PARTNERSHIP DISSOLUTION: QUIZ

1. If a new partner acquires partnership interest directly from the partners rather than from the
partnership,
a. no entry is required.
b. the existing partnership is liquidated.
c. the partnership assets should not be revalued because this type of transaction does not result
to partnership dissolution.
d. the existing partners’ capital accounts are reduced and the new partner’s capital account is
increased.

Use the following information for the next two questions:

The statement of financial position of the partnership of A and B as of December 31, 20x1 is shown
below:
Cash 33,354
Accounts receivable 802,426
Inventory 380,137
Land 603,000
Building 428,267
Equipment 85,134
Other assets 5,600
Total assets 2,337,918

Accounts payable 422,590

Notes payable 545,000
A, capital 641,976
B, capital 728,352
Total liabilities and equity 2,337,918

• A and B share in profits and losses equally.

• On January 1, 20x2, C informed A and B of his intention to invest in the partnership for a 20%
interest. The partners agreed on the following adjustments prior to C’s admission:
o Accounts receivable of ₱55,000 should be written-off.
o Inventories of ₱12,200 are obsolete and have no resale value.
o The ‘Other assets’ should be written off.

2. If no bonus is allowed, how much is C’s required investment?

a. 234,167 b. 324,382 c. 236,347 d. 341,367

3. After C’s admission, the partners agreed to adjust their capital balances to reflect their’ respective
interests in the partnership’s net assets. Cash settlement is to be made between the partners. How
much is the cash settlement?
a. ₱43,188 payment of A to B b. ₱34,288 payment of C to A and B
c. ₱43,188 payment of B to A d. There would be no cash settlement between the partners.

4. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest
exceeded Mill's capital balance. Under the bonus method, the excess
a. was recorded as goodwill.
b. was recorded as an expense.
c. reduced the capital balances of Yale and Lear.
d. had no effect on the capital balances of Yale and Lear.

5. On June 30, 2003, the balance sheet for the partnership of Coll, Maduro, and Prieto, together with
their respective profit and loss ratios, were as follows:

Assets, at cost 180,000

Coll, loan 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total 180,000

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Coll has decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of ₱216,000 at June 30, 2003. It was agreed that the partnership would pay Coll ₱61,200
cash for Coll’s partnership interest, including Coll’s loan which is to be repaid in full. No goodwill is to
be recorded. After Coll’s retirement, what is the balance of Maduro’s capital account?
a. 36,450 b. 39,000 c. 45,450 d. 46,200

Use the following information for item 6:

The capital account balances of the partners in ABC Partnership on June 30, 20x1 before any necessary
adjustments are as follows:

Capital accounts
A, Capital (20%) 600,000
B, Capital (30%) 1,000,000
C, Capital (50%) 400,000
Total 2,000,000

The partnership reported profit of ₱3,600,000 for the six months ended June 30, 20x1.
6. C withdraws on July 1, 20x1. It was agreed that C shall receive cash of ₱2,000,000 and fully
depreciated equipment with fair value of ₱1,200,000 in settlement of his interest in the partnership. How
much is the capital balance of A right after the withdrawal of C?
a. 1,240,000 b. 1,400,000 c. 1,580,000 d. 2,200,000

7. Partner C decided to retire when the partners’ capital balances were: A, ₱600,000; B, ₱600,000; and
C, ₱400,000. It was agreed that Partner C is to take the partnership’s fully depreciated equipment with
a fair value of ₱24,000 and a note for the balance of her interest. The historical cost of the equipment
is ₱36,000. The partners share in profits and losses equally. How much is the total partnership capital
after the retirement of C?
a. 1,216,000 b. 1,264,000 c. 1,261,000 d. 1,624,000

8. What is partnership dissolution?

a. The winding up of partnership affairs b. The incorporation of a partnership
c. A change in the relation of the partners d. The termination of business operations

9. Which of the following does not lead to the dissolution of a partnership?

a. Withdrawal of a partner b. Death of a partner
c. Winding up of affairs d. Admission of a new partner

10. After dissolution, what must be done if the business is continued?

a. Liquidate the business immediately b. Draw up new articles of partnership
c. Terminate the partnership d. Continue with the original agreement

11. Which of the following events would dissolve a partnership?

a. Winding up of the partnership's affairs b. Withdrawal or retirement of a partner
c. Continuation of business operations d. None of the choices

12. What is required for a new partner to be admitted to an existing partnership?

a. Consent of the managing partner b. A majority vote by the existing partners
c. Consent of all the existing partners d. Consent of at least two partners

13. What is the difference between dissolution and liquidation?

a. Dissolution changes partner relations, while liquidation terminates the business
b. Liquidation leads to dissolution, while dissolution winds up the affairs
c. Dissolution terminates the business, while liquidation continues it
d. There is no difference between dissolution and liquidation

14. How can a new partner be admitted into a partnership?

a. Through a majority vote of the existing partners
b. Through purchase of interest or investment in the partnership
c. By taking over management of the partnership
d. By obtaining a loan for the partnership

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15. When a new partner purchases part or all of the interest of an existing partner, how is this transaction
recorded in the partnership's books?
a. A gain or loss is recognized in the partnership's books
b. The transaction is not recorded in the partnership's books, only a transfer within equity is made
c. The purchase is recorded as income for the partnership
d. The purchase price is recorded as an expense

16. What happens to the capital accounts of the partners when a new partner purchases interest from
an existing partner?
a. The selling partner’s capital account increases, and the new partner’s capital account decreases
b. A new capital account is established for the new partner, and the selling partner’s capital account
decreases
c. Both the selling and new partner’s capital accounts remain unchanged
d. The partnership recognizes a capital gain

17. What should be done to the assets and liabilities when a partnership is dissolved but not liquidated?
a. They should be carried over at their original values
b. They should be restated to their fair values
c. They should be recorded as gains and losses
d. They should be transferred without any adjustments

18. Who receives the adjustment to the assets and liabilities before the admission of a new partner?
a. The new partner b. The creditors of the partnership
c. The existing partners d. The managing partner

19. What is recorded in the partnership's books when a new partner is admitted by investing directly
into the partnership?
a. Only the old partners’ capital accounts are adjusted
b. A gain or loss is recognized in the partnership's books
c. The consideration paid by the new partner is recorded
d. No entry is made in the partnership's books

20. How is the excess investment treated when a new partner’s investment is greater than their capital
credit?
a. As a bonus to the new partner b. As a bonus to the old partners
c. As an asset of the partnership d. As an expense for the partnership

21. What happens when a new partner’s investment is less than their capital credit?
a. The old partners' capital is decreased to cover the difference
b. The difference is treated as a bonus to the new partner
c. The new partner’s capital account is reduced further
d. No adjustments are made to the old partners' capital accounts

22. When a partner withdraws, retires, or dies, what adjustments are made to their interest in the
partnership?
a. Only their initial investment is returned
b. Their share of any profit or loss and revaluation gains or losses are adjusted up to the date of
withdrawal, retirement, or death
c. No adjustments are made; their interest remains the same
d. The partnership takes over their entire interest without compensation

The statement of financial position of the partnership of X and Y as of December 31, 20x1 is shown
below:
Assets Amount (₱)
Cash 50,000
Accounts receivable 450,000
Inventory 300,000
Land 400,000
Building 600,000
Equipment 150,000

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 Assets Amount (₱)
Other assets 10,000
Total Assets 1,910,000
Liabilities and Equity Amount (₱)
Accounts payable 250,000
Notes payable 400,000
X, Capital 620,000
Y, Capital 640,000
Total Liabilities and Equity 1,910,000
• X and Y share profits and losses equally.
• On January 1, 20x2, Z intends to invest in the partnership for a 25% interest. The partners
agreed on the following adjustments prior to Z’s admission:
o Accounts receivable of ₱20,000 should be written off.
o Inventories of ₱30,000 are obsolete.
o The 'Other assets' should be written off.
23. What is Z's required investment to acquire a 25% interest in the partnership after the adjustments?
a. 512,500 b. 477,500 c. 400,000 d. None of the choices

24. Presented below is the condensed balance sheet of the partnership of KK, LL and MM who share
profits and losses in the ratio of 6:3:1, respectively:
Cash 85,000 Liabilities 80,000
Other assets 415,000 KK, Capital 252,000
LL, Capital 126,000
MM, Capital 42,000
Total 500,000 Total 500,000
The partner agrees to sell NN 20% of their respective capital and profit and loss interests for a total
payment of 90,000. The payment by NN is to be made directly to the individual partners. The capital
balances of KK, LL and MM, respectively after admission of NN are:
a. 198,000; 99,000; 33,000 b. 201,600; 100,800; 33,600
c. 216,000; 108,000; 36,000 d. 255,600; 127,800; 42,600

25. X, Y and Z are partners who share profits and losses in the ratio of 5:3:2, respectively. They agree
to sell a 25% of their respective capital and profits and losses ratio for a total payment directly to the
partners in the amount of 140,000. They agree that goodwill or revaluation of assets of 60,000 is to be
recorded prior to admission of A. The condense balance sheet of the XYZ partnership is as follows:
Cash 60,000 Liabilities 100,000
Non-cash assets 540,000 X, Capital 250,000
Y, Capital 150,000
Z, Capital 100,000
Total 600,000 Total 600,000
The capital of X, Y and Z respectively after the payment and admission of A are:
a. 187,500; 112,500; 75,000 b. 210,000; 126,000; 84,000
c. 280,000; 168,000; 112,000 d. 250,000; 150,000; 100,000

26. On June 30, 2023, the balance sheet of Western Marketing, a partnership is summarized as
follows:
Sundry assets 150,000
West, Capital 90,000
Tern, Capital 60,000
West and Tern share profits and losses at a 60:40 ratio, respectively. They agreed to take in Cuba as
a new partner, who purchases 1/8 interest of West and Tern for 25,000. What is the amount of Cuba’s
capital to be taken up in the partnership books?
a. 12,500 b. 18,750 c. 25,000 d. None of the choices

27. C and D are partners who share profits and losses in the ratio of 7:3, respectively. On October 21,
2023, their respective capital accounts were as follows:
C, Capital 35,000
D, Capital 30,000

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On that date they agreed to admit E as a partner with a one-third interest in the capital and profits and
losses, and upon his investment of 25,000. The new partnership will begin with a total capital of
90,000. Immediately after E’s admission, what are the capital balance of C, D and E, respectively?
a. 30,000; 30,000; 30,000 b. 31,500; 28,500; 30,000
c. 31,667; 28,333; 30,000 d. 35, 000; 30,000; 25,000

28. Who may acquire the ownership interest of a partner who is withdrawing from a partnership?
a. Existing partners b. New investor c. Partnership d. All of the above

29. In what manner do the remaining partners share in the bonus paid to a withdrawing partner?
a. In proportion to their residua profit and loss ratios
b. Equally
c. In proportion to their capital account balances
d. The partner with the greatest capital account is assigned the bonus

30. Which of the following statements is true with regard to a withdrawing partner?
a. A bonus must be paid to the retiring partner
b. A bonus may be paid the retiring partner
c. A bonus must be paid to the retiring partner or to the remaining partners
d. Recognizing a bonus is not appropriate when a partner retires

~End~

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