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Installment Liquidation Lecture Notes

Installment Liquidation Lecture Notes

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Published by bum_24
accounting lectures. enjoy! :)
accounting lectures. enjoy! :)

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Published by: bum_24 on Nov 22, 2008
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01/05/2014

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INSTALLMENT LIQUIDATION
Initial Disposal of Non-cash Assets
1.Sale of non-cash assets and distribution of gain or loss on realization according totheir profit and loss ratio.2.Payments of liquidation expenses and unrecorded liabilities if any.3.Payment of partnership liabilities4.Payment to partners
Succeeding Sale of Non-Cash Assets
1.Sale of non-cash assets and distribution of gain or loss on realizationaccording. to their profit and loss ratio.2.Payments of liquidation expenses and unrecorded liabilities if any.3.Payment of partnership liabilities (unpaid balance)4.Payment to partners
Final Sale of Non-cash Assets
1.Sale of non-cash assets and distribution of gain or loss on realization according totheir profit and loss ratio.2.Payments of liquidation expenses and unrecorded liabilities if any.3.In case of capital deficiency:a.Solvent partner/s1)Apply right of offset2)Additional investmentb. Insolvent partner/s1) Apply right of offset2) Absorption of loss by solvent partners4.Final CASH settlement to partnersCOMPUTATION OF SAFE PAYMENTS1.Compute the Total Partner’s Interest (Capital + Loan Balance)2.Distribution of possible loss to partners:a.Total amount of unsold non-cash assets;b.Cash withheld to pay for liquidation expenses and any possibleunrecorded liabilities;3.Additional loss to partners to eliminate any capital deficiency.
Sample Problem
The following is the balance sheet of John and Paul on June 1, 2006:
Assets Liabilities and Partners Capital
Cash P 50,000 Liabilities P 150,000
 
Other Assets P 550,000 John, Loan 50,000John, Capital 225,000Paul, Capital 175,000Total
P 600,000 P 600,000
The partners share net income and net losses as follows: John, 60%; Paul, 40%. In
June,
other, assets with acarrying amount of P 220,000 realized P 180,000, creditors were paid in full, and available cash wasdistributed to partners. In
July,
other assets with a carrying amount P 100,000 realized P 120,000, andliquidation cost of P5,000 were paid. In
August
, the remaining other assets realized P 200,000, and finalsettlement was made between the partners.
Prepare the necessary journal entries and Statement of Liquidation as of June 1, 2006.
Answer
JP PARTNERSHIPStatement of LiquidationJune 1, 2006
CashOtherAssetsLiabilitiesJohnLoan JohnCapital(60%)Paul,Capital(40%)Balances beforerealizationP50,000P550,000P150,000P50,000P225,000P175,000 June InstallmentRealization of assets anddistribution of loss180,000(220000)(24,000)(16,000)BalancesP230,000P330,000P150,000P50,000P201,000P159,000Payment of Liabilities(150,000)(150,000)BalancesP80,000P330,0000P50,000P201,000P159,000Payment to partners-Schedule 1(80,000)(50,000)(3,000)(27,000)Balances0P330,00000P198,000P132,000 July InstallmentRealization of assets anddistribution of gain120,000(100,000)12,0008,000BalancesP120,000P230,00000P210,000P140,000Payment of liquidationexpenses(5,000)(3,000)(2,000)BalancesP115,000P230,00000P207,000P138,000
 
Payment to partners-Schedule 2(115,000)(69,000)(46,000)Balances0P230,00000P138,000P92,000August InstallmentRealization of assets anddistribution of loss200,000(230,000)(18,000)(12,000)BalancesP200,000000P120,000P80,000Final cash settlement topartners(200,000)(120,000)(80,000)============================================================
Schedule 1Computation of Safe Payment JohnCapital(60%)Paul,Capital (40%)Capital balancesP201,000P159,000Loan Balance 50,000 Total PartnersInterestP251,000P159,000Possible loss- P330,000(198,000)(132,000)Balances
P53,000 P27,000
Loan P50,000Capital 3,000 P27,000Schedule 2Computation of Safe Payment JohnCapital(60%)Paul,Capital (40%)Capital balancesP207,000P138,000Possible loss- P230,000(138,000)(92,000)Balances
P69,000 P46,000
Capital P69,000 P46,000 JOURNAL ENTRIESCash180,000Gain or Loss on Realization40,000Other assets220,00

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Amilyn Usnaini added this note
this is really a big help... but can i ask further questions? what if in june, creditors were paid in full, and 20,000 was paid to partners? how to solve it??? please help., tnx
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