to admission of Canda. 3. Canda invests P115,000 and receives a one-quarter interest in capital and profits of the business, bonus being allowed on the admission. Answer 1. 2.

3.

Cular, Capital Canda, Capital

20,000

Other Assets Capco, Capital Cular, Capital Cruz, Capital P70,000  ¼ = P280,000 – (P100,000 + P80,000 + P60,000) = P40,000

40,000

Capco, Capital (P100,000 + P20,000) x ¼ Cular, Capatil (P80,000 + P12,000) x ¼ Cruz, Capital (P60,000 + P8,000) x ¼ Canda, Capital

30,000 23,000 17,000

Cash Canda, Capital Capco, Capital P26,250 x 50% Cular, Capatil P26,250 x 30% Cruz, Capital P26,250 x 20%

20,000

20,000 12,000 8,000

70,000

115,000 88,750.00 13,125 7,875 5,250

Old New

AC P266,250 88,750 P355,000

CC P240,000 115,000 P355,000

Bonus P26,250 (26,250) P ------

Exercise 4-3 (Admission of a New Partner by Purchase) Partners Catral and Clemente are considering the admission of Conti into the partnership. Catral and Clemente share income and loss in the ratio of 3:1, respectively. Catral’s capital balance is P480,000 and Clemente’s capital balance is P360,000. Instructions: Prepare entries to record the admission of Conti into the partnership under each of the following independent assumptions: 1. Conti acquired one-third of the interest of Catral paying P160,000. 2. Conti acquired one-third of the interest of Clemente paying P70,000. 3. Conti acquired a one-fourth interest from the old partners paying P126,000. Asset revaluation has to be made prior to the admission of Conti. Answer 1.

2.

3.

Catral, Capital Conti, Capital P480,000 x 1/3 = P160,000

160,000

Clemente, Capital Conti, Capital P360,000 x 1/3 = P120,000

120,000

Catral, Capital P336,000 x ¾ Clemente, Capital P336,000 x ¼ Other Assets P126,000 1/4 = P504,000 – P840,000 = P336,000

252,000 84,000

Catral, Capital Clemente, Capital Conti, Capital (P480,000 – P252,000) x 1/4 = P57,000 (P360,000 - P84,000 ) x 1/4 = P69,000

160,000

120,000

336,000

57,000 69,000 126,000

Exercise 4-4 (Admission of a New Partner by Purchase and by Investment) Carlos and Cruz, partners have capital balances of P200,000 and P300,000, respectively. They admit Caparas and Carpio into the partnership. Caparas purchases one-fourth of Carlos’ interest for P56,000 and one-third of Cruz’s interest for P72,000. Carpio is admitted to the partnership with an investment of P120,000 for which he is to received an ownership equity of P120,000.

Instructions:

1. Present the entries in general journal form to record the admission into the partnership of (a) Caparas, and (b) Carpio. 2. What are the capital balances of each partner after the admission of Caparas and Carpio? Answer 1a.

1b.

Carlos, Capital (P200,000 x ¼) Cruz, Capital (P300,000 x 1/3) Caparas, Capital

50,000 100,000

Cash

120,000

150,000

Carpio, Capital 2.

Carlos (P200,000 – 50,000 = P150,000) Cruz (P300,000 – 100,000 = P200,000) Caparas Carpio

120,000 150,000 200,000 150,000 120,000

Exercise 4-5 (Admission of a New Partner by Investment) Cuenca and Claudio share profits equally and have equal investments in their partnership. The partnership’s net asset are carried on the books at P500,000. Cabral is admitted into the partnership with a one-fourth interest in profits and net assets. Cabral pays P200,000 cash into the partnership for his interest. Instructions: Prepare journal entries to show two possible methods of recording the admission of Cabral on the partnership books. Answer 1.

2.

Bonus Method Cash Cuenca, Capital (P25,000 / 2) Claudio, Capital (P25,000 / 2) Cabral, Capital AC Old P525,000 New 175,000 P700,000

Asset Revaluation Method Cash Other Assets Cuenca, Capital (P100,000 / 2) Claudio, Capital Cabral, Capital AC Old P600,000 New 200,000 P800,000

200,000 12,500 12,500 175,000 CC P500,000 200\,000 P700,000

Bonus P25,000 (P25,000) -----

200,000 100,000 50,000 50,000 200,000 CC P500,000 200,000 P700,000

Asset Rev. P100,000 -----P100,000

Exercise 4-6 (Admission of a New Partner by Investment)

The capital balances and the income and loss sharing ratio of the partners Choy, Chua and Cheng are as follows Capital P&L Ratio Choy P 150,000 3/7 Chua 125,000 2/7 Cheng 100,000 2/7 The partnership has been successful and the partners have decided to invite Chiu to join them. Chiu has been admitted into the partnership with a one-fifth capital interest for a cash investment of P120,000. Instructions: Prepare the entries to record the admission of Chiu under the (1) bonus method and (2) asset revaluation method. 1.

Cash Choy, Capital (P21,000 x 3/7) Chua, Capital (P21,000 x 2/7) Cheng, Capital (P21,000 x 2/7) Chiu, Capital Old New

2.

AC P396,000 99,000 P495,000

120,000 9,000 6,000 6,000 99,000 CC P375,000 120,000 P495,000

Bonus P21,000 (21,000) -------

Other Assets Choy, Capital (P105,000 x 3/9) Chua, Capital Cheng, Capital

105,000

Cash Chiu, Capital

120,000

Old New

45,000 30,000 30,000 120,000

AC P480,000 120,000 P600,000

CC P375,000 120,000 P495,000

Asset Rev P105,000 P105,000

PROBLEMS Problem 4-1 (Admission of a New Partner under Various Assumptions) Carmen and Centeno are partners with capital balances of P160,000 and P80,000. They share profits 60%, 40% respectively. The partners agree to admit Corrales as a member of the firm. Instructions: Give the required entries on the partnership books to record the admission of Corrales under each of the following assumptions: 1. Corrales purchases a ¼ interest in the firm. One-fourth of each partner’s capital is to be transferred to the new partner. Corrales pays the partners P60,000, which divided between them in proportion to the equities given up.

2. Corrales purchases a 1/3 interest in the firm. One-third of each partner’s capital is to be transferred to the new partner. Corrales pays the partners P120,000, which is divided between them in proportion to the equities given up. Before Corrales’ admission, asset revaluation is undertaken and recorded on the firm books so that Corrales’ 1/3 interest will be equal to the amount of his payment. 3. Corrales’ invests P120,000 for a ¼ interest in the firm. Asset revaluation is recorded on the firm books prior to the admission. 4. Corrales invests P120,000 for a 50% interest in the firm. Carmen and Centeno transfer part of their capital to that of Corrales as a bonus. 5. Corrales invests P160,000 in the firm. P40,000 is to be considered a bonus to partners Carmen and Centeno. 6. Corrales invests P160,000 in the firm and allowed a bonus to Carmen and Centeno of P20,000 upon his admission. 7. Corrales invests P100,000 for a ¼ interest in the firm. The total firm capital after his admission is to be P340,000. 8. Corrales invests P110,000 for a ¼ interest in the firm. The total firm capital after his admission is to be P440,000. 9. Corrales invests P96,000 for a 1/3 interest in the firm. The total firm capital after his admission is to be P336,000. Problem 4-2 (Admission of a New Partner under Various Assumptions) Coral and Corpuz are partners with capital balances of P180,000 and P120,000, respectively. They share profits and losses in the ratio of 4:1. They agree to admit Calma to the partnership. Instructions: Journalize the admission of Calma to the partnership for each of the following independent assumptions: 1. Calma is admitted to a one-third interest in capital with a contribution of P150,000. 2. Calma is admitted to a one-fourth interest in capital with a contribution of P120,000. Total capital of the partnership is to be P420,000. 3. Calma is admitted to a one-fourth interest in capital upon contributing P60,000. The total capital of the new partnership is to be P360,000. 4. Calma is admitted to a one-fourth interest in capital by the purchase of one-fourth of the interest of Coral and Corpuz for P82,500. Total capital of the new partnership is to be P300,000.

5. Same conditions as in (4), except that the new partnership capital is to be P330,000 due to the asset revaluation undertaken prior to the admission of Calma. 6. Calma is admitted to a one-fifth interest in capital upon contributing P90,000. Total capital of the new partnership is to be P450,000. Problem 4-3 (Admission of a New Partner under Various Assumptions) In 2012, Castillo and Cordova established a partnership. Their operations have been very successful. Since Castillo devotes full-time to the business and Cordova part-time, they share profits and losses in the ratio of 7:3, respectively. At the beginning of 2014, Coloma expressed his interest of joining the partnership. The capital balances of Castillo and Cordova on this date are P560,000 and P840,000, respectively. Instructions: 1. Prepare the entries to record the admission of Coloma into the partnership under each of the following independent assumptions: a. Coloma invests P350,000 cash for a one-fifth interest in the partnership. b. Coloma invests P500,000 cash for a one-fourth interest in net assets; the bonus method is used. c. Coloma invests P700,000 for a one-fourth interest; the asset revaluation method is to be used. d. Coloma pays Castillo and Cordova a total of P550,000 for one-fourth of the respective capital interest. e. Coloma pays Castillo and Cordova a total of P350,000 for one-fifth of their respective capital interest; no asset revaluation is undertaken prior to the admission of Coloma. 2. Assuming Coloma paid a total of P600,000 to Castillo and Cordova for two-fifths of their respective capital balances, prepare a schedule determining the amount of cash to be transferred to Castillo and Cordova. Problem 4-4 (Admission of a New Partner by Investment) The following statement of financial position is for the partnership of Cortes, Canda and Cena, who share profits and losses in the ratio of 3:2:1 respectively. ASSETS Cash Other Assets

P 90,000 810,000

LIABILITIES AND CAPITAL Liabilities Cortes, Capital

P210,000 420,000

Total Assets

Canda, Capital Cena, Capital Total Liabilities & Capital

P 900,000

240,000 30,000 P 900,000

Instructions: 1. Assume that the assets and liabilities are valued fairly, and that the partnership wishes to admit Cruz as a new partner with one-fifth interest in capital. Without recording bonus, determine what Cruz’s contribution should be. 2. If Cruz contributes P210,000 for a one-fifth interest, determine the new capital balances of each partner using: (a) the bonus method, and (b) the asset revaluation method.

Problem 4-5 (Admission of a New Partner by Purchase and by Investment) The following are the capital accounts of the partners in the 3C Store on June 30, 2014:

Capital P 150,000 125,000 100,000

Charlaine Chuncie Cathy

P&L Ratio 2/5 2/5 1/5

On July 1, 2014, Chesca invests P90,000 in the business for a one-eight interest in net assets. Profits are to be shared equally after the admission. Instructions: 1. Give two alternative solutions, in journal entry form, to record Chesca’s admission to the firm. Which method/solution will be preferred by Cathy? 2. Give two alternative journal entries to record Chesca’s admission, if instead of investing, she purchases a one-eight interest ratably from all partners. Problem 4-6 (Admission of a New Partner by Purchase and by Investment) Cabal, Cadiz, Caldea, business partners of a firm carrying their names, have agreed on a profit and loss ratio of 20:30:50, respectively. On December 31, 2014, the books of their partnership showed the following credit balances: Cabal – P150,000;

Cadiz – P180,000;

Caldea – P300,000

On January 1, 2015, Camo was admitted as a new partner under the following terms and conditions: a. Camo will share 20% in the profit and loss ratio, while the ratio of the original partners will remain proportionately the same as before Camo’s admission. b. Camo will pay P25,000 for 1/6 of Cadiz’s share. c. Camo will contribute P150,000 in cash to the partnership. d. Total capital of the partnership after Camo’s admission will be P800,000 of which Camo’s capital account will be shown as P160,000. Instructions: 1. Using the following suggested format, prepare a schedule showing the capital of each partner after the admission of partner Camo. Capital credit balances before the admission of Camo

Cabal P150,000

Cadiz 180,000

Caldea 300,000

Camo

Total P630,000

2. What is the profit and loss ratio of all the partners after Camo’s admission? Problem 4-7 (Admission of a New Partner by Investment; Statement of Changes in Partners’ Equity) Corona and Calderon are partners whose capital accounts on December 31, 2013, before the firm’s books are closed, are P250,000 and P150,000 respectively. The drawing account for Corona shows a debit balance of P41,000; for Calderon, a debit balance of P34,000. The partnership agreement with regards to profits provides that (1) each partner is to be allowed an annual salary of P45,000 and (2) Corona is to received 60% and Calderon 40% of the profits after allowance of salaries. The income summary account on December 31 has a credit balance of P70,000 before any entry for the allowance of salaries, and this balance is closed into the partners’ capital accounts. The balance of the drawing accounts are also closed into the capital accounts. On January 2, 2014, Calixto is admitted as a partner upon the investment of P100,000 into the firm. The partners allow a bonus on the investment so that Calixto may have a 1/3 interest in the firm. The new agreement provides that profits are to be distributed as follows: Corona, 35%; Calderon, 25%; and Calixto, 40%. Salaries are not allowed. On December 31, 2014 the partners’ drawing accounts have debit balances as follows: Corona – P37,500; Calderon – P25,000; and Calixto – P34,000. The income summary account has a P75,000 debit balance. Accounts are closed.

The partnership was sold in January, 2015 for P87,500. Cash settlement was made to the partners. Instructions: Prepare a statement of changes in partners’ equity, showing all of the changes that took place since January 1, 2013.

MULTIPLE CHOICE MC 4-1

If the total contributed capital exceeds the agreed capital with the new partner’s investment is the same as his capital credit, then the admission of the new partner involved a a. bonus to new partner c. negative asset revaluation b. bonus to old partners d. positive asset revaluation

MC 4-2

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. asset revaluation and bonus c. no asset revaluation and no bonus b. negative asset revaluation d. positive asset revaluation

MC 4-3

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 c. no bonus b. bonus to the new partner d. both A and B

MC 4-4

Calibo and Camos are partners with capital balances of P60,000 and P80,000 and sharing profits and losses 40% and 60% respectively. If Cueva is admitted as partner paying P50,000 in exchange for 50% of Calibo’s equity, the entry in the partnership books should be as follows: a. Calibo, Capital Cueva, Capital

50,000

b. Calibo, Capital Cueva, Capital

30,000

50,000

30,000

c. Cash Other Assets Cueva, Capital

45,000 15,000

d. Cash

60,000 Calibo, Capital Cueva, Capital

MC 4-5

60,000

15,000 45,000

Chan, Ching and Chen are partners who share profits and losses in the ratio of 5:3:2, respectively. They agree to sell Chat 25% of their respective capital and profits and losses ratio for a total payment directly to the partners in the amount of P140,000. They agree that the asset revaluation of P60,000 is to be recorder prior to admission of chat. The condensed statement of financial position of the CCC Partnership is presented on the next page.

ASSETS

LIABILITIES AND CAPITAL

Cash Other Assets

P 60,000 540,000

Total Assets

P 600,000

Liabilities Chan, Capital Chi...