Partnership Liquidation
115. The following condensed balance sheet is presented for the partnership of
AA, BB, and CC, who share profits and losses in the ratio of 4:3:3,
respectively:
Cash
Other assets
Total
P 160,000
320,000
P 480,000
Liabilities
AA, capital
BB, capital
CC, capital
Total
P 180,000
48,000
216,000
36,000
P 480,000
The partners agreed to dissolve the partnership after selling the other assets
for P200,000. Upon the dissolution of the partnership. AA should have
received.
a. P 0
c. P72,000
b. 48,000
d. 84,000
(AICPA)
Answer: (a)
Capital balances before liquidation
Loss on realization (P320,000 –
P200,000):
4:3:3
Cash received
AA
BB
P48,000 P216,000
CC
P36,000
(48,000)
(36,000)
P
(36,000)
0 P180,000
P
0
116. W, X, and Y are partners sharing profits and losses in the ratio of 4:3:3,
respectively. The condensed balance sheet of Heidi Partnership as of
December 31, 20x5 is:
Cash
Other assets
P 50,000
130,000
Total assets
P 180,000
Liabilities
W, capital
X, capital
Y, capital
P 40,000
60,000
40,000
40,000
Total liabilities and capital
P 180,000
Assume instead that the Heidi Partnership is dissolved and liquidated by
installments, and the first realization of P40,000 cash is on the sale of other
assets with book value of P80,000. After the payment of liabilities, the
available cash shall be distributed to W, X, and Y respectively, as follows:
a. P36,000: P27,000: and. P27,000
b. P44,000; P28,000; and, P28,000
c. P16,000: P12,000: and, P12,000
d. P24,000: P13,000; and, P13,000
(PhilCPA)
Answer: (d)
W
X
Y
Balances before liquidation
Loss on realization (80,000 – P40,000):
4:3:3
P 60,000
P 40,000
P 40,000
(16,000)
(12,000)
(12,000)
Balances
P 44,000
P 28,000
P 28,000
(20,000)
(15,000)
(15,000)
P 24,000
P 13,000
P 13,000
Loss in possible unrealization of noncash assets
(P130,00 – P80,000) :
4:3:3
Cash received
117. The partners of the M&N Partnership started liquidating their business on July
1, 20x5, at which time the partners were sharing profits and losses 40% to M
and 60% to N. The balance sheet of the partnership appeared as follows:
Assets
Cash
Receivable
Inventory
Equipment
Accumulated
Depreciation
P 65, 200
(30,800)
Total
Liabilities & Equity
P 8,800 Accounts
Payable
22,400
M, capital
39,400
M, drawing
N, capital
N, drawing
34,400
N, loan
P 105,000
P 32,400
P 31,000
( 5,400)
P 33,200
( 200)
25,600
33,000
14,000
Total
P 105,000
During the month of July, the partners collected P600 of the receivables with
no loss. The partners also sold during the month the entire inventory on which
they realized a total of P32,400. How much of the cash was paid to M's
capital on July 31, 20x5?
a. P25,600
c. P320
b. 5,400
d.
0
(PhilCPA)
Answer: (c)
M
Drawing
Loan
Capital
Total interest
Loan on realization: 40%: 60%
Receivables – collection
Less: book value
P 600
22,400
P21,800
N
P(5,400)
P(200)
-
14,000
31,000
33,200
P25,600
P47,000
Proceeds – inventory
Less: book value
Unrealized noncash assets
P32,400
39,400
7,000
34,400
P63,200
(25,280)
(37,920)
P 320
P 9,080
118. Larry, Marsha, and Natalie are partners in a company that is being
liquidated. They share profits and losses 55 percent, 20 percent, and 25
percent, respectively. When the liquidation begins they have capital
account balances of P108,000, P62,000, and P56,000, respectively. The
partnership just sold equipment with a historical cost and accumulated
depreciation of P25.000 and P18,000, respectively for P10,000. What is the
balance in Marsha's capital account after the transaction is completed?
a. P62,000
c. P62,600
b. P61,400
d. P65,000
Answer: (c)
P62,000
P62,000
P62,000
P62,600
+ [P10,000 - (P25,000 - P18,000)] (.20)
+ (P3,000) (.20)
+ (P600)
(c)
119. After operating for five years, the books of the partnership of Bo and By
showed the following balances:
Net assets
Bo, Capital
By, Capital
P 169,000
110,500
58,500
If liquidation takes place at this point and the net assets are realized at book
value, the partners are entitled to:
a. Bo to receive P117,000 & By to receive P52,000
b. Bo to receive P126,750 & By to receive P42,250
c. Bo to receive P84,500 & By to receive P84,500
d. Bo to receive P110,500 & By to receive P58,500
(PhilCPA)
Answer: (d)
The non-cash assets are realized at book value therefore: There is no gain or loss,
in which case partners are entitled to received an amount equivalent to their capital
interest.
120. RR, SS and I decided to dissolve the partnership on November 30, 20x5. Their
capital balances and profit ratio on this date, follow:
Capital Balances
P 50,000
60,000
20,000
RR
SS
TT
Profit Ratio
40%
30%
30%
The net income from January 1 to November 30, 20x5 is P44,000. Also, on this
date, cash and liabilities are P40,000 and P90,000, respectively. For RR to
receive P55,200 in full settlement of his interest in the firm, how much must be
realized from the sale of the firm's non-cash assets?
a. P196,000
c. P193,000
b. 177,000
d. 187,000
(Adapted)
Answer: (c)
Total Capital ( P50,000 + P60,000 + P20,000 + P44,000)
Total Liabilities
Total Assets
P174,000
90,000
P264,000
Less: Cash
Non-cash assets
40,000
P224,000
Less: Loss on realization: (P55,200 - P67,600*) / 40%
Proceeds from sale
31,000
P 193,000
* [P50,000 + (P44,000 x 40%)]
(P50,00 + P17,600)
P67,600
121. Larry. Marsha, and Natalie are partners in a company that is being
liquidated. They share profits and losses 55 percent, 20 percent, and 25
percent, respectively. When the liquidation begins they have capital
account balances of P108,000, P62,000, and P56,000, respectively. The
partnership just sold equipment with a historical cost and accumulated
depreciation of P25,000 and P18,000, respectively for P10,000. What is the
balance in Larry's capital account after the transaction is completed?
a. P106,350
c. P109,650
b. P108,000
d. P110,000
Answer: (c)
P108,000 + [P10,000 - (25,000 - P18,000)] (.55)
P108,000 + (P3,000) (.55)
P108,000 + (P1,650)
P109,650
122. Donald, Marion, and Jeff are liquidating their partnership. At the date the
liquidation begins Donald, Marion, and Jeff have capital account balances
of P147,000, P260,000, and P285,000, respectively and the partners share
profits and losses 35%, 25%, and 40%, respectively. In addition, the
partnership has a P28,000 Notes Payable to Donald and a P15,000 Notes
Receivable from Jeff. When the liquidation begins, what is the loss
absorption power with respect to Donald?
a. P 80,000
c. P420,000
b. P340,000
d. P500,000
Answer: (d)
(P147,000 + P28,000 ) / (.35)
(P175,000) / (.35)
P500,000
123. Silverio, Domingo, Reyes, and Pastor are partners, sharing earnings in the
ratio of 3/21, 4/21, 6/21 and 8/21, respectively. The balances of their capital
accounts on December 31, 20x5 are as follows:
Silverio
Domingo
Reyes
Pastor
P 1,000
25,000
25,000
9,000
P 60,000
The partners decide to liquidate, and they accordingly convert the noncash assets into P23,200 of cash. After paying the liabilities amounting to
P3,000, they have P22,200 to divide. Assume that a debit balance in any
partner's capital is uncollectible. After the P22,200 was divided, the capital
balance of Domingo was
a. P3,200
c. P 4,500
b. 3,920
d. 17,800
(PhilCPA)
Answer: (b)
Silverio
Domingo
Reyes
Pastor
Total
Balances before liquidation
P 1,000
P 25,000
P 25,000
P 9,000
P 60,000
Loss or realization:
(P22,200 - P60,000)
3/21: 4/21: 6/21: 8/21
(5,400)
7,200
(10.800)
(14,400)
(37,800)
Balances
Loss for possible insolvency of
Silverio and
Pastor: 4:6
P4,400 + P5,400)
P(4,400)
P17,800
P14,200
P(5,400)
P22,200
4,400
(3,920)
(5,880)
5,400
_
P13,880
P8,320
Cash received
P22,200
Therefore, the capital balance of Domingo after cash settlement is:
Capital balance after loss on realization but before payment to patterns
P17,800
13,880
Less: cash received
P 3,920
124. As of December 31, 20x5, the books of Ton Partnership showed capital
balances of: T, P40,000: O, P25,000: N, P5,000. The partners' profit and loss
ratio was 3:2:1, respective. The partners decided to liquidate and they sold
all non-cash assets for P37,000. After settlement of all liabilities amounting
P12,000, they still have cash of P28,000 left for distribution. Assuming that any
capital debit balance is uncollectible, the share of T in the distribution of the
P28,000 cash would be:
a. P17,800
c. P19,000
b. 18,000
d. 17,000
(PhilCPA)
Answer: (a)
T
Balances before Liquidation
Loss on realization:
(P28,000 – P70,000) 3:2:1
O
N
TOTAL
P40,000
P25,000
P5,000
P70,000
(21,000)
(14,000)
(7,000)
(42,000)
Balances
Loss on possible insolvency of N:
3:2
P19,000
(1,200)
P11,000
P(2,000)
P28,000
(800)
2,000
0
Cash received
P17,800
P10,200
P28,000
125. A local partnership was considering the possibility of liquidation since one of
the partners is solvent (Tillman) and the others are insolvent. Capital
balances at that time were as follows. Profits and losses were divided on a
4:2:2:2 basis, respectively.
Ding, capital
Laurel, capital
Ezzard, capital
Tillman, capital
P 60,000
67,000
17,000
96,000
Ding's creditors filed a P25,000 claim against the partnership's assets. At that
time, the partnership held assets reported at P360,000 and liabilities of P
120,000. If the assets could be sold for P228,000, what is the minimum amount
that Ding's creditors would have received?
a. P 0
c. P36,000
b. P2,500
d. P38,720
Answer: (b)
Balances before
liquidation
Loss on realization 4:2:2:2
(P228,000 –P360,000)
Ding
P60,000
Laurel
P67,000
Ezzard
P17,000
Tillman
P96,000
Total
P240,000
(52,800)
(26,400)
(26,400)
(13,200)
(132,000)
Balances
Loss on possible insolvency
(4:2:2)
P7,200
P40,600
P(9,400)
P69,600
P108,000
(4,700)
(2,350)
9,400
(2,350)
-0-
Balances
P2,500
P38,250
-0-
P67,250
P108,000
Cash
Non-cash assets
P 10,000 Liabilities
300,000 Keaton, capital
Lewis, capital
Meador,capital
P 130,000
60,000
40,000
80,000
P 300,000
P 310,000
126. The Keaton. Lewis and Meador partnership had the following balance
sheet just before entering liquidation:
Keaton, Lewis and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for P180,000. Liquidation expenses were P10,000.
Assume that Keaton was personally insolvent with assets of P8,000 and
liabilities of P60,000. Lewis and Meador were both solvent and able to
cover deficits in their capital accounts, if any. What amount of cash could
Keaton's personal creditors have expected to receive from partnership
assets?
a. P0
c. P30,000
b. P26,000
d. P34,000
Answer: (d)
Keaton
Lewis
Meador
Total
Balances before liquidation
Liquidation expenses (2:4:4)
P60,000
(2,000)
P40,000
(4,000)
P80,000
(4,000)
P180,000
(10,000)
Loss on realization – 2:4:4
(P180,000 – P300,000)
(24,000)
(48,000)
(48,000)
(120,000)
Balances
Additional investment
P34,000
P(12,000)
12,000
P28,000
P50,000
12,000
Payment to partners
P34,000
-0-
P28,000
P62,000
127. The following account balances were available for the Perry, Quincy and
Renquist partnership just before it entered liquidations:
Cash
Non-cash assets
P90, 000
300,000
Total
P390,000
Liabilities
Perry,capital
Quincy, capital
Renquist, capital
P170,000
70,000
50,000
100,000
P390,000
Perry, Quincy and Renquist had shared profits and losses in a ratio of 2:4:4.
Liquidation expenses were expected to beP8,000 . All partners are solvent.
What would be the minimum amount for which the non-cash assets must
have been sold for, in order for Quincy to receive some cash from the
liquidations?
a.
b.
c.
d.
Any amount in excess of P175,000
Any amount in excess of P117,000
Any amount in excess of P183,000
Any amount in excess of P198,667
Answer: (c)
Quincy capital before liquidation
P50,000
Less: share in liquidation expenses (P8,000x40%)
Quincy capital before realization of non-cash assets
Less: cash received by Quincy(minimum)
3, 200
P46,800
0
Share in the loss of realization
P46,800
Divided by: Profit and loss ratio
40%
Loss on realization
P117,000
Less: non-cash assets
300,000
Proceeds from sale
P183,000
128. AA, BB, and CC are partners in ABC and share profits and losses 50%, 30%,
and 20%, respectively. The partners have agreed to liquidate the
partnership and some liquidation expenses to be incurred. Prior to the
liquidation, the partnership balance sheet reflects the following back
values:
Cash
Non-cash assets
Notes payable to CC
P 25,200
297,600
38,400
Other liabilities
AA, capital
BB, capital deficit
CC, capital
184,800
72,000
(12,000)
39,600
Assuming that the actual liquidation expenses are P16,800 and that the
non-cash assets with a book value of P240,000 are sold for P216,000. How
much cash should CC received?
a. P 46,457
c. P 74,571
b.
d. -0-
39, 600
(Adapted)
Answer: (b)
AA
Capital (deficit) balance
Notes payable
Total Interest
P 72,000
0
P 72,000
BB
(P 12,000)
0
CC
P 39,600
38, 400
(P 12,000)
P 78,000
( 2,200)
(4,800)
Loss on realization: ( P216,000- P240,000)
50%, 30%, 20%
( 12,000)
Balances
P 60,000
Payment of liquidation expenses
Balances
(8,400)
P 51,600
( P 19,200)
( 5,040)
( P 24,240)
P 73,200
( 3,360)
P 69,840
Loss on possible unrealization of noncash assets: (P297,600- P240,000)
Balances
(28,800)
P 22,800
Loss for possible insolvency of 58(5:2)
(29,657)
Balances
( 6,857)
(17,280)
( P 41,520)
P 41,520
(11,520)
P 58,320
(11,862)
P 44,457
Loss for possible insolvency of AA
P 6,857
( 6,657)
Cash received
P 39,600 (b)
or alternatively,
AA
Total Interest
P 72,000
Other deficit (5:2)
( 8,571)
Balances
BB
CC
(P 12,000)
P 39,600
P12,000
( 3, 429)
P 63,429
Loss on realization: ( P216,000- P240,000)
P 74,571
(17,143)
Balances
P 46,286
Payment of liquidation expenses
(P 12,000)
Balances
P 34,286
(6,657)
P 73,200
( 4,800)
P 62,914
Loss on possible unrealization of noncash assets: (P297,600- P240,000)
(41,143)
Balances
( 6,857)
Loss for possible insolvency of AA
(16,457)
P 46,457
P 6,857
( 6,857)
Cash received
P 39,600 (b)
129. After all non-cash assets have been converted into cash in the liquidation
of the AA and JJ partnership, the ledger contains the following account
balances:
Debit
Cash
Accounts payable
Loan payable to AA
AA, capital
JJ, capital
Credit
P 34, 000
P 25, 000
9, 000
8, 000
8, 000
Available cash should be distributed P25, 000 to accounts payable and:
a. P9, ,000 loan payable to AA
b. P4,500 each to AA and JJ
c. P1,000 to AA and P8,000 to JJ
d. P8,000 to AA and P1,000 to JJ
(Adapted)
Answer: (c)
Cash
Balances before
liquidation
P34,000
Payment of accounts
payable
(25, 000)
Balances
9, 000
Payment to partners
(9, 000)
*Net of capital deficit
Accounts Payable
P 25,000
AA
P 1,000
JJ
8,000
(P 25,000)
1,000
(1,000)
8, ,000
(8,000) (c)
130. Arthur, Baker and Carter are partners in textile distribution business sharing
profit and losses equally. On December 31, 20x5 the partnership capital and
partners drawings were as follows:
Capital
Drawing
Arthur
P100, 000
60, 000
Baker
P 80, 000
40, 000
Carter
P 300, 000
20, 000
Total
P 480, 000
120, 000
The partnership was unable to collect on trade receivables and was forced
to liquidate. Operating profit in 20x5 amounted to P72, 000 which was all
exhausted, including the partnership assets. Unsettled creditor’s claims of
December 31, 20x5 totalled P84, 000. Baker and Carter have substantial
private resources but Arthur has no personal assets. The final cash
distribution to Carter was?
a. P78, 000
b. 84, 000
c. P108, 000
d. 162, 000
( PhilCPA)
Answer: (a)
Arthur
Balances before net
Baker
Carter
Total
income:
Capital
P100, 000
P 80, 000
P 300, 000
P 480, 000
60, 000
40, 000
20, 000
120, 000
P 40, 000
P 40, 000
P280, 000
P360, 000
24, 000
24, 000
Total interests
P 64, 000
P 64, 000
P304, 000
Loss on liquidation
(172, 000)
(172, 000)
(172, 000)
(516, 000)
Balances
P108, 000
P108, 000
P132, 000
(P 84, 000)
P108, 000
P 54, 000
P 54, 000
P162, 000
P 78, 000(a)
Drawings
Totals
Add: Net
income(equally)
24, 000
72, 000
P 432, 000
Loss for insolvency of
Arthur: (equally)
*Loss
on
(P 84, 000)
liquidation
amounted to:
Liabilities
P84, 000
Capital (P64, 000+
64, 000+ P304, 000)
Total assets
432, 000
P516, 000
The P516, 000 assets are exhausted with no proceeds arising from it, therefore
the P516, 000 represents loss on realization.
**The P162, 000 capital deficiency of Baker will ultimately be considered as
additional investment since he has substantial resources to cover it. The P162,
000 investment will be applied first to unpaid liabilities of P84, 000,then the
balance will be given to Carter, P 78, 000.
131. Jar, Ram and Millo, who divide profits and losses, 50% 30% and 20%
respectively, have the following October 31, 20x5 account balances:
Jar, drawing Dr.
P 12, 000
Milo, drawing Cr.
4,800
Accounts receivable-Jar
7,200
Loans payable-Ram
14, 000
Jar, capital
59, 400
Ram, capital
44, 400
Millo, capital
39, 000
The partnership assets are P21, 200 (including cash of P64, 200), the
partnership is liquidated and Millo receives P33, 000 in final settlement .How
much is the total loss on realization?
a. P 10,500
b.
30,200
c. P 54,000
d. 64,200
(Adapted)
Answer: (c)
Total interests of Millo
Capital
Drawings
Less: Cash received in Final settlement
P 39, 000
4,800
P 43,800
33,000
Share in loss on realization
Divide by: Profit and loss ratio of Millo
Loss on realization
P 10, 800
20%
P 54, 000
(c)
132. When Mikki and Mylene, partners who share earnings equally were
incapacitated in an airplane accident, a liquidator was appointed to wind
up their business. The accounts showed cash, P 35, 000 other assets P100,
000; Liabilities, P 20, 000; Mikki, capital, P71, 000 and Mylene, 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 (advertising, rent, travel, etc.)
are estimated as P 10, 000.How much cash can be distributed safely to
each partner at this point?
a.
b.
c.
d.
5, 000 to Mikki: and P 0 to Mylene
5, 000 to Mikki: and P500 to Mylene
3, 000 to Mikki: and P 0 to Mylene
5, 000 to Mikki: and P 1,000 to Mylene
(Adapted)
Answer: (a)
Mikki
Balances before liquidation
Mylene
P 71, 000
P 54, 000
Total
P125, 000
Loss on possible unrealization at
non-cash assets (equally)
Balances
(55, 000)
P 16, 000
Liquidation expenses (equally)
Balances
(55, 000)
(110, 000)
( P 1, 000)
P 15, 000
(5, 000)
10, 000
( 6, 000)
5, 000
( 5, 000)
P 11, 000
Loss for possible insolvency of
Mylene
6, 000
Cash received
6, 000
P 5, 000
P5, 000 (a)
133. A balance sheet for the partnership KK, LL and MM, who share profits 2:1:1
respectively, shows the following balances just before liquidation;
Cash
Other Assets
Liab.
KK. Cap.
LL. Cap.
MM. Cap.
P48,000
P238,000
P80,000
P88,000
P62,000
P56,000
In the first month of liquidation, P125,000 was received on the sale of certain
assets. Liquidation expenses of P4,000 were paid and additional liquidation
expenses of P3,200 are anticipated before liquidation is completed.
Creditors were paid P22,400. The available cash was distributed to the
partners. The cash to be received by each partner based on the above
data:
KK
a. P56,600
b. 86,000
LL
P28,300
61,000
MM
P28,300
55,000
KK
c. P29,400
D. 88,000
LL
P32,700
62,000
MM
P26,700
56,000
(Adapted)
Answer: (c)
KK
LL
MM
Total
Balances before liquidation.....
P88,000
P62,000
P56,000
P206,000
Loss on realization (P128,000P238,000): 2:1:1...................
Balances....................................
(55,000)
P33,000
(27,500)
P34,500
(27,500)
P28,500
(110,000)
P96,000
Payment of liquidation expenses.
(2,000)
(1,000)
(1,000)
(4,000)
Balances......................................
P31,000
P33,500
P27,500
P92,000
(P1,600)
P29,400
(P8,00)
P32,700
(P8,00)
P26,700
(P3,200)
P88,880 (c)
Anticipated liquidation
Expenses............................
134. NN, OO, PP and GG, partners to a law firm, shares profits at the ratio of
5:3:1:1. On June 30 relevant partners accounts follow;
NN............................
OO...........................
PP.............................
GG...........................
Advances
Dr.
P18,000
10,000
Loans
Cr.
P20,000
40,000
-
a. PP and GG
c. All equally
a. OO and GG
d. NN and OO
Capital
Cr.
P160,000
120,000
60,000
100,000
On this day, cash of P72,000 is declared as available for distribution to
partners as profits. Who among the partners will benefit from the P72,000
cash distribution?
(Adapted)
Answer: (b)
NN
OO
PP
GG
Total
(P18,000
)
-
(P10,000)
(P28,,000)
-
60,000
Balances before liquidation.....
Advances.................
Loans.........................
20,000
40,000
Capital.......................
160,000
120,000
60,000
100,000
440,000
Total Interest................................
P180,000
P160,000
P42,000
P90,000
P472,000
Loss on realization (5:3:1:1)........
(200,000)
(120,000) (40,000)
(40,000)
(400,000)*
Balances.....................................
(P20,000)
P40,00
P2,000
P50,000
P72,000
2,0000
(12,000 )
(4,000)
(4,000)
-
P28,000
(P2,000)
46,000
P72,000
(P1,500)
P26,500
P2,000
(500)
P45,500
P72,000 (b)
Loss of possible insolvency
3:1:1............................
Balances.......................................
Anticipated liquidation
Expenses.............................
Cash received..........................
*P72,000-P472
135. The partnership of AA, BB and CC was dissolved on June 30, 20x5 and
account balances after non-cash assets were converted into cash on
September 1 20x5 are:
Assets
Cash............................ P50,000
Liabilities and Equity
Accounts Payable.......... P120,000
AA, Capital (30%)............
90,000
BB, Capital (30%).............
(60,000)
CC, Capital (40%)...........
(100,000)
Personal assets and liabilities of the partners at September 1, 20x5 are:
Personal
Asset
P80,000
100,000
192,000
AA............................................
BB.............................................
CC............................................
Personal
Liabiliities
P90,000
61,000
80,000
If CC contributes P70,000 to the partnership to provide cash to pay the
creditors, what amount of AA’s P90,000 partnership equity would appear
to be recoverable?
b. P90,000
b. P79,000
b. 81,000
c. None
Answer: (b)
AA
Balances before liquidation..... P90,000
BB
CC
Total
(P60,000)
(P100,000)
(P70,000)
70,000
70,000
Additional Investment..............
P90,000
Additional Investment..............
Additional loss for insolvency
Of BB (3:4)...................
(P60,000)
(P30,000)
39,000
(9,000)
P81,000
21,000
P
39,000
(12,000)
(P42,000)
P39,000
P42,000
42,000
Additional investment
(P192,000-P80,000P70,000)....................
P81,000
P81,000 (b)
136. Aaron, Ben and Chris are partners who share income in a 1:3:1 ratio,
respectively. On January 1, 20x5, they decide to terminate operations. The
partnership’s final balance on that date is as follows:
Cash
Accounts Receivable
Loan Receivable-Ben
Inventory
Equipment
Accounts Payable
Bank Loan Payable
Loan Payable
Capital-Aaron
Capital-Ben
Capital-Chris
Debit
P 20,000
200,000
15,000
400,000
600,000
P 1,235,000
Credit
P80,000
240,000
25,000
3 10,000
250,000
330,000
P 1,235,000
Liquidation of assets will take place over the next few months. At the end
of each month, available cash, less an amount retained to cover
estimated future liquidation cost is distributed to each partner.
During January 20x5, the following events occur
1.
2.
3.
4.
5.
P90,000 of the accounts receivable are collected
The inventory was sold for P300,000
Liquidation costs of P10,000 were paid.
The bank loan and the accounts payable were paid.
P18,000 of cash is to be retained to cover future costs.
The capital balance (deficiency) of the partners on January 31 before the
distribution of possible losses and anticipated expenses (if any) for Aaron,
Ben and Chris re4spectively:
a.
b.
c.
d.
P203,400; (P159,800); P198,400
P225,400; (P93,800); P220,400
P229,000; (P159,800); P198,400
P123,500; P0; P242,000
Answer: (a)
Capital
Loans
Combined capital/Total Interest
Loss on inventory sale
Loss on equipment sale
Liquidation costs
January 31, capital
Less:
Cash withheld
Potential loss on receivables
Balance
Distribute deficiency
Sale payments
Aaron
(20%)
P310,000
25,000
P335,000
(44,000)
(60,000)
(2,000)
P229,000
Ben
(60%)
P250,000
(15,000)
P235,000
(132,000)
(180,000)
(6,000)
(P83,000)
Chris
(20%)
P330,000
Total
P330,000
(44,000)
(60,000)
(2,000)
P224,000
P890,000
10,000
P900,000
(220,000)
(300,000)
(10,000)
370,000
(3,600)
(22,000)
P203,400
(29,900)
P123,500
(10,800)
(66,000)
(P159,800)
159,800
P0
(3,600)
(22,000)
P198,400
(P29,900)
P118,500
(18,000)
(110,000)
P242,000
P242,000
137. How much should each partner receive for the month of February?
a.
b.
c.
d.
P203,400; (P159,800); P198,400
P225,400; (P93,800); P220,400
P229,000; (P159,800); P198,400
P123,500; P0; P118,500
Answer: (d)
Refer for No. 136 for computation
Items 138 to 140 are based on the following information:
In 20x3, four friends form a partnership to invest in real estate. All are equal
partners. At January 1, 20x5, the books of the partnership show cash of
P23,000 and real estate with a cast of P400,000 and fair market value of
P650,000. The partnership has no liabilities. The partnership books are
maintained on a cost basis, and neither goodwill nor bonus is recorded when
a new partner is admitted.
On January 1, 20x5 a new partner joins the partnership making a cash
investment equal to one fourth of the fair market value of partnership assets.
During 20x5 each partner invested P10,000 in new funds and the partnership
invested P370,000 in real estate. Also during 20x5, real state costing P100,000
was sold for P150,000. The January 1, 20x5 fair market value of the real estate
sold was P125,000. Interest earned on the partnership savings account for
20x5 was P500.
138. How much must the new partner invest in the partnership at January 1,
20x5?
a. P168,250
b. P105,750
c. P100,000
d. Zero
Answer: (d)
[(P23,000+P65,000)/4= P168,250]
139. The share in the partnership's 20x5 income to the four original partners (as a
group).
a. P
0
b. P20,000
c. P25,000
d. P45,400
Answer: (d)
Original
Partners
Gain on real state sold:
Prior to 1/1/x5
After 1/1/x5
Interest income
Total income allocation
P25,000
20,000
400
P45,400
New
Partners
P5,000
100
P5,100
TOTAL
P25,000
25,000
500
P50,500
140. In January 20x6, the partners sell all an partnership real estate for P925,000
and dissolve the partnership. How much will the new partner (NP), and the
original partners as a group (OP, each cover?
a. NP, P183,350; OP, P757,400
b. NP, P189,350; OP, P508,400
c. NP, P183,350; OP, P508,400
d. NP, P189,350; OP, P757,400
Answer: (d)
Total gain on sale of real estate:
Selling price
Cost (P400,000 + P370,000 – P100,000)
Total gain
P925,000
670,000
P255,000
Gain prior to 1/1/x5
Remaining fair value (P650,000 – p125,000)
Remaining cost (P400,000 – P100,000)
Pre- 1/1/x5 gain
P525,000
300,000
P225,000
Gain after 1/1/x5:
Total gain
Less pre- 1/1/x5
Post- 1/1/x5
P255,000
(225,000)
P30,000
Cash balance of dissolution
Balance 1/1/x5
New partner investment
All partners investment
Proceeds from sale of real estate
Interest
Investment in real estate
Balance 12/31/x5
Proceeds from sale of real estate
Total cash at dissolution
P23,000
168,250
50,000
150,000
500
(370,000)
P21,750
25,000
P246,750
Original partners
Capital, 1/1/x5
New partner investment
All partners investment
20x5 income allocation
P423,000
40,000
45,400
New
partner
P168, 250
10,000
5,100
TOTAL
P423,000
168,250
50,000
50,500
Capital, 12/31/x5
Allocation of pre- 1/1/x5 gain
Allocation of post- 1/1/x5 gain
Total distribution to partners
P508,400
225,000
24,000
P757,400
P183,350
6,000
P189,350
P691,750
225,000
30,000
P946,750
141. After all partnership assets were converted into cash and all available cash
was distributed to creditors, the ledger of the Daniela, Erika, and Fredline
partnership showed the following balances:
Debit
Accounts payable
Daniela, capital(40%)
Erika, capital(30%)
Fredline, capital(30%)
Credit
P 20,000
10,000
60,000
P 90,000
P 90,000
P 90,000
Percentages indicated are residual profit and loss sharing ratios. Personal
assets and liabilities of the partners are as follows:
Personal assets
Personal liabilities
Daniela
P 50,000
45,000
Erika
P 50,000
40,000
Fredline
P 100,000
40,000
The partnership creditors proceed against Fredline for recovery of their
claims, and the partners settle their claims against each other. How much
would Erika receive?
a. P -0
c. P47,143
b. 45,000
d. Cannot be determined
(Adapted)
Answer: (b)
Daniela
Total interest
Payment of liabilities by Fredline
Balances
Additional investment (P100,000 – 40,00 –
20,000 = P40,000)
Balances
Erika
Fredline
TOTAL
P10,000
P60,000
10,000
60,000
P(90,000)
20,000
P(70,000)
(20,000)
20,000
0
60,000
40,000
(30,000)
40,000
40,000
10,000
Additional loss for possible insolvency (4:3)
Balances
Investment
Balances
Additional loss for possible insolvency
(17,143)
(7,143)
5,000
(12,857)
47, 143
-
(2,143)
2,143
47, 143
(2,143)
P45,000
30,000
-040,000
5,000
45,000
-0P45,000
142. The August. Albert and Gerry partnership became insolvent on January 1,
20x5, and the partnership is being liquidated as soon as practicable. In this
respect the following information for the partners has been marshaled:
Capital
Balances
P 70,000
(60,000)
(30,000)
P(20,000)
August
Albert
Gerry
Total
Personal Assets
Personal Liabilities
P 80,000
30,000
70,000
P 40,000
50,000
30,000
Assume that residual profits and losses are shared equally among the three
partners. Based on this information, calculate the maximum amount that
August can expect to receive from the partnership liquidation is:
a. P20,000
c. P70,000
b. 40,000
d. 110,000
(Adapted)
Answer: (a)
Balances before realization
Additional investment
Balances
Additional loss (1:1)
Balances
Additional investment (P70,000 – P30,000 –
P30,000)
Balances
Additional loss
Balances
August
P70,000
P70,000
(30,000)
P40,000
P40,000
(20,000)
P20,000
Albert
P(60,000)
P(60,000)
60,000
Gerry
P(30,000)
30,000
(30,000)
P(30,000)
10,000
P(20,000)
20,000
143. Gardo and Gordo formed a partnership on July 1, 20x5 to operate two
stores to be managed by each of them. They invested P30,000 and P20,000
and agreed to share earnings 80% and 40%, respectively. All their
transactions were tor Cam and all their subsequent transactions were
handled through the respective bank accounts as summarized below:
Cash receipts
Cash disbursements
Gardo
P 79,100
62,275
Gordo
P 65,245
70,695
On October 31, 20x5, all remaining noncash assets in the two stores were
sold for cash of P50,000. The partnership was dissolved, and cash settlement
was effected. In the distribution of the P60,000 cash, Gardo received:
a. P24,000
c. P34,000
b. 26,000
d. 36,000
(PhilCPA)
Answer: (b)
Gardo 60%
P 30,000
62,275
(79,100)
P 13,175
12,825
P 26,000
P(P26,000)
Initial investment
Investment (personal disbursements*)
Investment (personal receipt
Balances before liquidation
Gain on realization (P60,000 – P38,625)
Balances before payment to partners
Payment to partner
Gordo 40%
P 20,000
70,695
(5,240)
P 25, 450
8,550
P 34,000
P (34,000)
TOTAL
P(50,000)
132,970
(144,345)
P38,625
21,375
60,000
P(60,000)
144. PP, QQ, and RR partners to a firm have capital balances of P11,200,
P13,000, and P5,800, respectively, and share profits in the ratio of 4:2:1.
Prepare a schedule showing how available cash will be given to the
partners as it becomes available. Who among the partners shall be paid
first with an available cash of P1,400?
a. QQ
c. RR
b. No one
d. PP
(Adapted)
Answer: (b)
INTEREST
Balances before
realization
Divided by: P&L
ratio
Loss absorption
ability
Priority I
Priority II
PAYMENTS
PP
P 11,200
QQ
P13,000
RR
P5,800
4/7
2/7
1/7
P 19,600
P 45,500
P 40,600
-
(4,900)
P 19,600
P 40,600
P 40,600
-
(21,000)
(21,000)
-
6,000
3,000
9,000
P 19,600
P 19,600
P 19,600
P-
P7,400
P3,000
P10,400
Cash Distribution:
QQ
-
Available
Cash payment to partner
Less: Priority I
PP
RR
TOTAL
P 1,400
PP
P 1,400
(P 1,400)
QQ
P 1,400
RR
P 1,400
145. The PQR Partnership is being dissolved. All liabilities have been paid and the
remaining assets are being realized gradually. The equity of the partners is
as follows:
P
Q
R
Partners’
Accounts
P 24,000
36,000
60,000
Loans to
(from Partnership)
6,000
(10,000)
Profit and Loss
Ratio
3
3
4
The second cash payment to any Partner(s) under a program of priorities
shall be made thus:
a. To R, P2,000
c. To R, P8,000
b. To Q, P6,000
d. To Q, P6,000 & R, P8,000
(PhilCPA)
Answer: (d)
INTEREST
P
PAYMENTS
Q
R
P
Balances before
realization
Loans
P6,000
Capital
24,000
P36,000
60,000
P30,000
P36,000
P50,000
Divided by: P&L
ratio
3/10
3/10
4/10
Loss absorption
ability
Priority I
P100,000
P120,000
P125,000
-
-
P100,000
P120,000
P120,000
-
(20,000)
(20,000)
P100,000
P100,000
Total interest
Priority II
Q
R
P(10,000)
(5,000)
P 2,000
P2,000
6,000
8,000
14, 000
P6,000
P10,000
P16,000
-
P100,000 P -
146. A cash distribution plan (payment priority program) for the Matthew, Norell,
and Reams partnership appears below:
First P 300,000
Next P 80,000
Next P 70,000
Remainder
Priority
Creditor
100%
Matthew
Norell
70%
3/7
22%
30%
34%
Reams
4/7
44%
If P550,000 of cash is to be distributed, how much will be received by the
priority creditors, Matthew, Norell and Reams?
a.
b.
c.
TOTAL
Priority Creditor
P
0
0
300,000
Matthew
P
0
121,000
55,000
Norell
P
0
187,000
85,000
Reams
P
0
242,000
110,000
d.
300,000
108,000
58,000
84,000
(Adapted)
Answer: (d)
Priority creditors
First P300,000
Matthews
Norell
Reams
P300,000
Next P80,000 (7:3)
P300,000
P56,000 P24,000
Next P70,000 (3:4)
30,000
Remainder
P300,000
TOTAL
22,000
34,000
80,000
P40,000
70,000
44,000
100,000
P108,000 P58,000 P84,000 P550,000
147. Scott, Joe, and Ed ore liquidating their partnership. At the date the
liquidation begins Scott, Joe, and Ed have capital account balances of
P162,000, P192,500, and P215,000, respectively and the partners share
profits and losses 40%, 35%, and 25%, respectively, in addition, the
partnership has a P36,000 Notes Payable to Scott and a P20,000 Notes
Receivable from Ed. When the liquidation begins, what is the loss
absorption power with respect to Joe?
a. P192,500
c. P550,000
b. P 67,375
d. P770,000
Answer: (d)
(P192,500/.35)
Assets:
Cash
Receivables – net
Inventory
Plant assets – net
Loan to Reed
P 15,000
20,000
40,000
70,000
5,000
Liabilities and Equity:
Liabilities
Loan from Stac
Queen, capital – 30%
Reed, capital – 50%
Stac, capital – 20%
P 170,000
70,000
50,000
100,000
15,000
Total assets
P 390,000 Total Liabilities and Equity
P 390,000
148. The assets and equities of the Queen, Reed, and Stac Partnership at the
end of its fiscal year on October 31, 20x5 are as follows:
The partners decide to liquidate the partnership. They estimate that the
noncash assets, other than the loan to Reed, can be converted into
P100,000 cash over the two-months period ending December 31, 20x5.
Cash is to be distributed to the appropriate parties as it becomes available
during the liquidation process. The partner most vulnerable to partnership
losses on liquidation is:
a. Queen
c. Reed and Queen equally
b. Reed
d. Stac
(Adapted)
Answer: (b)
Balances before liquidation
Loan (to) from
Capital balances
Total interest
Divided by: P&L ratio
Loss absorption abilities/potential
Vulnerability ranking (1 most vulnerable)
Quen
Reed
P45,000
P45,000
30%
P150,000
P(5,000)
30,000
P25,000
50%
P50,000
3
1
Stac
P10,000
15,000
P25,000
20%
P125,000
2
The most vulnerable is the partner with the lowest absorption ability. In order to
determine their vulnerability to possible losses, the equity of each partner is
divided by his or her profit sharing ratio to identify the maximum loss that a partner
could absorb without reducing his or her equity below zero. The vulnerability ranks
indicate that Reed is most vulnerable to losses because his equity would be
reduced to zero with a total partnership loss on liquidation of P50,000.
149. Using the same information in No. 148, and P65,000 is available for first
distribution, it should be paid to:
a.
b.
c.
d.
Priority Creditor
P 60,000
60,000
50,000
50,000
Queen
P 5,000
1,500
5,000
12,000
Reed
P
0
2,500
0
0
Stac
P
0
1,000
10,000
3,000
(Adapted)
Answer: (d)
Quen
Reed
Stac
TOTAL
Balances before liquidation
Loan (to) from
Capital balances
P45,000
P(5,000)
30,000
P10,000
15,000
-
Total interest
Reduce in equity
P45,000
(24,000)
P25,000
(40,000)
P25,000
(16,000)
P95,000
(80,000)
Payment to partners*
Additional loss (3:2)
P21,000
(9,000)
P(15,000)
15,000
P9,000
(6,000)
P15,000
-
Payment to partners
P12,000
P3,000
P15,000
*cash available for first distribution
Less: priority creditors
Payment to partners
P65,000
50,000
P15,000