Evaluation: Partnership Dissolution

Which of the following results in dissolution of a partnership?

• Contribution of additional assets to the partnership by an existing partner

• Withdrawal of a partner from a partnership

• Receipt of a draw by an existing partner

• Winding up of the partnership and the distribution of remaining assets to the partners

Under the bonus method, when a new partner is admitted to the partnership, the total capital of the new partnership is equal to:

• The book value of the previous partnership plus the fair market value of the consideration paid to the existing partnership by the incoming partner

• The book value of the previous partnership minus any asset write downs from book to market value plus the fair market value of the consideration paid to the existing partnership by the incoming partner

• The book value of the previous partnership plus any necessary asset write ups from book value to market value plus the fair market value of the consideration paid to the existing partnership by the incoming partner

• The fair market value of the new partnership as implied by the value of the incoming partner’s consideration in exchange for an ownership percentage in the new partnership

The admission of a new partner to a 20% interest in a partnership for an investment of P18,000, with total agreed capital to be P80,000, will result in

• Goodwill to the old partners

• Bonus to the old partners

• Goodwill to the new partner

• Bonus to the new partner

Luzy, Rian and Dian are partners with capital credit balances as at December 31 of P300,000, P300,000, and P200,000 respectively. Dian is allowed to withdraw, and it is agreed that she is to take certain furniture items at the second-hand value of P12,000, plus a promissory note for the balance of her interest. The furniture items are carried on the books as fully depreciated; brand-new however, they would cost P20,000. If profits and losses are shared equally, the acquisition of the furniture items by Dian would result in

• Increase in capital of P4,000 each for Luzy, Rian, and Dian.

• Decrease in capital of P6,000 each for Luzy and Rian.

• Increase in capital of P8,000 for Dian.

• Decrease in capital of P8,000 for Dian.

When a new partner buys an ownership interest in a partnership directly from an existing partner for more than the balance in that partner’s capital account, under the more common method of accounting for those transactions,

• The partnership recognizes a gain.

• The partner who sold his or her interest makes exit payments to the other partners.

• The transaction is comparable to the sale of corporate shares of stock in the secondary market.

• The new partner must pay the remaining previous partners a “premium” to be admitted.

The admission of a new partner under the bonus method will result in a bonus to

• The old partners only.

• The new partner only.

• Either the new partner or the old partners, but not both.

• .None of the above.

If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated among the partners according to the

• Profit-sharing percentages of the previous partnership.

• Profit-sharing percentages of the new partnership.

• Capital percentages of the previous partners.

• Capital percentages of the new partnership.

In the Marlon-Boogy partnership, Marlon and Boogy had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively. The bonus method was used to record Clarky’s admittance as a new partner. What ratio would be used to allocate, to Marlon and Boogy, the excess of Clarky’s contribution over the amount credited to Clarky’s capital account?

• Marlon and Boogy’s new relative capital ratio.

• Marlon and Boogy’s new relative profit and loss ratio.

• Marlon and Boogy’s old capital ratio.

• Marlon and Boogy’s old profit and loss ratio.

Kenneth, Heni, and Duane are partners with capital balances of P50,000, P30,000, and P20,000, respectively. The partners share profits and losses equally. For an investment of P50,000 cash, Mary Ann is to be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, the amount of MARY Ann’s investment can best be justified by which of the following?

• Mary Ann will receive a bonus from the other partners upon her admission to the partnership.

• Assets of the partnership were overvalued immediately prior to Mary Ann’s investment.

• The book value of the partnership’s net assets was less than their fair value immediately prior to Mary Ann’s investment.

• Mary Ann is apparently bringing goodwill into the partnership and her capital account will be credited for the appropriate amount.

Before the withdrawal of Iverson from their partnership, the partners agreed to adjust assets to their fair values. Accordingly, the appraisal increase was credited to

• Income Summary

• Appraisal Capital

• Deferred Credit

• Partners’ Capital Accounts