John Ervin Bonilla
BSBA FM2B
1. Admission by Purchase of Interest
The capital accounts of the Maniquiz and Monte Partnership on Sept 30, 2018 were:
Maniquiz Capital (75% Profit Percentage) P 140,000
Monte, Capital (25% profit percentage) 56,000
Total P 196,000
On Oct 1. Galang was admitted to a 35% interest in the partnership when he purchased 35% of each
existing partner’s capital for P 100,000, paid directly to Maniquez and Monte.
Required:
Determine the capital balances of Maniquiz, Monte and Galang after Galang’s admission to the
partnership.
Answer
140,000 x 0.35 = 49,000
56,000 x 0.35 = 19,600
140,000 – 49,000 = 91,000 Maniquez capital
91,000/196,000 = 0.46% profit
56,000 – 19,000 = 36,400 Monte capital
36,400/196,000 = 0.19% profit
P68,600 Galang capital 35% profit
2. Admission by purchase of Interest and Investment of Assets
The capital accounts of Loida Cardenas and Cristina San Jose have balances of P 150,000 and P 110,000
respectively. Daria Labalan and Helen Magada are to be admitted to the partnership. Labalan buys one-
fifth of Cardenas interest for P 35,000 and one fourth of San Jose’s interest for P 25,000. Magada
contributes P 70,000 cash to the partnership, for which she is to receive an ownership equity of P
70,000.
Required:
1. Journalize the entries to record the admission of Labalan and Magada.
2. What are the capital balances of each partner after the admission of the new partners?
Answer
[Link] the entries to record the admission of Labalan and Magada.
DEBIT CREDIT
Cardinas, Capital 35,000
San Jose, Capital 25,000
Labalan, Capital 60,000
(To record admission of Labalan)
Cash 70,000
Magada, Capital 70,000
(To record admission of Magada)
2. What are the capital balances of each partner after the admission of the new partners?
After the admission of the new partners,
Cardenas' capital balance = 150,000 – 35,000 = P115,000
San Jose's capital balance = 110,000 – 25,000 = P85,000
Labalan's capital balance = 35,000 + 25,000 = P60,000
Magada's capital balance = P70,000
3. Admission by investment of assets
Partners Gonzaga and Magada have capital balances of P 30,000 and P 20,000 respectively, and they
share profits and losses in a 3:1 ratio.
Required: Prepared the journal entries to record the admission of Padilla under each of the following
conditions:
1. Padilla invested P 30,000 for a one fourth interest in net assets, total partnership capital after Padilla’s
admission will be P 80,000.
2. Padilla invested P 30,000 of which P 10,000 is a bonus to Gonzaga and Magada. In conjunction with
the admission of Padilla, the carrying amount of the inventories is increased by P 16,000. Padilla’s capital
account is credited for P 20,000.
Answer
[Link] invested P 30,000 for a one fourth interest in net assets, total partnership capital after Padilla’s
admission will be P 80,000.
Gonzaga Magada Padilla Total
Contributed Capital 30,000 20,000 30,000 80.000
Bonus to old partners 7,500 2,500 (10,000)
Agreed Capital 37,500 25,000 20,000 80.000
Computation of Agreed Capital
Padilla (80 000 x ¼ interest) 20,000
Bonus to old partners (30 000 – 20 000) 10,000
Bonus to Gonzaga (10 000 x ¾ ) 7,500
Bonus to Magada (10 000 x ¼) 2,500
Cash 30,000
Padilla Capital 30,000
(To record the investment of 30 000 to the partnership)
Padilla, Capital 10,000
Gonzaga, Capital 7,500
Magada, Capital 2,500
(To record bonus to the old partners from the investment of Padilla)
2. Padilla invested P 30,000 of which P 10,000 is a bonus to Gonzaga and Magada. In conjunction with
the admission of Padilla, the carrying amount of the inventories is increased by P 16,000. Padilla’s capital
account is credited for P 20,000 profits and losses in a 3:1 ratio.
Cash 30,000
Padilla, Capital 30,000
(To record the investment of 30 000 to the partnership)
Padilla, Capital 10,000
Gonzaga, Capital 7,500
Magada, Capital 2,500
(To record bonus to the old partners from the investment of Padilla)
Inventory 16,000
Gonzaga, Capital 12,000
Magada, Capital 4,000
(To record revaluation of inventory to its fair value)
4. Admission by purchase of Interest or investment of Assets.
Castro and Falceso are partners who share profits and losses in ratio of 2:3, respectively, and have the
following capital balances on September 30, 2019. Castro, Capital P 100,000 Cr. And Falceso, Capital, P
150,000 Cr. The partners agreed to admit Garachico to the partnership.
Required: Calculate the capital balances of each partner after the admission of Garachico, assuming that
bonuses are recorded when appropriate for each of the following assumptions:
1. Garacho paid P 50,000 for a 40% of his interest
2. Garacho invested P 50,000 for a one-sixth interest in the partnership
3. Garacho invested P 50,000 for a 25% interest in the partnership
4. Garacho invested P 50,000 for a 15 % interest in the partnership
Answer
1. Garacho paid P 50,000 for a 40% of his interest
Castro, Capital = 100,000 x 40% = 40,000
50,000 - 40,000 = 10,000 This is gain of the partner itself not a bonus.
New Capital
Castro, Capital = P60,000
Falceso, Capital = P150,000
Garachico, Capital = P40,000
[Link] invested 50,000 for a one-sixth interest in partnership
Castro = 100,000
Falceso = 150,000
Garachico = 50,000
Total Invested = 300,000 x 1/6 ( To castro ) = 50,000
The Interest of Garachico is equal to it's 25% interest therefore no Bonus from the partner or to the
partner
New Capital
Castro = P100,000
Falceso = P150,000
Garachico = P50,000
3. Garacho invested P 50,000 for a 25% interest in the partnership
Castro = 100,000
Falceso = 150,000
Garachico = 50,000
Total Invested = 300,000 x 25% ( To castro ) = 75,000
His interest is 75,000 but he only invested 50,000 therefore there is a bonus from the old partner.
Bonus from old partner = 75,000 - 50,000
Bonus from old partner = 25,000 - This will be shared by the old partner based on their old profit and
loss ratio ( 2 : 5 )
Castro = ( 2 / 5 ) x 25,000 = 10,000
Falceso = ( 3 / 5 ) x 25,000 = 15,000
New Capital
Castro = 100,000 - 10,000 = P90,000
Falceso = 150,000 - 15,000 = P135,000
Garachico = 50,000 + 25,000 = P75,000
[Link] invested 50,000 for a 15% interest in the partnership
Castro = 100,000
Falceso = 150,000
Garachico = 50,000
Total Invested = 300,000 x 15% (to castro) = 45,000
His interest 45,000 is less than his invested $50,000 therefore there is a bonus to old partner or Castro
give bonuses to the old partners.
Bonus to old partners = 50,000 - 45,000
Bonus to old partners = 5,000 This will be share by their old profit and loss ( 2 : 3 )
Castro = ( 2 / 5 ) x 5,000 = 2,000
Falceso = ( 3 / 5 ) x 5,000 = 3,000
New Capital
Castro = 100,000 + 2,000 = P102,000
Falceso = 150,000 + 3,000 = P153,000
Garachico = 50,000 - 5,000 = P45,000
5. Determining a New Partner’s Investment Cost
The following condensed statement of financial position is presented for the partnership of Morales,
Gamino and Quito, who share profits and losses in the ration of [Link], respectively.
Cash P 40,000 Accounts Payable P 150,000
Other Assets 710,000 Morales Capital 260,000
Gamino Capital 180,000
Quito Capital 160,000
Total Assets P 750,000 Total Liabilities and Capital P 750,000
Assume that the partnership decided to admit Abello as a new partner with a one fourth interest.
Required:
For each of the following independent cases, determine the amount that Abello must contribute in cash
or other assets:
1. No goodwill or bonus will be recorded.
2. Bonus of P 24,000 is to be paid by Abello and Allocated to the prior partners.
3. The partners agreed that total resulting capital should be P 820,000 and No goodwill
should be recognized.
4. Other assets are written down by P 20,000 and a Bonus of P 40,000 is paid to Abello
at the time of admission.
Answer
1. No goodwill or bonus will be recorded.
On admission Abello share of profit = 1:4
Remaining profit = 1-1/4 = 3/4
Existing total capital
Morales P260,000
Gamino P180,000
Quito P160,000
Total: P600,000 = 3/4th
Total capital should be (after admission of Abello) = 600,000 x 3/4
= P800,000
Amount to be contributed in by Abello = 800,000 – 600,000
=P200,000
2. Bonus of P 24,000 is to be paid by Abello and Allocated to the prior partners.
Amount to be contributed in cash for premium = P24,000
Amount to be brought in cash or other assets = P200,000
3. The partners agreed that total resulting capital should be P 820,000 and No goodwill
should be recognized.
After admission of Abello, share of profit of existing partners are:
Existing ratio: [Link]
New share of profit
Morales = (4/10) x (3/4)
= 12/40
Gamino = (3/10) x (3/4)
= 9/40
Quito = (3/10) x (3/4)
= 9/40
New Profit share ratio = M:G:Q:Abello = 12/40:9/40:9/40:10/40
= [Link]
Total required capital of firm = 820,000
Therefore, Capital to be contributed by Abello = (10/40) X 820,000
= P205,000
4. Other assets are written down by P 20,000 and a Bonus of P 40,000 is paid to Abello
at the time of admission.
Existing capital after revaluation
Existing capital Revaluation Revised capital
Morales 260,000 8,000 252,000
Gamino 180,000 6,000 174,000
Quito 160,000 6,000 154,000
Total 600,000 20,000 580,000 = (3/4)
Total capital of the firm = 580,000 x 4/3
= 773,333
Capital to be contributed by Abello = 773,333 – 580,000
= P193,333
Bonus to be paid in cash = P40,000
6 : Withdrawal of a Partner
In the DCD partnership, De Chavez's capital is P40,OOO, Castillo's is P50,000, and is P30,OOO. They share
income in a [Link] ratio, respectively. Danes is retiring from partnership.
Required: Prepare the journal entries to record Danes's withdrawal if she is paid P38,000 and no
goodwill is recorded.
7. Withdrawal of a Partner
Gregorio is retiring from the partnership of Guerra, Guillermo, and Gregorio. The profit and loss ratio is
[Link], respectively. After the accountant has posted the revaluation and closing entries, the credit
balances in the Capital accounts are: Guerra 530,000, Guillermo, P430,000; and Gregorio, P210,000
Required: Journalize the journal entries to record the retirement of Gregorio under each of the
following unrelated assumptions:
Gregorio retires, taking P210,000 of partnership cash for her equity,
Gregorio retires, taking P270,000 of partnership cash for her equity•
Answer
Case 1 : Gregorio retires taking P210,000 of partnership cash for her equity.
Journal entry for above assumption will be as follows:
Gregorio's Capital A/c dr. 210000
To bank A/c 210000
(Being Partner retired and amount paid)
Case 2:Gregorio retires taking P270,000 of partnership cash for her equity.
When the amount paid to retiring partner exceeds the Balance of his/her capital A/c, then such
difference in amount paid and balance of capital A/c can be booked as per following two methods:
A) Bonus method
B) Goodwill method
A) Bonus method:
Journal entry will be as follows:-
Guerra's capital A/c dr. 30000
Guillermo's Capital A/c dr. 30000
Gregorio's capital A/c dr. 210000
To cash A/c 270000
(Being Payment made and bonus recognized)
W. Note : Calculation of bonus allocation:
Amount of bonus = 270000-210000 = 60000
Guerra's share = 60000* 2/(2+2) = 30000
Guillermo's share = 60000*2/(2+2)=30000
B) Goodwill method:
Journal entry :
Gregorio's Capital A/c dr. 210000
Goodwill A/c Dr. 60000
To bank A/c 270000
(Being Partner retired and amount paid and excess recognized as goodwill)
8. Death of a Partner
Burgos and Albao Wrecking Company, a partnership, is operating a general demolition business. Profits
and losses are shared equally. The books are kept on a calendar
After the business has been in operation for several years, Cero died on Sept. 15. Cero desired to sell
Cero's interest for P250,000. After the books were closed, partners' capital accounts had credit balances
as follows:
Burgos P 500,000
Albao 250,000
Cero 350,000
Pascual 250,000
Required:
1. As the accountant for the partnership, compute the amount to be paid to Mrs. Cero under the
agreement and prepare the journal entry required to enter the check issued to her in payment
of her deceased husband's interest in the partnership, According to the partnership agreement,
the difference between the amount paid to Mrs. Cero and the book value of Cero's capital
account is allocated to the remaining partners based on their ending capital balances.
2. Assume instead that Mrs. Cero is paid P500,000 for the book value of Cero's capital account; any
difference is to be allocated based on ending capital balances. Prepare the necessary journal
entry.
3. Assume further that one of the partners, Pascual, with the consent of the remaining partners,
purchased Cero's interest for P400,000 and gave Mrs. Cero a personal check for that amount.
Prepare the journal entry that is required in the books of account of the partnership only.
Case 1
Burgos Albao Cero Pascual Total
Capital balances before settlement 500,000 250,000 350,000 250,000 1,350,000
Payment to Cero (250,000) 250,000
Bonus to remaining partners 33,333.33 33,333.33 (100,000) 33,333.33
Capital balances after settlement 533,333.33 283,333.33 283,000.33 1,100,000
Journal entry to record settlement:
Cero, Capital 350,000
Burgos, Capital 33,333.33
Albao, Capital 33,333.33
Pascual, Capital 33,333.33
Cash 250,000
Case 2
Burgos Albao Cero Pascual Total
Capital balances before settlement 500,000 250,000 350,000 250,000 1,350,000
Payment to Cero (500,000) (500,000)
Bonus to deceased partners (50,000) (50,000) (150,000) (50,000)
Capital balances after settlement 450, 000 200,000 200,000 850,000
Journal entry to record settlement
Cero, Capital 350,000
Burgos, Capital 50,000
Albao, Capital 50,000
Pascual, Capital 50,000
Cash 500,000
Case 3
Burgos Albao Cero Pascual Total
Capital balances before settlement 500,000 250,000 350,000 250,000 1,350,000
Purchase of interest (350,000) 350,000
Capital balances after settlement 500, 000 250,000 600,000 1,350,000
Jounal entry to record purchase of interest:
Cero, Capital 350,000
Pascual, Capital 350,000
9. Incorporation of a Partnership
The condensed statement of financial position of the partnership of Buenaflor and Gangoso as of Dec.
31, 2018 showed the following:
Total Assets P 200,000
Total Liabilities 40,000
Buenaflor, Capital 80,000
Gangoso, Capital 80,000
On this date, the partnership was dissolved and its net assets transferred to a newly formed
corporation. The fair value of the assets was P24,000 more than the carrying value on the firm's books.
Each of the partners was issued 10,000 shares of the corporation's P1 par ordinary share.
Required:
Prepare the journal entries in the books of the corporation.
Answer
Assets 184,000
Shareholders Capital 184,000
#To record the transfer of the Net assets from the Dissolved Partnership to the newly formed
Corporation where the total amount of total liabilities amounting to 40,000 is already deducted from the
total asset amounting to 200,000 therefore the total net assets that was transferred in their books is
160,000. The amount to be used to record the amount is the Fair Value amount of the assets over the
book value because the fair value of the asset is more reliable over the book value of the asset where
the Fair Value represents the current value of the assets therefore amount of assets to be record is at
184,000 where it is 24,000 higher than the carrying value.
[Link] stocks (20,000 shares at P1 par value ) 20,000
Shareholders Equity 20,000
#To record the issuance of 10,000 shares per shareholder, since there were Two Shareholders therefore
the total shares issued is 20,000 with a Par Value of P1.00 per share and the amount to be record is
P20,000.
