PARTNERSHIP DISSOLUTION- QUIZ 3 INSTRUCTION: Write your answers for Part A questions 1 to 14 on the date and particular column of your worksheet. PART A. On January 1, 2015, the partners Connie, Denny, and Esty, who share profits and losses in the ratio of 5:3:2, respectively, decided to dissolve their partnership. On this date, part of the partnership condensed financial position appeared as follows: Liabilities and Partner's Equity Liabilities P 60,000 Connie, Loan 20,000 Connie, Capital 60,000 Denny, Capital 90,000 Esty, Capital 70,000 You are given the following independent cases a) to h): a) On Jan 5, 2015, the partners decided to dissolve the business by admitting Jay under the following conditions: 1/3 of Denny’s interest was to be purchased by Jay for P50,000, Jay makes additional contribution so that her total capital credit and profit share will be 20%. No goodwill or bonus is to be recognized. Question 1: How much should Jay invest? Question 2: Assuming no profit ratio was agreed upon, determine the revised ratio to be used. b) The new partner Jay will be admitted to the partnership. Question 3: How much should Jay invest for a 30% interest aside from a P10,000 bonus given to him? c) Jay is admitted for a 20% interest in the partnership by paying Denny and Esty P54,000. Interest is transferred in proportion to their capital balances. Partners agreed to revalue partnership assets. Question 4: What are the revised equity of original partners after admission? Question 5: What are the partners profit share if on June 30 net profit earned was P120,000 with original partners agreeing to a bonus profit of 5% each after salaries are paid quarterly of P10,000 to Connie, Denny, Esty and Jay. d) Jay wishes to invest cash for a 20% interest based on old partners' equity. It was further agreed that goodwill of P10,000 be recognized for Jay. Question 6: How much is Jay’s investment? e) Jay, a new partner, paid P50,000 to Connie for half of her interest and plans to increase her interest to 25% with an additional contribution of P30,000 to the partnership. Question 7: Is there a possibility to record an implied revaluation of assets? If yes, how much will it be (indicate if it is an upward or downward adjustment)? Question 8: How much will the revised equity of Connie be after admission? f) Mid-year, Connie informed her desire to retire from the partnership. The partnership agreement provides that the books of accounts need not be closed upon the retirement of a partner. Net income is estimated and is to be considered as having been realized proportionately during the period. The partnership’s estimated net income for 2015 was P88,000. Prior to retirement, Connie paid personal expenses of P5,000 from the partnership funds. The partnership, on the other hand, collected P15,000 on personal receivables of Connie which was deposited for the account of the partnership. The partnership assets have just been recently revalued. Issue date of the one year loan is October 1, 2014 and accrues interest at 9% and is not yet included in the liabilities. The remaining partners agreed on a value of P120,000 for all her interests. Question 9: What is the total amount of interest for settlement? Question 10: What are the revised equity of the partners just after retirement if payment comes from the partnership? Question 12: What are the revised equity of the partners just after retirement if payment comes from the partners?
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g)
Partner Esty died on Sept. 1, 2015. It was agreed that the estate will be paid six months after date of death plus accrued interest of 15%. Profit for 2015 was P180,000. Question 12: What will be the total cash payment for Esty’s estate?
h) The partners wish to incorporate on January 3, 2015. The accountant updated the balance sheet based on the following information: a) Assets are 30% current including a loan receivable from Esty, P5,000. It was agreed that this amount be offset against her capital account. b) Non current assets should be revalued by 20%. c) All liabilities are current and include accruals. Connie Loan will be absorbed by the corporation. Question 13: How much is the adjusted net assets to be recorded in the books of the corporation. Question 14: How many shares (par value P100) will be issued to Connie? PART B. Answers before the number. If true, write the word True before the number. If false, write the correct answer of the the underlined word(s) or figure(s) before the number. 1. When a partner leaves a partnership, the present partnership ends. 2. Louie, Melanie and Norly are partners sharing profit and loss in the ratio of 3:3:2 respectively. Oskie is admitted as a new partner who invested for a 1/4 share in the profits. The new profit ratio of Melanie is 22.5%. 3 and 4 are based on the following: D, E and F are partners with capital balances of P80,000 each. G bought ½ of D's share for P50,000 and H invested P80,000 for a 25% capital credit. The accountant made only two entries: 3. D, Capital G, Capital
40,000
4. Cash
80,000 H, Capital
40,000 80,000
5. Partner E in the END partnership died on August 15, 2015. Articles of Co Partnership provides that in case of death of one of the partners, the remaining partners may continue the firm with settlement of estate six months from date of death. The firm uses the calendar accounting period. Partner E’s estate should be paid for total interest including profit share for six months and accrued interest for another six months. 6. When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require any new partner to pay a bonus for the privilege of joining. 7. Partners in a general professional partnership who receive salary allowance of P60,000 each as part of profit distribution but P50,000 of which have been withdrawn are required to pay tax based only on the amount withdrawn of P50,000. 8. To buy an interest in an existing partnership, the new partner must contribute to the partnership. 9. When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated. 10. In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowance legally becomes a profit share of the general partner.
THAT IN ALL THINGS GOD MAY BE GLORIFIED
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PARTNERSHIP DISSOLUTION PROF Z VC MANUEL Part A. a) PE Addtl Invest Connie 60,000 Denny 90,000-30,000 Esty 70,000 Jay 30,000 ? Total
Agreed 60,000 60,000 70,000 * 237,500 *
220,000
*190,000/.8= 237,500 x .2= capital credit for Jay 47,500 Transfer of interest (90,000 x 1/3) 30,000 1. additional cash Jay must invest 17,500
Connie Denny Esty Jay Total
P & L ratio 50 30 -10=20 20 10 100
Revised
20
Ratio of original partners will be 5:2:2 of 80% 2. Connie (5/9 x 80%)= 44.44% Denny (2/9 x 80%)= 17.78% Esty (2/9 x 80%)= 17.78% b) 3. Connie Denny Esty Jay Total
PE 60,000 90,000 70,000
Addtl Invest
?
Bonus
Agreed
-10,000
210,000
+10,000
220,000
300,000 *
* Agreed equity for Jay (210,000/.7)= total agreed 300,000 x .3= P90,000 Cash investment of Jay (90,000 – P10,000 bonus)= P80,000 c) 4 PE after admission: PE AR Connie 60,000 25,000 Denny 90,000 15,000 Esty Jay Total
70,000 220,00 0
10,000
Transfer (30,649) + (23,351) + 54,000
50,000
After Adm 85,000 74,351 56,649 54,000* 270,000*
Rev P & L 50% 18 12 20 100%
*Amount for revaluation is based on the new partner’s payment: Agreed total capitalization based on what Jay wants to pay (P54,000 /.2) = P270,000 Asset revaluation (270,000- 220,000= P50,000 +54,000 allocated based on adjusted capital of Denny P105,000 and Esty P80,000 5. Salary Bonus Remainder
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Connie 20,000 2,000 17,000
Denny 20,000 2,000 6,120
Esty 20,000 2,000 4,080
Jay 20,000 6,800
Total 80,000 6,000 34,000
Total
39,000
28,120
26,080
26,800
120,000
Remainder based on revised P and L ration (last col of table in no. 4 d)
6. 220,000/.8= agreed equity of orig partners 275,000 x .2= total capital credit for Jay 55,000 – 10,000 goodwill = P45,000 cash investment.
e)
7. PE 60,000 90,000 70,000
Connie Denny Esty Jay Total
Transfer (30,000)
Invest
30,000
30,000 30,000
220,00 0
AR
(10,000) *
Agreed
60,000 *240,000
*60,000/.25= total agreed P240,000 – total contributed P250,000= P10,000 downward adjustment. 8. Equity of Connie P60,000 – 30,000 transfer – 5,000 downward adjust= P25,000 9. Connie Capital P 60,000 Profit share (88,000 x ½ x 50%) 22,000 Regular drawings ( 5,000) Personal A/R collected 15,000 Updated capital P 92,000 Connie, Loan 20,000 Accrued interest (20,000 x .09 x 9/12) 1,350 Total interest for settlement P113,350 10. If cash settlement is P120,000, bonus of P6,650 will be given to Connie, revised partners’ equity after retirement will be: Denny (6,650 x 3/5)= 3,990 – 90,000= P86,010 Esty (6,650 – 3,990)= 2,660 – 70,000= P67,340 11. Use capital ratio to record transfer of interest, ignore payment: Denny (90,000/160,000) x 113,350= 63,759 + 90,000= P153,759 Esty (113,350- 63,759 + 70,000 = P119,591 12. Esty, Capital on Sept 1 Profit Share from Jan 1 to Sept (180 x .2 x 8/12) Accrued interest from Sept. 1 to Mar 1 (94,000 x .15 x 6/12) Total interest for settlement 13. Unadjusted capital Loan Receivable Asset revaluation* Adjusted balances
Connie P60,000
Denny P 90,000
21,000 P81,000
12,600 P102,600
* 300,000 x .7= 210,000 x .2= P42,000 14. Connie will receive= 81,000 / 100= 810 shares. PART B True
1.
28.125%
2.
True
3.
True
4.
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P 70,000 24,000 7,050 P103,050
Esty P70,000 ( 5,000) 8,400 P73,400
Total P220,000 ( 5,000) 42,000 P257,000
Profit for 7.5 mos 5. True
6.
P60,000
7.
Pay the selling partner(s) 8. understated
9.
Capitalist
10.
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