UL CPA REVIEW CENTER

ACC416/AFAR DRILL ON PARTNERSHIP DISSOLUTION & LIQUIDATION

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
CPA REVIEW CENTER

INSTRUCTION: USE MS EXCEL AS SOLUTION SHEET

1. Partners Renan and Robin, who share equally in profits and losses, have the following balance sheet as of Dec.
31, 2014:
Cash P120,000 Accounts payable P172,000
Accounts receivable 100,000 Accum. Depreciation 8,000
Inventory 140,000 Renan, capital 140,000
Equipment 80,000 Robin, capital 120,000
P440,000 P440,000
They agreed to incorporate their partnership, with the new corporation absorbing the net assets after the
following adjustments: provision of allowance for bad debts of P10,000; statement of inventory at its current
fair value of P160,000; and, recognition of further depreciation on the equipment of P3,000. The corporation’s
capital stock is to have a par value of P100, and the partners are to be issued corresponding total shares
equivalent to their adjusted capital balances. The total par value of the shares of capital stock that were issued
to partners Renan and Robin was:
a. P260,000 b. P267,000 c. P273,000 d. P280,000

2. Diller decided to withdraw from the partnership. Diller’s share of the partnership profits and losses was 25%.
Upon withdrawing from the partnership, Diller was paid P91,000 in final settlement for his interest. The total of
the partners’ capital accounts before recognition of partnership goodwill prior to Diller’s withdrawal was
P370,000. After Diller’s withdrawal, the remaining partners’ capital accounts, excluding their share of goodwill,
totaled P310,000. The total agreed-upon goodwill of the firm is:
a. P15,000 c. P60,000 e. P240,000
b. P31,000 d. P124,000

3. Lucy, Vince, and Mince are partners with capital balances, as of December 31, 2014, of P300,000, P300,000 and
P200,000 respectively, and who share profits and losses equally. Mince wishes to withdraw, and it is agreed that
she is to take certain furniture items, with a second-hand value of P50,000, and a note for the balance of her
interest. The furniture items are carried in the books at P65,000; brand new, however, they would cost P80,000.
The value of the note that Mince would get is:
a. P120,000. b. P135,000. c. P145,000. d. P150,000.

4. The December 31, 2014 balance sheet of the Bennett, Carter and Davis partnership is summarized as follows:
Cash P100,000 Carter loan P100,000
Other assets at cost 500,000 Bennett, capital 100,000
Carter, capital 200,000
_______ Davis capital 200,000
P600,000 P600,000

The partners share profit and losses as follows; Bennett, 20% Carter, 30%; and Davis, 50%. Carter is retiring
from the partnership and the partners have agreed that “other assets” should be adjusted to fair value of
P600,000 at December 31, 2014. They further agree that Carter will receive P244,000 for his partnership interest
exclusive of his loan, which is to be paid in full, and that no goodwill implied by Carter’s payment will be recorded.
After Carter’s retirement, the capital balances of Bennett and Davis, respectively will be:
a. P116,000 and P240,000. c. P100,000 and P200,000.
b. P101,714 and P254,286. d. P73,143 and P182,857.

5. Panny buys Queeny's partnership interest in the Q-R-S partnership. Queeny thus retires, leaving Rianne and
Susien as Panny's co-partners. Prior to Panny entering the partnership, Queeny, Rianne, and Susien split profits
and losses equally. Panny pays P75,000 for Queeny's capital which, at that time, totaled P60,000. No revaluation
of partnership assets or liabilities occurs. In recording this event on the partnership books
a. Goodwill is booked based on the book value/fair value difference.
b. P7,500 bonuses are added to Rianne and Susien capital.
c. P5,000 bonuses are added to Queeny, Rianne, and Susien capital.
d. Panny capital is created in the amount of P60,000.

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ACC416/AFAR DRILL ON PARTNERSHIP DISSOLUTION & LIQUIDATION
6. Shiny purchased an interest in the Tanny and Olive partnership by paying Tanny P10,000 half of his capital and
half of his 50% profit sharing interest. At that time, Tanny’s capital balance was P30,000 and Olive’s capital
balance was P70,000. Shiny should receive a credit to her capital account of:
a. P15,000 b. P20,000 c. P25,000 d. P33,333

7. Lovi and Trannee are partners with capital balances of P50,000 and P70,000, respectively and they share profits
and losses equally. The partners agree to take Danny into the partnership for a 40% interest in capital and profits,
while Lovi and Trannee each retain a 30% interest. Danny pays P60,000 cash directly to Lovi and Trannee for
his 40% interest and goodwill implied by Danny’s payment is recognized on the partnership books. If Lovi and
Trannee transfer equal amounts of capital to Danny, the capital balances after admission will be:
a. Lovi, P35,000; Trannee, P55,000; Danny, P60,000.
b. Lovi, P45,000; Trannee, P45,000; Danny, P60,000.
c. Lovi, P36,000; Trannee, P36,000; Danny, P48,000.
d. Lovi, P26,000; Trannee, P46,000; Danny, P48,000.

8. John Reed desires to purchase one-fourth capital and profit and loss interest in the partnership of Eejay, Joseph
and Dave. The three partners agree to sell John Reed one-fourth of their respective capital and profits and loss
interest in exchange for a total payment of P40,000. The capital accounts and the respective percentage interest
in profits and losses immediately before the sale to John Reed are:
Eejay, capital – 60% P80,000
Joseph, capital – 30% P40,000
Dave, capital – 10% P20,000
All other assets and liabilities are fairly valued and implied goodwill is to be recorded prior to the acquisition.
Immediately after John Reed acquisition, what should be the capital balances of Eejay, Joseph and Dave,
respectively?
a. P60,000; P30,000; P15,000 c. P77,000; P38,500; P19,500
b. P69,000; P34,500; P16,500 d. None of the choices

9. Andy and Benny are partners who share profits and losses in the ratio of 3:2, respectively. On August 31, 2014,
their capital accounts were as follows:
Andy P 70,000
Benny 60,000
P130,000
On that date, they agreed to admit Candy as a partner with a one-third interest in the capital and profits and
losses, for an investment of P50,000. The new partnership will begin with a total capital of P180,000. The
partners’ capital balances immediately after Candy’s admission are:
Andy Benny Candy
a. P60,000 P60,000 P60,000
b. P63,333 P56,667 P60,000
c. P64,000 P56,000 P60,000
d. P70,000 P60,000 P50,000

10. At December 31, 2014, Reen and Quinn are partners with capital balances of P40,000 and P20,000, and they
share profits and losses in the ratio of 2:1, respectively. On this date, Poe is admitted into the partnership. Poe
invests P17,000 cash for a one-fifth interest in the capital and profit of the new partnership. Assume that
goodwill is not to be recorded. The credit to be made to Poe’s capital account at December 31, 2014 is:
a. P12,000 b. P15,000 c. P15,400 d. P17,000

11. At December 31, 2014, Reen and Quinn are partners with capital balances of P40,000 and P20,000, and they
share profits and losses in the ratio of 2:1, respectively. On this date, Poe is admitted into the partnership. Poe
invests P17,000 cash for a one-fifth interest in the capital and profit of the new partnership. Assume that
goodwill is to be recorded. The credit to be made to Poe’s capital account at December 31, 2014 is:
a. P12,000 b. P15,000 c. P15,400 d. P17,000

12. Cherry is admitted to the Adam & Bean Partnership under the bonus method. Cherry contributes cash of P20,000
and non-cash assets with a market value of P30,000 and book value of P15,000 in exchange for a 20% ownership
interest in the new partnership. Prior to the admission of Cherry, the capital of the existing partnership was
P130,000 and an appraisal showed the partnership net assets were fairly stated.
What will be Cherry’s initial capital balance?
a. P36,000 b. P50,000 c. P35,000 d. P30,000

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ACC416/AFAR DRILL ON PARTNERSHIP DISSOLUTION & LIQUIDATION
13. Cherry is admitted to the Adam & Bean Partnership under the bonus method. Cherry contributes cash of P20,000
and non-cash assets with a market value of P30,000 and book value of P15,000 in exchange for a 20% ownership
interest in the new partnership. Prior to the admission of Cherry, the capital of the existing partnership was
P130,000 and an appraisal showed the partnership net assets were fairly stated. Adam & Bean shared profits
and losses at a ratio of 80/20, respectively.
Which of the following bonus amounts would be recorded?
a. P14,000 to Cherry capital c. P2,800 decrease to Bean capital
b. P2,800 increase to Bean capital d. P7,000 increase to Adam capital

14. The following condensed balance sheet is presented for the partnership of AJ, BJ, and CJ, who share profits and
losses in the ratio 6:3:1, respectively:
Cash P 10,000
Other assets 290,000
Total Assets P300,000

Liabilities P130,000
Note payable to AJ 15,000
Note payable to BJ 5,000
AJ, Capital 43,000
BJ, Capital 43,000
CJ, Capital 64,000
Total Liabilities and Equity P300,000
BJ paid P30,000 to creditors out of her own personal funds—this has not been reflected in the above balance
sheet. AJ is personally solvent but temporarily not liquid. The partners decided to liquidate the partnership.
The first sale of noncash assets having a book value of P140,000 realized P120,000. How should the available
cash be distributed?
a. AJ, P –0–; BJ, P –0–; CJ, P –0–.
b. AJ, P10,000; BJ, P10,000; CJ, P10,000.
c. AJ, P –0–; BJ, P –0–; CJ, P30,000.
d. AJ, P21,000; BJ, P8,000; CJ, P1,000.
e. AJ, P18,333; BJ, P8,333; CJ, P3,334.

15. The following condensed balance sheet is presented for the partnership of Smith and Jones, who share profits
and losses in the ratio of 60:40, respectively:
Other assets P 450,000
Smith, loan 20,000
P 470,000

Accounts payable P 120,000

Smith, capital 195,000
Jones, capital 155,000
P 470,000

The partners have decided to liquidate the partnership. If the other assets are sold for P385,000, what amount
of the available cash should be distributed to Smith?
a. P 136,000 b. P 156,000 c. P 159,000 d. P 195,000

16. If Sallie and Callie have equities of P75,000 and P60,000 respectively and share profits and losses in the ratio 6:4,
their respective loss-absorption potentials are:
a. P105,000 and P125,000 c. P450,000 and P240,000
b. P125,000 and P150,000 d. P81,000 and P54,000

17. XYZ Partnership is in the process of liquidation. The profit and loss ratio is 5:3:2 for X, Y, and Z respectively. Pre-
liquidation balances are cash (dr.), P10,000; Non-cash assets (dr.), P25,000; Priority claims (cr.), P12,000; X,
capital (cr.), P10,000; Y, capital (cr.), P7,800; and Z, capital (cr.), P5,200. The non-cash assets are sold for P5,000
net of liquidation expenses. Cash distribution to partners at the conclusion of the process will be:
a. X, P0; Y, P1,800; Z, 1,200
b. X, P833; Y, P666; Z, P1,500
c. X, P5,000; Y, P3,000; Z, P2,000
d. X, P1,000; Y, P1,000; Z, P1,000
e. X, P0; Y, P0; Z, P0

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ACC416/AFAR DRILL ON PARTNERSHIP DISSOLUTION & LIQUIDATION
18. After all non-cash assets have been converted into cash in the liquidation of the Mickey and Dickey Partnership,
the ledger contains the following account balances:
Debit Credit
Cash P34,000
Accounts payable P25, 000
Loan payable to Mickey 9,000
Mickey, capital 8,000
Dickey, capital 8,000
Available cash should be distributed: P25, 000 to accounts payable and
a. P9,000 for loan payable to Mickey. c. P1,000 to Mickey and P8,000 to Dickey.
b. P4,500 each to Mickey and Dickey. d. P8,000 to Mickey and P1,000 to Dickey.

19. The partnership of Bryan, Angelo and Frank is liquidating and the ledger shows the following:
Cash P 80,000
Inventories 100,000
Accounts payable 60,000
Bryan, capital (50%) 40,000
Angelo, capital (25%) 45,000
Frank, capital (25%) 35,000

If all available cash is distributed immediately:

a. Bryan, Angelo, and Frank should get P26,667 each.
b. Bryan, Angelo, and Frank should get P6,667 each.
c. Bryan should get P10,000, and Angelo and Frank should get P5,000 each.
d. Bryan should get P15,000, and Frank P5,000.

20. The following balance sheet summary, together with residual profit sharing ratios, was developed on April 1,
2014 when Dina, Farah, and Henah Partnership began its liquidation:
Cash P140,000 Liabilities P 60,000
Accounts receivable 60,000 Loan from Farah 20,000
Inventories 85,000 Dina, capital (20%) 75,000
Plant assets-net 200,000 Farah, capital (40%) 200,000
Loan to Dina 25,000 Henah, capital (40%) 155,000
P510,000 P510,000

If available cash except for a P5,000 contingency fund is distributed immediately, Dina, Farah, and Henah,
respectively, should receive:
a. P0, P80,000, and P15,000. c. P0, P70,000, and P5,000.
b. P16,000, P32,000, and P32,000. d. P0, P72,500,and P7,500.

21. The after-closing trial balance of the Bed, Hed, and Red partnership at December 31, 2014 is summarized as
follows:
Cash P30, 000 Accounts payable P200, 000
Loan to Bed 40,000 Loan from Hed 50,000
Other assets 480,000 Bed, capital (25%) 70,000
Hed, capital (25%) 80,000
________ Red, capital (50%) 150,000
Total assets P550,000 Total Equities P550,000

The partners agree to liquidate the business and distribute cash as it becomes available. A cash distribution plan
for the Bed, Hed, and Red partnership will show that cash available after non-partner liabilities are paid will go
first to
a. Hed in the amount of P55,000. c. Bed in the amount of P20,000.
b. Hed in the amount of P45,000. d. Red in the amount of P90,000.

22. Abby, Barry, and Carry are in the process of liquidating their partnership. Since it may take several months to
convert the remaining assets into cash, the partners agree to distribute all available cash except for a P10,000
contingency fund. A summary of the balance sheet accounts and profit and loss percentages is as follows:

Cash P400,000 Accounts payable P200,000

Other asset 200,000 Abby, capital (40%) 135,000
Barry, capital (30%) 216,000
Carry, capital (30%) 49,000
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ACC416/AFAR DRILL ON PARTNERSHIP DISSOLUTION & LIQUIDATION
Total assets P600,000 Total equities P600,000

How much cash should Barry receive in his first distribution?

a. P216,000 c. P153,000
b. P156,000 d. P147,000

23. Anny, Benny, and Kenny are in the process of liquidating their partnership. Kenny has agreed to accept the
inventories as part of her settlement. The inventories have a fair value of P60,000 and a book value of P80,000.
Account balances and profit and loss sharing ratios are summarized as follows:
Cash P198,000 Accounts Payable P149,000
Inventories 80,000 Anny, capital (40%) 79,000
Plant Assets 230,000 Benny, capital (40%) 140,000
_______ Kenny, capital (20%) 140,000
Total Assets P508,000 Total Equities P508,000

If the partners agree to distribute the available cash:

a. Kenny will receive P 23,000 of the cash distribution.
b. Benny will receive P40,667 of the cash distribution.
c. Immediately after the distribution of cash and inventory items, Kenny’s capital account balance will be
P59,000.
d. Immediately after the distribution of cash and inventory items, Kenny’s capital account balance will be
P30,000.

24. The balance sheet for Yema and Maruya Partnership on August 1, 2014 before liquidation is as follows:
Assets: Liabilities and Capital:
Cash P14,000 Liabilities P35,000
Other assets 71,000 Yema, Capital (70%) 28,000
. . Maruya, Capital (30%) 22,000
Total P85,000 Total P85,000

In August, assets with book value of P34,000 are sold for P29,000, creditor are paid in full, liquidation expenses
of P1,000 is paid and P3,000 is paid to partners.

In August how much did Maruya receive and how much is the maximum possible loss?
a. P3,000; P37,000 c. P 0; P41,000
b. P3,000; P41,000 d. P 0; P37,000

25. When Mandy and Moore, partners who share earnings equally, were incapacitated in an airplane accident, a
liquidator was appointed to wind up their business. The accounts showed cash, P35,000; other assets, P110,000;
liabilities, P20,000, Mandy, capital, P71,000; Moore, capital P54,000. Because of highly specialized nature of the
non-cash assets, the liquidator anticipated that considerable time would be required to dispose them. The
expenses of liquidating the business are estimated at 10,000. How much cash can be distributed safely to each
partner at this point?
a. P5,000 to Mandy and 0 to Moore. c. P3,000 to Mandy and 0 to Moore.
b. P5,000 to Mandy and P500 to Moore. d. P5,000 to Mandy and P1,000 to Moore.

END OF EXAM.