Chapter 19

Multiple Choice Problems

1. c
Note: A partnership is not dissolved when a partner assigns his or her interest in the partnership
to a third party because such an assignment does not in itself change the relations among
partners. Such assignment only entitles the assignee to receive the assigning interest partner’s
interest in future partnership profits and in partnership assets in the event of liquidation. The
assignee does not become a partner, however, and does not obtain the right to share in
management of the partnership. If the assignee does not become a partner, the only change
required on the partnership books is for transfer of the capital interest of the assignor partner to
the assignee. The assignment by A to D of his 50% interest in the BIG Entertainment Company is
recorded are follows:

A, Capital (P168,000 x 1/4)................................................................. 42,000

D, Capital................................................................................ 42,000

The amount of the capital transfer is equal to the recorded amount of A’s capital at the time of the
assignment, and it is independent of the consideration received by A for his 1/4 interest. If the
recorded amount of A’s is P42,000, then the amount of the transfer entry is P42,000, regardless of
whether D pay A P42,000 or some amount. Therefore, the capital of the partnership after the
assignment of interest remains the same at P480,000.

2. c
Amount paid……………………………………………………………………………….P 200,000
Less: Book value of interest acquired: (P100,000 + P200,000 + P300,000) x 25%..
150,000
Excess – partial goodwill…………………………………………………………………P 50,000
Divided by: capitalization rate based on interest acquired…………………....... 25%
Goodwill or revaluation of asset upward…………………………………………….P 200,000

Jethro: [P200,000 + (P200,000 x 30%)] x 75% = P195,000

3. b
Amount paid P40,000
Less: Book value of interest acquired:
(P140,000 x ¼) 35,000
Excess P 5,000
Capitalized at: P&L of W 1/4
Goodwill/revaluation P20,000

E: [P80,000 + (P20,000 x 60%)] x 3/4 = P69,000

G: [P40,000 + (P20,000 x 30%)] x 3/4 = P34,500
D: [P20,000 + (P20,000 x 10%)] x 3/4 = P16,500

4. a
Amount paid………………………………………………………………………………P 60,000
Less: Book value of interest acquired: P120,000 x 40%………………….................
48,000
Difference…………..……………………………………………………………………....P 12,000
Divided by: Capital Interest…………………………………………………………....... 40%
Goodwill…………………………………………………………………………………….P 30,000

LL: P50,000 + (P30,000 x ½) = P65,000 – (P60,000 x ½) = P35,000

QQ: P70,000 + (P30,000 x ½) = P85,000 – (P60,000 x ½) = P55,000
DD: Since there is an adjustment, the capital of the new partner will always be the
same with the amount paid, P60,000.
5. d - The amount that Richard will pay Ray depends on many factors and cannot be
determined from the information provided here.

6. b
Amount paid P132,000
Less: Book value of interest acquired
(P444,000 x 1/5) 88,800
Gain- personal (to N, S & J) P 43,200

7. c
Total agreed capital* (P74,000 + P130,000 + P96,000)/80% ............ P 375,000
Less: Total contributed capital *...............…………………………...... 375,000
Difference .......................................………………..…………………..........P 0
*since no goodwill or revaluation is allowed total agreed capital is the same with total
contributed capital.

The contributed capital or investment of the new partner will be computed based on
total agreed capital.
Total contributed capital………………………………………….. . P 375,000
Less: Total contributed capital of old partners............................ 300,000
Investment or contribution of new partner.................................... P 75,000

or,
Total contributed capital………………………………………….. . P 375,000
Multiplied by: Capital interest of Jones (new partner)………... 20%
Investment or contribution of new partner.................................. P 75,000

8. b
Total Agreed Capital P180,000
Multiplied by: Interest acquired by K 1/3
Agreed capital of K P 60,000
Cash investment by K 50,000
Bonus to K P 10,000
Therefore, E= P70,000 – (P10,000 x 70%) = P63,000
D= P60,000 – (P10,000 x 30%) = P57,000
J= P50,000

9. b - Total capital is P200,000 (P110,000 + P40,000 + P50,000) after the new investment.
As Kansas's portion is to be 30 percent, the capital balance would be P60,000
(P200,000 × 30%). Since only P50,000 was paid, a bonus of P10,000 must be taken
from the two original partners based on their profit and loss ratio: Bolcar –P7,000
(70%) and Neary – P3,000 (30%). The reduction drops Neary's capital balance from
P40,000 to P37,000.

10. d
Total of old partners' capital P 80,000
Investment by new partner 15,000
Total of new partnership capital P 95,000
Capital amount credited to Johnson
(P95,000 x .20) P 19,000
11. b
LL invests P40,000 and total capital specified as P150,000:
Investment in partnership P 40,000
New partner's proportionate book value
[(P110,000 + P40,000) x 1/3] (50,000)
Difference (investment < book value) P (10,000)

Method: Bonus or goodwill to new partner

Specified total resulting capital P 150,000

Total net assets not including goodwill
(P110,000 + P40,000) (150,000)
Estimated goodwill P -0-

Therefore, bonus of P10,000 to new partner

Boris' capital = P54,000 = P60,000 - (P10,000 x 6/10)

12. a – “preferable accounting method” refers to bonus method

Total agreed capital = Total contributed capital (under the bonus method)
(P70,000 + P30,000 + P40,000).......................................................................... P
140,000
Multiplied by: interest acquired by new partner..............................................
20%
Capital of new partner Chapman...................................................................... P
28,000
Less: Investment by Chapman..............................................................................
40,000
Bonus to old partners to be allocated equally to old partners –
Adams and Bye........................................................................................... P
12,000

13. c - [P120,000 - (P170,000 + P260,000 + P120,000)(.25)]

14. c
Scott invests P36,000 for a 1/5 interest:
Investment in partnership P 36,000
New partner's proportionate book value
[(P120,000 + P36,000) x .20] (31,200)
Difference (investment > book value) P 4,800

Method: Goodwill to prior partners

1/5 estimated total resulting capital P 36,000
Estimated total resulting capital
(P36,000 / .20) P 180,000

Estimated total resulting capital P 180,000

Total net assets not including goodwill
(P120,000 + P36,000) (156,000)
Estimated goodwill/adjustment to prior partners P 24,000
(Use the same procedure in Nos. 9 and 10)

15. b - Total capital is P270,000 (P120,000 + P90,000 + P60,000) after the new investment.
However, the implied value of the business based on the new investment is P300,000
 (P60,000/20%). Thus, goodwill of P30,000 must be recognized with the offsetting
allocation to the original partners based on their profit and loss ratio: Bishop –
P18,000 (60%) and Cotton P12,000 (40%). The increase raises Cotton's capital from
P90,000 to P102,000.

16. c
Total agreed capital* P120,000 /60% ............................................. P300,000
Multiplied by: Capital interest of Jones (new partner)………...... 60%
Agreed capital of R.............................................................................P 180,000

Note: The investment of D is used as the basis to determine total agreed

capital, otherwise using the capital balance of D will lead to a “negative”
goodwill or revaluation downward.

17. c
Total agreed capital* (P250,000/20%)....................................... P 1,250,000
Less: Total contributed capital of R and S:
(P500,000 + P400,000 + P40,000) + P250,000................. 1,190,000
Goodwill or revaluation to old partners................................... P 60,000

Riley: P500,000 + (P40,000 x 60%) + (P60,000 x 60%) = P560,000

or,
Contribute Agreed
d Capital Goodwill
Capital
Riley [P500,000 + (P40,000 x P 524,000 P 560,000 P 36,000
60%)] 60%
Smith [P400,000 + (P40,000 x 416,000 24,000
40%)] 40%
P 940,000 P1,000,000 P 60,000
Tyler 250,000 250,000 / -0-
20%
Total P P1,250,000 P 60,000
1,190,000 100%

18. c
Total agreed capital* ................................................................. P 260,000
Less: Total contributed capital of L, M, and N
(P120,000 + P70,000 – P30,000 + P60,000) + P40,000.... 260,000
Difference..................................................................................... P 0

Total agreed capital P 260,000

Multiplied by: Interest acquired 20%
Capital credited to Ole P 52,000
or,
Contributed Agreed
Capital Capital
Old Partners: (P120,000+P70,00
- P30,000 + P60,000) P 220,000
New Partner: Ole __40,000 P 52,000 20%*
P 260,000 P 260,000 P -0-
* P52,000 is derived from multiplying P260,000 by 20%.
 Notes:
1. The partners agreed that assets should revalued using fair value.
2. Since problem is silent, bonus method is used.

19. a - Admission by purchase. The implied value of the company is P900,000

(P270,000/30%). Since the money is going to the partners rather than into the
business, the capital total is P490,000 before realigning the balances. Hence,
goodwill of P410,000 must be recognized based on the implied value (P900,000 –
P490,000). This goodwill is assumed to represent unrealized business gains and is
attributed to the original partners according to their profit and loss ratio. They will
then each convey 30 percent ownership of the P900,000 partnership to Darrow for a
capital balance of P270,000.
Formal presentation:
Amount paid ………………………….………….. P 270,000 / 30% P900,000 (100%)
Less: BV of interest acquired –
(P220,000 + P160,000 + P110,000) x 30%….... 147,000 490,000
(100%)
Excess……………………………………………….. P123,000
Divided by: Interest acquired………………….. 20%
Goodwill or revaluation of Asset …………….. P410,000 P410,000 (100%)

The entry would be as follows;

Goodwill/Asset 410,000
Williams (40%) 164,000
Jennings (40%) 164,000
Bryan (20%) 82,000

Williams [P220,000 + (P410,000 x 40%)] x 30% 115,200

Jennings [P160,000 + (P410,000 x 40%)] x 30% 97,200
Bryan [P110,000 + (P410,000 x 20%)] x 30% 57,600
Darrow 270,000

20. d - Admission by investment. Since the money goes into the business, total capital
becomes P740,000 (P490,000 + P250,000). Darrow is allotted 30 percent of this total
or P222,000. Because Darrow invested P250,000, the extra P28,000 is assumed to be
a bonus to the original partners. Jennings will be assigned 40 percent of this extra
amount or P11,200. This bonus increases Jennings’ capital from P160,000 to
P171,200.

Formal presentation:
Total agreed capital* (same with total contributed capital)…... P 740,000
Less: Total contributed capital (P220,000 + P160,000 +
P110,000 + P250,000)..............…………………………....... 740,000
Difference .......................................………………..…………………...... ..P 0
*since no goodwill or revaluation is allowed total agreed is the same with total
contributed capital.

The new partner’s contributed capital is equal to the agreed capital, the difference of
P3,600 in (a) is attributable to revaluation (goodwill) to old partners:
Darrow’s contributed capital………………………………………… P 250,000
Darrow’s agreed capital: (P740,000 x 30%)……………………... .... 222,000
Bonus to old partners ........................……………………………….....P 28,000

Jennings: [P160,000 + (P28,000 x 40%)] = P171,200

or, alternatively
 Contributed Capital (CC) Agreed Capital (AC)
W 220,000 11,200
40%
J 160,000 171,200 11,200
40%
B 110,000 _______ 5,600
20%
490,000 518,000 28,000
D 250,000 222,000 30% 28,000
Total 740,000 740,000 0

21 d As specified no bonus or goodwill recognized.

.
5/6 estimated total resulting capital P 150,000
Estimated total resulting capital (P150,000 / 5/6) 180,000
Required investment (P180,000 x 1/6) P 30,000
22 d Direct purchase; reclassify CCs capital only (if silent – book value).
.
23. d
Total contributed capital*
(P140,000 + P40,000) / 4/5 ............................................. P225,000
Less: Total contributed capital of Allen and David.............. 180,000
Investment by David...................................................................P 45,000

*since no goodwill or revaluation is allowed total agreed capital is the same with
total contributed capital.

24. c
Total agreed capital (140,000 + 40,000) / 3/4.............................P 240,000
Less: Total contributed capital
(P140,000 + P40,000 + P50,000)........................................ . 230,000
Goodwill/revaluation...........................………………..…………..P 10,000
Note: since the problem indicates that there is goodwill/revaluation of asset
downward, total agreed capital should be higher compared to total contributed
capital (to achieve this objective the capital of old partners should be used as a
basis)

Cash 50,000
Goodwill/assets 10,000
David, capital (1/4 x P240,000) 60,000

25. b
Total agreed capital (P40,000) / 1/5............................................ P200,000
Less: Total contributed capital
(P140,000 + P40,000 + P40,000)......................................... 220,000
Revaluation of asset / inventory decreased……..………….... P( 20,000)
Note: since the problem indicates that there is revaluation of asset downward, total
agreed capital should be lower compared to total contributed capital.

26. b – refer to No. 25 for computation

Allen: P140,000 – (P20,000 x 3/4) = P125,000
Daniel: P40,000 – (P20,000 x 1/4) = P35,000

27. d
 Amount paid (P34,000 + P10,000) P 44,000
Less: Book value of Allen and Daniel (1/5) x P180,000 ) 36,000
Partial goodwill/revaluation adjustment P 8,000
Capitalized at 1/5
Revaluation of land P 40,000
28. a.
Allen: [P140,000 + (P40,000 x 3/4)] x 4/5 = P136,000
Daniel: [P40,000 + (P40,000 x 1/4)] x 4/5 = P40,000

29. b
Total agreed capital (given)........................................................P220,000
Less: Total contributed capital
(P140,000 + P40,000 + P40,000).......................................... 220,000
Difference..............................................………………..…………....P 0
Note: Since total agreed and total contributed are the same, therefore is no
goodwill or revaluation.
Total Agreed Capital P220,000
Multiplied by: Interest acquired by David 1/5
Agreed capital of David P 44,000
Cash investment by David 40,000
Bonus to David P 4,000

Cash 40,000
Allen (P4,000 x 3/4) 3,000
Daniel (P4,000 x 1/4) 1,000
David 44,000

30. d – refer to No. 29

Allen = P140,000 – (P10,000 x 3/4) = P137,000
Daniel = P40,000 – (P10,000 x 1/4) = P39,000

31. a
Total agreed capital (P50,000) / 1/5............................................P250,000
Less: Total contributed capital
(P140,000 + P40,000 + P50,000)......................................... 230,000
Goodwill/revaluation...........................………………..…………. P 20,000
Note: since the problem indicates that there is goodwill/revaluation of asset
downward, total agreed capital should be higher compared to total contributed
capital (to achieve this objective the capital of the new partners should be used as
a basis)

32. a -A P10,000 bonus is paid to Costello (P100,000 is paid rather than the P90,000 capital
balance). This bonus is deducted from the two remaining partners according to their
profit and loss ratio (2:3). A reduction of 60 percent (3/5) is assigned to Burns or a
decrease of P6,000 which drops that partner’s capital balance from P30,000 to
P24,000.

33. a - (P121,000  P100,000) x 35/60 = P12,250]

34. c - (P39,000 + P7,200  P750 = P45,450)

35. b
Amount paid P 102,000
Less: Book value of Williams
P70,000 + (P360,000 – P300,000) x 20% 82,000
Partial goodwill/revaluation adjustment P 20,000
 Capitalized at P&L of Dixon 20%
Goodwill/revaluation P100,000

Brown: P65,000 + (P60,000 x 20%) + (P100,000 x 20%) P 97,000

Lowe: P150,000 + (P60,000 x 60%) + (P100,000 x 60%) P246,000

36. a
Amount paid P 74,000
Less: Book value of Dixon (20%): (P210,000 – P160,000) 50,000
Partial goodwill/revaluation adjustment P 24,000
Capitalized at P&L of Dixon 20%
Goodwill/revaluation P120,000

37. b
Amount paid……………………………………………………………………………P 80,000
Less: Book value of Interest of Bolger
P60,000 + [(P170,000 + P210,000 + P100,000) – (P180,000 +
P200,000 + P75,000)] x 35%........................................................................
68,750
Partial Goodwill (to retiring partner)……………………………………………….P 11,250

Incidentally, the entry for the retirement (payment to Bolger) would be:
Bolger, capital……………………………………………… 68,750
Goodwill……………………………………………………… 11,250
Cash………………………………………………..... 80,000

Therefore, the capital of Grossman after the retirement of Bolger would be, P66,250
[P55,000 + (45% x P25,000)].

38. c – no goodwill or revaluation therefore, bonus.

Tiffany 50,000
Ron (P10,000 x3/5) 6,000
Stella (P10,000 x 2/5) 4,000
Cash 60,000

39. a – refer to No. 38 (P80,000 – P6,000 = P74,000)

40. d
Amount paid P 56,000
Less: Book value of Tiffany (1/6) ) 50,000
Partial goodwill/revaluation adjustment P 6,000
Capitalized at 1/6
Goodwill/revaluation P 36,000

41. c - Roberts receives an additional P60,000 above her capital balance.

Amount paid P 160,000
Less: Book value of Robert (40%) 100,000
Partial goodwill/revaluation adjustment P 60,000
Capitalized at 40%
Goodwill/revaluation P 150,000
 Goodwill/assets 150,000
Peter (20%) 30,000
Robert (40%)
60,000
Dana (40%) 60,000

Robert (P100,000 + P60,000) 160,000

Cash 160,000

Therefore: Peter: P80,000 + P30,000 = P110,000

42. d – refer to No. 41

Dana: P60,000 + P60,000 = P120,000

43. e – refer to No. 41

Total Assets before retirement (P80,000 + P100,000 + P60,000) P240,000
Add: Goodwill/revaluation of asset 150,000
Less: Cash paid 160,000
Total assets after retirement P230,000

44. d
Total Assets before retirement (P80,000 + P100,000 + P60,000) P240,000
Less: Cash paid 160,000
Total assets after retirement P 80,000
45. c
Total Capital of L (wherein goodwill should be generated)
Total assets, fair value (P40,000 + P52,000 + P94,000
+ P 570,000
P320,000 + P64,000)
Less: Total liabilities ( P110,000 + P200,000) __310,000 P 260,000
Less; Total Capital of M
Total assets, fair value (P30,000 + P56,000 +
P114,000 + P 524,000
P280,000 + P44,000)
Less: Total liabilities ( P80,000 + P150,000) 230,000 294,000
Goodwill P 34,000

46. c
L, Capital and M, Capital are each P94,000 if L's goodwill is recognized. Total capital is
P588,000, and total liabilities and capital amount to P1,128,000.

47. d
(1) Goodwill (revaluation) method:
Amount paid P 36,000
Less: Book value of interest acquired (P100,000 x 30%)) 30,000
Partial goodwill/revaluation adjustment P 6,000
Capitalized at 30%
Goodwill/revaluation P 20,000

Therefore, the capital balances after the admission of OO:

Adams: [P60,000 + (P20,000 x 60%)] x 70%………………………P 72,000
Brown: [P40,000 + (P20,000 x 40%)] x 70%...…………………….. 48,000
Call.............................................……………………………………. __36,000
Total capital after admission…………………………………….. .P156,000
 (2) If Book (or bonus) method is used, the capital balances would be:
Adams...............................................................……………………P 60,000
Brown..............................................................…………………….. 40,000
Call: (P60,000 + P40,000) x 30%…………………………………. ..__ 30,000
Total capital after admission…………………………………….. .P130,000

For purposes of comparing bonus and goodwill, there are two alternatives presented:
Alternative 1: If goodwill is found to exist:
Adams Brown Call
Goodwill Method is used…………………. P72,000 P48,000 P36,000
BV/Bonus Method is used………………… P60,000 P40,000 P30,000
Add: Goodwill *……................................... 8,400 5,600 6,000
P68,400 P45,600 P36,000
(Gain) loss – BV/bonus method…………. P 3,600 P 2,400 P 0
Adams: 70% x 6/10 = 42%
Brown: 70% x 4/10 = 28%
Call 30%

Alternative 2: If goodwill is not realized and written-off as a loss:

Adams Brown Call
Goodwill Method is used…………………. P 72,000 P48,000 P36,000
Less: Write-off of goodwill *………………. 8,400 5,600 6,000
P63,600 P42,400 P30,000
BV/Bonus Method is used………………… P60,000 P40,000 P30,000
(Gain) loss – bonus method………………. P 3,600 P 2,400 P 0

Note: The bonus method adheres to the historical cost concept and it is often used in accounting
practice. It is objective that is establishes total capital of the new partnership at an amount based on
actual consideration received from the new partner. The bonus method indirectly acknowledges the
existence of goodwill by giving a bonus to either old or new partners.

The goodwill method results in the recognition of an asset implied by a transaction rather than
recognizing an asset actually purchased. Historically, goodwill has been recognized only when
purchased so that a more objective measure of its value is established. Therefore, opponents of the
goodwill method contend that goodwill is not determined objectively and other factors may have
influenced the amount of investment required from the new partners.

Although either method can be used in achieving the required interest for the new partner, the two
methods offer the same ultimate results only:
1. When the incoming partner’s percentage share of profit and loss and percentage interest in
assets upon admission are equal, and
2. When the former partners continue to share profits and losses between themselves in the
original ratio.

If these conditions are not fully met, however, results will be different.

48. d – refer to No. 47 for Note.

(1) Goodwill method: Using the capital balance of new partner as a basis of computing
total agreed capital,:

Total agreed capital (P5,000/25%)……………………………………. P20,000

Less: Total contributed capital (P6,000/P4,800+P5,000)…………… 15,800
Goodwill to old partners…………………………………………………. P 4,200

Therefore, the capital balances after the admission of OO:

MM: [P6,000+(P4,200x3/5)]…………………………………………………. P 8,520
NN: [P4,800+(P4,200x2/5)]………………………………………………….. 6,480
 OO………………………………………………………………………………. 5,000
Total agreed capital………………………………………………………… P20,000

(2) If bonus method is used, the capital balances would be:

Total agreed capital (P6,000+P4,800+P5,000)………………………….......... P 15,800
Multiplied by: OO’s capital interest…………………………………………..... 25%
Agreed capital to be credited to OO………………………………………... P 3,950
Contributed/Invested capital of OO…………………………………….......... 5,000
Bonus to MM and NN (old partner)………………………………………......... P 1,050

The bonus would be added to MM and NN:

MM: [P60,000+(1,050,000x3/5)]……………………………………………. P 6.630

NN: [P4,800+(P1,050x2/5)]………………………………………………….. 5,220
OO……………………………………………………………………………… 3,950
Total agreed capital……………………………………………………….. P 15,800

For purposes of comparing bonus and goodwill, there are two alternatives presented:
Alternative 1: If goodwill is found to exist:

MM NN OO
Goodwill Method is used…………………. P8,520 P6,480 P5,000
Bonus Method is used……………………... P6,630 P5,220 P3,950
Add: Goodwill (allocated equally)……..
1,400 1,400 1,400
P8,030 P6,620 P5,350
(Gain) loss – bonus method………………. P 490 P (140) P 350 (d)

Alternative 2: If goodwill is not realized and written-off as a loss:

MM NN OO
Goodwill Method is used…………………. P8,520 P6,480 P5,000
Less: Write-off of goodwill
(allocated equally)…………………. 1,400 1,400 1,400
P7,120 P5,080 P3,600
Bonus Method is used……………………... P6,630 P5,220 P3,950
(Gain) loss – bonus method………………. P 490 P (140) P 350 (d)

49. a – refer to No. 47 for Note.

Goodwill method: Using the capital balance of new partner as a basis of computing total
agreed capital.

Total agreed capital (P500,000/25%)……………………………………. P2,000,000

Less: Total contributed capital (P600,000/P480,000+P500,000)…….. 1,580,000
Goodwill to old partners…………………………………………………... P 420,000

Therefore, the capital balances after the admission of CC:

AA: [P600,000+(P420,000x3/5)]…………………………………………… P 852,000 (d)
BB: [P480,000+(P420,000x2/5)]……………………………………………. 648,000
CC……………………………………………………………………………… 500,000
Total agreed capital………………………………………………………….. P 2,000,000

Bonus Method:
Total agreed capital (P600,000+P480,000+P500,000)………………... P 1,580,000
Multiply by: CC’s capital interest………………………………………… 25%
 Agreed capital to be credited to CC………………………………….. P 395,000
Contributed/Invested capital of CC……………………………………. 500,000
Bonus to AA and BB (old partners)………………………………………. P 105,000

The bonus would be added to AA and BB:

AA: [P600,000+(1,050,000x3/5)]……………………………………………. P 663,000
BB: [P480,000+(P105,000x2/5)]……………………………………………… 522,000
CC………………………………………………………………………………. 395,000
Total agreed capital………………………………………………………… P 1,580,000
For purposes of comparing bonus and goodwill, assume that goodwill is not realized and it
should be written-off as a loss:
AA BB CC
Goodwill Method is used…………………. P852,000 P648,000 P500,000
Add: Goodwill (allocated equally)…….. 140,000 140,000 140,000
P712,000 P508,000 P360,000
Bonus Method is used……………………... P663,000 P522,000 P395,000
(Gain) loss – bonus method………………. P 49,000 P (14,000) P 35,000

50. b
Total Roy Gil
Capital, before adjustment………………… P309,000 P94,800 P214,200
Less: Net adjustment*……………………….. 35,400 11,800 23,600
Capital, after adjustment………………….. P273,600 P83,000 P190,600
Less: Portion covered by common stock,
par P10 (720 share to each partner).. 14,400 7,200 7,200
Portion to be covered by preferred stock,
par P100…………………………………..... P259,200 P75,800 P183,400

Shares to be issued:
Preferred stock………………………. 2,592 758 1,834
Common stock……………………… 1,440 720 720
*FV, P40,000 + P68,000 + P180,600 – BV, P60,000 + 90,000 + P174,000.

51. d
Fair value of the assets (P200,000 + P24,000)……………………………. P224,000
Less: Total liabilities……………………………………………………………. 40,000
Fair value of Net Assets……………………………………………………… P184,000
Less: Common stock at P1 par (10,000 shares x 2 x 1 par)…………… 20,000
Additional paid-in capital………………………………………………… P164,000
52. b
Unadjusted capital balances (P140,000 + P120,000)…………………… P260,000
Add (deduct): adjustments:
Allowances for doubtful accounts……………………………… (10000)
Revaluation of inventory (P160,000 - P140,000)………………... 20,000
Additional depreciation……………………………………………. (3,000)
Adjusted capital balances equivalent to the total shares issued…… P267,000

53. c
Unadjusted assets (P10,500 + P15,900 + P42,000 + P60,000)…………… P 128,400
Add (deduct): adjustments:
Allowances for doubtful accounts……………………………… ( 1,200)
Short-term prepayments............................................................... 800
Revaluation of inventory (P48,000 – P42,000)...………………... 6,000
Revaluation of equipment (P72,000 – P60,000)………………... 12,000
Adjusted asset balance............................................................................. P146,000
54. c
Adjusted asset balance............................................................................. P146,000
Less: Liabilities (P16,400 + P750).................................................................. 17,150
Adjusted net assets..................................................................................... P128,850
Less: Common stock, P5 par x 10,000 shares.....................……………....... 50,000
Additional paid-in capital…………………………………………………… P 78,850
THEORIES
True or False
1 False 6. False 11. True 16. True 21 False 26. Fals 31 True
. . e .
2 True 7. False 12. True 17. True 22 True 27. True 32 True
. . .
3 False 8. True 13. True 18. False 23 False 28. Fals
. . e
4 True 9. False 14. Fals 19. False 24 True 29. True
. e .
5 False 10 False 15, True 20. True 25 False 30. Fals
. . . e

Note for the following numbers:

1. A dissolution occurs every time there is a change in relationship among the partners. This can
occur when a new partner enters the partnership or an existing partner leaves the partnership. A
dissolution occurs when the partnership is going out of business but the termination of business is
not a requirement for a dissolution.
3. A new partner's liability for actions that occurred before joining the partnership is limited to the
amount invested in the partnership.
5. Regardless how a new partner enters a partnership, the other partners have to approve the
admission because they must accept unlimited liability due to actions of the new partner taken on
behalf of the partnership.
6. There is no necessary relationship between the percentage of equity acquired and the amount of
profit or loss received. These are separate contractual issues.
7. There are three methods that may be used when a new partner is paying an amount more than
book value for the investment: revaluation of existing assets, bonus method, and goodwill method.
The partners do not have to choose one method. It would not be inconsistent to revalue the assets
and apply either the bonus or the goodwill method to record the investment.
9. Existing partners share the difference between market value and book value equally if that is the
manner in which profits and losses are shared. If profits and losses are shared in some other
manner, then the difference between market and book values are shared in that manner.
10. While it is possible that an error has been made, it is more likely that the existing partners
recognized an increase in their capital accounts via a bonus. The difference between the amount
credited to the new partner’s capital account and the amount invested is shared by the existing
partners.
14. New partners may receive a bonus if they bring value to the partnership in excess of the tangible
assets invested. This additional amount may be from such things as expertise, experience, or
business contacts. The bonus allocated to the new partner is payment for these types of
unidentifiable assets contributed to the partnership.
18. Goodwill may be recognized with regard to the existing partners but it may also be recognized with
regard to the new partner.
19. When goodwill is recognized with regard to the new partner, the new partner’s capital account will
be greater than the amount invested by the recognized goodwill.
21. The articles of partnership may include an agreement on the length of advanced notice a partner
must give before withdrawing from a partnership. Failure to provide the agreed notice may result
in the withdrawing partner being liable for damages suffered by the partnership.
23. If existing partners acquire a withdrawing partner’s equity, they can divide the purchase of that
equity among themselves in any manner they choose.
25. Partnership assets may be revalued but they may also remain at their carrying value.
26. The revaluation of the partnership’s assets is unrelated to the purchase of the withdrawing
partners ownership interest in the partnership.
28. The revaluation of partnership assets at the time of a partner’s withdrawal has no impact on the
recognition of a bonus or goodwill.
30. While the partners can recognize either the withdrawing partner’s goodwill or the entire
partnership’s goodwill, there is no requirement to recognize any goodwill when a partner
withdraws from a partnership.

Multiple Choice
33 b 38 e 43. c 47. a 53 c 58. a 63 c
. . . .
34 d 39 e 44. c 48. c 54 c 59. c 64 d
. . .
35 d 40 d 45. d 50. c 55 c 60. b 65 c
. . . .
36 d 41 d 46. c 51. a 56 b 61. b 66 d
. . . .
37 a 42 b 47. b 52. d 57 b 62. b 67 d
. . . .
68 a
.