Financial Accounting and Reporting MILAN-Chapter 13 Problem 4 PDF

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PROBLEM 4: MULTIPLE CHOICE It is the change in the relation of the partners caused by any partner being disassociated from the business. a. Formation c. Dissolution b. Operations d. Liquidation Which of the following is correct when a new partner is admitted through purchase of interest from existin...

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PROBLEM 4: MULTIPLE CHOICE 1. It is the change in the relation of the partners caused by any partner being disassociated from the business. a. Formation

c. Dissolution

b. Operations

d. Liquidation

2. Which of the following is correct when a new partner is admitted through purchase of interest from existing partners? a. The incoming partner's contribution is recorded in the partnership books. b. Partnership capital is increased by the incoming partner's contribution. c. The incoming partner's contribution is not recorded in the partnership books. d. This is not allowed under the law. The new partner can only purchase interest from the partnership and not from the partners themselves. Use the following information for the next eight questions: The partners' capital accounts in AB Partnership before the admission of a new partner are as follows: Capital accounts

P/L ratios

A, Capital 200,000

60%

B, Capital 120,000

40%

320,000 3. С purchases one-fourth of A's capital interest in the partnership. How much is the capital balance of A after the admission of C? 150,000

c. 96,000

b. 24,000

d. 148,000

Solution: A, Capital (200,000x 1/4)

50,000

D, Capital

Capital beg. Sale of interest to C Capital end.

50,000

A 200,000 (50,000) 150,000

B 120,000 120,000

C 50,000 50,000

TOTALS 320,000 (150,000) 320,000

4. C Purchases one-third of A's and B's capital interests in the partnership for ₱120,000. How much is B's capital balance after the admission of C and how much is the total gain (loss) Is recognized in the partnership's books? a. 80,000; 13,333

c. 60,000; (13,333)

b. 80,000; 0

d. 480,000; 0

Solution: A, Capital (200,000x 1/3) B, Capital (120,000 x 1/3) C, Capital

Capital beg. Sale of interest to C Capital end.

66,667 40000 106,667

A 200,000

B 120,000

C -

(66,667) 133,333

(40,000) 80,000

106,667 106,667

TOTALS 320,000 133,333 320,000

Note: Total gains (loss) is not recognized in the partnership’s books

5. Using the case in #4 above, how much is the total equity of the partnership after the admission of C? 320,000 c. 240,000 b. 440,000

d. 200,000

Solution: Capital A

133,333

B

80,000

C

106,667

Total

320,000

6. C acquires 25% interest in the partnership by investing ₱100,000 to the business. Under the bonus method, how is the capital balance of A after the admission of C? a. 194,000

c. 206,000

b. 204,000

212,000

Solution: Net assets before admission

320,000 100,000 420,000 25%

Investment of C Net assets after admission C's interest in net assets

105,000 100,000 5,000

C's capital credit Investment of C Bonus to C

Capital, before admission Investment of C Bonus to old partners Capital, after admission

60% A 200,000

(3,000) 197,000

40% B 120,000

(2,000) 118,000

C 100,000

TOTALS 320,000

5,000 197,000 105,000 420,000

Note: The answer is 212,000 acc. To sir Erwin because it uses old bonus method 7. What is the P/L ratio of B after the admission of C in #6 above? a. 22%

c. 32%

b. 28%

30%

Solution:

A (100%-25%) x 60% B (100%-25%) x 40% C

New P/L ratio 45% 30% 25% 100%

8. Before the admission of C, B decides to retire. A acquires B's interest for P180,000. How much is the capital balance of A after the retirement of B? a. 200,000

c. 280,000

b. 264,000

320,000

Solution:

Adj. bal before retirement Acquisition of B interest Capital, after admission

A

B

TOTAL

200,000 120,000 320,000

120,000 (120,000) -

320,000 320,000

9. Before the admission of C, B decides to retire. The partnership pays B P180,000 as settlement of his partnership interest. How much is the capital balance of A after the retirement of B? a. 200,000

c. 260,000

140,000

d. 320,000

Solution: A Adj. bal before retirement Payment to B Bonus to B Capital, after retirement

200,000 (60,000) 140,000

B

TOTAL

320,000 120,000 (180,000) (180,000) 60,000 140,000

10. How much are the total equity of the partnership after the retirement of B in #'s 8 and 9 above, respectively? a. 320,000; 140,000

c. 140,000; 140,000

b. 440,000; 180,000

d. 320,000; 320,000

Solution:

Adj. bal before retirement Acquisition of B interest Capital, after admission

Adj. bal before retirement Payment to B Bonus to B Capital, after retirement

A

B

TOTAL

200,000 120,000 320,000

120,000 (120,000) -

320,000 320,000

60% A

40% B

TOTAL

200,000 (60,000) 140,000

320,000 120,000 (180,000) (180,000) 60,000 140,000...