“Each day you must choose the pain of discipline, or the pain of regret”

Answer Key

Chapter 3: Dissolution - Changes in Ownership

1. If a bonus is traceable to the old partners rather than to a new partner, it is allocated among the
partners according to the
a. capital ratio of the old partners.
b. profit and loss ratio of the old partnership.
c. profit and loss ratio of the new partnership.
d. capital ratio of the new partnership.
2. Marasigan, Cabance, and Tan are in a partnership. Tan decides she wants to withdraw from the partnership by
selling her interest to Blanche. Marasigan and Cabance agree to this. Marasigan's and Cabance's capital accounts
a. will not be affected when Blanche is admitted.
b. cannot be determined from the information given.
c. will decrease when Blanche is admitted.
d. will increase when Blanche is admitted.
3. When Cabulay retired from Cabulay, De Chavez and Kwong, he received cash in excess of his capital
account balance. Under the bonus method, the excess received by Cabulay
a. was recognized as goodwill of the partnership.
b. was recognized as an operating expense of the partnership.
c. had no effect on the capital account balances of De Chavez and Kwong.
d. reduced the capital account balances of De Chavez and Kwong.
4. When Rivera retired from the partnership of Rivera, Nolasco, and Andres, the final settlement of
Rivera's interest exceeded Rivera's capital balance. They share profits and losses equally. Under the bonus
method, the excess
a. was recorded as goodwill.
b. was recorded as expense.
c. reduced the capital balances of Nolasco and Andres.
d. had no effect on the capital balances of Nolasco and Andres.
5. In the Ravelo-Cabance partnership, Ravelo and Cabance had a capital ratio of 3:1 and a profit and loss ratio of
2:1, respectively. The bonus method was used to record Futalan's admission as a new partner. What ratio should be
used to allocate, to Ravelo and Cabance, the excess of Futalan's contribution over the amount credited to Futalan's
capital account?
a. Ravelo and Cabance's old profit and loss ratio.
b. Ravelo and Cabance's new relative capital ratio.
c. Ravelo and Cabance's new relative profit and loss ratio.
d. Ravelo and Cabance's old capital ratio.
6. Obtained by multiplying the total agreed capital by the applicable percentage interest of the partner.
a. Bonus
b. Capital Credit
 c. Total Agreed Capital
d. Total Contributed Capital
7. Sum of the capital balances of the old partners and actual investment of the new partner.
a. Bonus
b. Capital Credit
c. Total Agreed Capital
d. Total Contributed Capital
8. On dissolution, the partnership is not terminated but continues until winding up of partnership affairs
is completed. The dissolution of a partnership is the same as the liquidation of a partnership.
a. True, False
b. False, True
c. Both True
d. Both False
9. In admission by investment, the bonus method is used when the total agreed capital is more than the
total contributed capital. In admission by purchase, payment is personally made to the partner from
whom the interest is obtained resulting to mere transfers among capital accounts
a. True, False
b. False, True
c. Both True
d. Both False
10. When a new partner is given a 30% interest in a partnership, he will receive 30% of all future profits
and losses. It is possible to invest assets into a partnership and be given a zero capital balance.
a. True, False
b. False, True
c. Both True
d. Both False
11. When a partner withdraws from a partnership and the value of the assets paid to the partner by the
partnership is greater than the balance in his capital account, the partnership is, in effect, paying the
remaining partner a bonus. When the existing partners pay a bonus to a newly admitted partner, the
existing partners' accounts are debited.
a. True, False
b. False, True
c. Both True
d. Both False
12. The following are reasons for a partnership to be dissolved, except
a. Incorporation of a partnership
b. Admission of a partner
c. Withdrawal of a partner
d. None of the above
13. “No one becomes a member of the partnership without the consent of all the members.”
a. Delectus personae
b. Piercing the corporate veil
 c. Mutual Agency
d. None of the above
14. A partnership may be dissolved at any time by any of the partners. The dissolution of a partnership is
the same as the liquidation of a partnership.
a. True, False
b. False, True
c. Both True
d. Both False
15. This type of admission results in a debit to the capital account of the selling partner for the interest
sold and a credit to the capital account of the buying partner for the interest purchased.
a. Investment of assets in a partnership
b. Purchase of interest from existing partners
c. Both a and b
d. None of the above
16. A partnership is said to be __________ when the business is terminated.
a. Dissolved
b. Winding up
c. Liquidated
d. Both a and c are correct
17. This investment will increase the total assets and the total partner’s equity.
a. Investment of assets in a partnership
b. Purchase of interest from existing partners
c. Both a and b
d. None of the above
18. Winding up is the process of settling the business affairs after dissolution. Termination is the point
where all partnership affairs are wound up and is the end of the partnership life.
a. True, False
b. False, True
c. Both True
d. Both False
19. Any change in the membership of a partnership will result to liquidation. Liquidation is always
preceded by dissolution.
a. True, False
b. False, True
c. Both True
d. Both False
20. Bibinia and Dikabibi are partners who have agreed to admit Yecyec, who will invest P450,000 for a 25%
interest. The previous capital balances were P300,000 and P550,000 for Bibinia and Dikabibi, respectively.
Bibinia and Dikabibi shared profits and losses equally. What amount will be recorded in Yecyec’s Capital
account?
a. P300,000 credit
b. P325,000 credit
 c. Р450,000 credit
d. P212,500 credit

Problem Solving

1. Mahal and Mura are partners who share profits and losses in a ratio of 3:2 and have a capital balances of
950,000 and 1,700,000, respectively. The partners agreed to admit Dagul to the partnership. Dagul invested
950,000 for a 30% interest in the partnership. What is Mura’s capital balance after Dagul is admitted?
a. 870,000
b. 1,648,000
c. 2,520,000
d. 1,080,000
2. Partners A and B share profits and losses in a ratio of 4:1 and have capital balances of 600,000 and
400,000, respectively. They agreed to admit C to the partnership. C invested 500,000 for a 25% interest in
the partnership. After distribution of the bonus what is the capital of B?
a. 400,000
b. 480,000
c. 425,000
d. 420,000
3. Partners X and Y share profits and losses equally and have capital balances of 800,000 and 1,200,000,
respectively. They decided to admit Z to the partnership. Z invested 1,000,000 for a 40% interest in the
partnership. What is the total capital balance after the admission?
a. 800,000
b. 2,000,000
c. 1,000,000
d. 3,000,000
4. Using the data above, what is the total balances of partners X, Y, and Z after the admission of Z?
a. X 700,000; Y 1,100,000; Z 1,800,000
b. X 800,000; Y 1,200,000; Z 1,100,000
c. X 700,000; Y 1,100,000; Z 1,200,000
d. X 1,800,000; Y 1,200,000; Z 3,000,000
5. Partners L and M share profits and losses in a ratio of 5:3 and have capital balances of 750,000 and
1,050,000, respectively. They agreed to admit N to the partnership. N invested 1,200,000 for a 35% interest
in the partnership. What is L’s capital balance after N is admitted?
a. 843,750
b. 1,106,250
c. 1,050,000
d. 3,000,000
6. Micol invested 500,000 for one-fifth interest in a partnership in which the other partners have capital
totalling 660,000 before admitting Micol. After the distribution of the bonus, what is Micol’s capital?
a. 100,000
 b. 232,000
c. 223,000
d. 263,000
7. Partners X and Y share profits and losses in a ratio of 3:2 and have capital balances of 400,000 and
600,000, respectively. They agreed to admit Z to the partnership. Before admitting Z, the partnership
revalued its assets and found an increase of 100,000. Z invested 300,000 for a 25% interest in the
partnership. What is X’s capital balance after Z is admitted?
a. 400,000
b. 405,000
c. 430,000
d. 450,000
8. Partners A and B share profits and losses in a ratio of 1:1 and have capital balances of 500,000 and
700,000, respectively. They agreed to admit C to the partnership. Before admitting C, the partnership
revalued its assets and found a decrease of 60,000. C invested 600,000 for a 40% interest in the partnership.
What is B’s capital balance after C is admitted?
a. 422,000
b. 622,000
c. 822,000
d. 1,022,000
9. Astron invested 600,000 for a one-fifth interest in a partnership in which the other partners have capital
totaling 1,200,000 before admitting Astron. After distribution of the bonus, Astron’s capital is
a. 240,000
b. 360,000
c. 480,000
d. 600,000
10. Partners D and E share profits and losses equally and have capital balances of 450,000 and 550,000,
respectively. They agreed to admit F to the partnership. Before admitting F, the partnership revalued its
assets and found an increase of 50,000. F invested 400,000 for a 25% interest in the partnership. What is
the old partners’ total capital balance after F is admitted?
a. 1,087,500
b. 1,450,000
c. 1,000,000
d. 1,050,000