Dissolution

Use the following information for questions 1 to 9:

In the AD partnership, Allen’s capital is P140,000 and Daniel’s is P40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following questions is independent of the others.

1. What amount will David have to invest to give one-fifth percent interest in the
capital of the partnership if no goodwill or bonus is recorded?
a. P60,000 c. P50,000
b. P36,000 d. P45,000

2. Assume that David invest P50,000 for a one-fourth interest. Goodwill is to be

recorded. The journal to record David’s admission into the partnership will
include:
a. a credit to cash for P50,000 c. a credit to David, Capital for P60,000
b. a debit to goodwill for P7,500 d. a credit to David, Capital for P60,000

3. Allen and Daniel agree that some of the inventory is obsolete. The inventory
account is decreased before David is admitted. David invests P40,000 for a one-
fifth interest. What is the amount of inventor? What amount will David have to
invest to give him one- fifth percent interest in the written down?
a. P4,000 c. P15,000
b. P20,000 d. P10,000

4. Allen and David agree that some of the inventory is obsolete. The inventory
account is decreased before David id admitted. David invests P40,000 for a one-
fifth interest. What are the capital balances of Allen and David is admitted into the
partnership?

Allen Daniel Allen Daniel

a. P140,000 P40,000 c. P120,000 P36,000

b. P125,000 P35,000 d. P137,000 P39,000

5. David directly purchases a one-fifth interest by paying Allen P34,000 and Daniel
P10,000. The land account is increased before David is admitted. By what
amount is the land account increased?
a. P40,000 c. P36,000
b. P10,000 d. P20,000
6. David directly purchases a one-fifth interest by paying Allen P34,000 and Daniel
P10,000. The land account is increased before David is admitted. What are the
capital balance of Allen and Daniel after David is admitted into the partnership?

Allen Daniel Allen Daniel

a. P136,000 P40,000 c. P170,000 P50,000

b. P160,000 P40,000 d. P130,000 P50,000

7. David invests P40,000 for a one-fifth interest in the total capital of P200,000. The
journal to record David’s admission into the partnership will include:
a. credit to cash of P40,000 c. credit to David, Capital for P40,000
b. debit to Allen, Capital for P3,000 d. credit to Daniel, Capital for P1,000

8. David invests P40,000 for a one-fifth interest in the total capital of P20,000. What
are the capital balance f Allen and Daniel after David is admitted into the
partnership?

Allen Daniel Allen Daniel

a. P160,000 P60,000 c. P140,000 P40,000

b. P136,000 P36,000 d. P137,000 P39,000

9. David invest P50 000 for a one-fifth interest. What amount of goodwill will be
recorded?
a. P20,000 c. P40,000
b. P4,000 d. P15,000

10. Bishop has a capital balance of P120,000 in a local partnership, and a Cotton
has a P90,000 balance. This two partners share profits and losses by a ratio of
60 percent to Bishop and 40 percent to Cotton. Lovett invests P60,000 in cash in
the partnership for a 20 percent ownership. The goodwill (or revaluation of
asset) method will be used. What is Cotton’s capital balance after this new
investment?
a. P99.600
b. P102.000
c. P112,000
d. P126,000
KEYANSWER

1. D
2. C
3. B
4. B
5. A
6. A
7. B
8. D
9. A
10. B