Advanced Acctg Dayag 2013

Chapter 4
Problem I
1: Gain on Realization Fully Allocated to Partners Capital Balances.
QRS Partnership
Statement of Realization and Liquidation
November 1 30, 20x4
Balances before liquidation

Realization and distribution
of gain
Balances after realization
Payment of liabilities
Balances after payment of
liabilities
Payment to partners - loan
partners loans
Payment to partners capital
Cash
24,000
NonCash
Assets
84,000
Q,
Capital
30%)
9,600
R,
Capital
(50%)
48,000
S,
Capital
(20%)
36,000
Liabilities
12,000
Q, Loan
2,400
_____
12,000
(12,000)
______
2,400
3,600
13,200
6,000
54,000
2,400
38,400
2,400
(2,400)
13,200
______
54,000
______
38,400
_______
105,600
13,200
54,000
38,400
(105,600)
(13,200)
(54,000)
(38,400)
96,000
120,000
(12,000)
(84,000)
108,000
(2,400)
2: Loss on Realization Creates a Deficit Balance in Partners Capital Account Requiring Transfer
from Partners Loan Account (Right of Offset Exercised).
QRS Partnership
November 1 30, 20x4

of loss
liabilities
Offset deficit versus loans
Balances after offsetting
Payment to partners loan
partners loans
Liabilities
12,000
Q, Loan
2,400
Q,
capital
(30%)
9,600
_____
12,000
(12,000)
______
2,400
(10,800)
(1,200)
(18,000)
30,000
(7,200)
28,800
2,400
(1,200)
1,200
(1,200)
(1,200)
1,200
30,000
_______
30,000
_______
28,800
_______
28,800
______
58,800
30,000
28,800
(58,800)
(30,000)
(28,800)
Cash
24,000
48,000
72,000
(12,000)
NonCash
Assets
84,000
(84,000)
60,000
_______
60,000
(1,200)
R,
Capital
(50%)
48,000
S,
Capital
(20%)
36,000
from Partners Loan Account (Right of Offset Exercised and Additional Capital Investment is
Required and Made).
QRS Partnership
November 1 30, 20x4

of loss
Cash
24,000
NonCash
Assets
84,000
Liabilities
12,000
36,000
(84,000)
________
Q, Loan
2,400
Q,
capital
(30%)
9,600
R,
Capital
(50%)
48,000
S,
Capital
(20%)
36,000
________
(14,400)
(24,000)
(9,600)

liabilities
Offset loan versus deficit
partners loan
Additional investment by Q
Balances after additional
Investment
60,000
(12,000)
12,000
(12,000)
2,400
________
( 4,800)
_______
24,000
_______
26,400
_______
2,400
(2,400)
( 4,800)
2,400
24,000
_______
26,400
_______
(2,400)
2,400
24,000
_______
26,400
_______
50,400
24,000
26,400
(50,400)
(24,000)
(26,400)
48,000
_______
48,000
__2,400
4: Loss on Realization Creates a Deficit Balance in One Partners Capital Account Requiring
Transfer Partners Loan Account (Right of Offset Is Exercised) and Additional Investment is
Required but not Made (Personally Insolvent).
QRS Partnership
November 1 30, 20x4

of gain
liabilities
Additional loss due to
insolvency of Q
Balances after additional ,
Loss
Liabilities
12,000
Q, Loan
2,400
Q,
capital
(30%)
9,600
_______
12,000
(12,000)
________
2,400
_______
(12,600)
( 3,000)
_______
(21,000)
27,000
_______
(8,400)
27,600
_______
2,400
(2,400)
(3,000)
2,400
( 600)
27,000
______
27,000
27,600
______
27,600
( 429)
( 171)
54,000
26,571
27,429
(54,000)
(26,571)
(27,429)
Cash
24,000
42,000
66,000
(12,000)
NonCash
Assets
84,000
(84,000)
54,000
_______
54,000
_______
600
R,
Capital
(50%)
48,000
S,
Capital
(20%)
36,000
5: Loss on Realization Creates a Deficit Balance in One Partners Capital Account Requiring
Transfer Partners Loan Account (Right of Offset Is Exercised) and Additional Investment is
Required but not Made (Personally Insolvent).
QRS Partnership
November 1 30, 20x4

of gain
liabilities
investment
Additional loss due to
Cash
24,000
24,000
48,000
(12,000)
36,000
______
36,000
_3,600
39,600
______
NonCash
Assets
84,000
(84,000)
Q,
capital
(30%)
9,600
R,
Capital
(50%)
48,000
S,
Capital
(20%)
36,000
Liabilities
12,000
Q, Loan
2,400
_______
12,000
(12,000)
_______
2,400
_______
(18,000)
( 8,400)
_______
(30,000)
18,000
_______
(12,000)
24,000
_______
2,400
(2,400)
( 8,400)
2,400
(6,000),
_ 3,600
18,000
______
18,000
______
24,000
_______
24,000
_______
(2,400)
18,000
(1,714)
24,000
( 686)
insolvency of Q
Loss
2,400
39,600
16,286
23,314
(39,600)
(16,286)
(23,314)
Partners Loan Account (Right of Offset Is Exercised) and All Partners are Personally Solvent.
QRS Partnership
November 1 30, 20x4

Payment of liquidation
expenses
liquidation expenses
Write-off goodwill and
prepaid expenses
Balances after write-offs
of loss
Liabilities
and R
Investment
Liabilities
Payment to partners Capital
Cash
24,000
NonCash
Assets
84,000
Liabilities
12,000
(14,400)
______
________
9,600
84,000
_______
9,600
1,200
10,800
(10,800)
Q, Loan
2,400
Q,
capital
(30%)
9,600
R,
Capital
(50%)
48,000
S,
Capital
(20%)
36,000
________
(4,320)
(7,200)
(2,880)
12,000
2,400
5,280
40,800
33,120
(72,000)
12,000
_______
12,000
________
2,400
(21,600)
(16,320)
(36,000)
4,800
(14,400)
18,720
(12,000)
_______
12,000
(10,800)
________
2,400
________
( 3,240)
( 19,560)
_______
( 5,400)
( 600)
________
( 2,160)
16,560
_______
-0______
-0-
1,200
_______
1,200
2,400
(2,400)
(19,560)
2,400
(17,160)
( 600)
_______
( 600)
16,560
_______
16,560
17,760
_______
17,760
(1,200)
1,200
(1,200)
17,160
600
______
16,560
_______
16,560
16,560
(16,560)
(16,560)
Partners Loan Account (Right of Offset Is Exercised) with Revaluation of Assets.
QRS Partnership
November 1 30, 20x4

Increase in equipment
Decrease in furniture
Balances after revaluation
Refund of prepaid
expenses
Balances after refunds
Received noncash assets
Balances after receipt
of noncash assets
of loss
______
24,000
NonCash
Assets
84,000
1,200
(600)
84,600
_6,960
30,960
______
(8,400)
76,200
(10,200)
_______
12,000
_______
______
2,400
______
_(432)
9,348
_____
(720)
47,580
(7,200)
(288)
35,832
(3,000)
30,960
66,000
12,000
2,400
40,380
32,832
32,400
(66,000)
_______
______
9,348
(
10,080)
( 16,800)
( 8,064)
Cash
24,000
Liabilities
12,000
Q, Loan
2,400
_______
12,000
______
2,400
Q,
capital
(30%)
9,600
360
_(180)
9,780
R,
Capital
(50%)
48,000
600
(300)
48,300
S,
Capital
(20%)
36,000
240
(120)
36,120

liabilities
Payment to partners loan
Balances after payment
of loans
Payment to partnerscapitals
63,360
(12,000)
12,000
(12,000)
23,580
_______
26,112
_______
23,580
______
23,580
26,112
______
26,112
______
_______
49,692
23,580
26,112
(49,692)
(23,580)
(26,112)
51,360
_______
51,360
2,400
( 732)
1,668
(1,668)
(1,668)
Problem II
Cash
Balances before realization

Sales of noncash assets
Balances
debit
Balances
Distribution of cash to partners
Balances
Problem III
1.
732)
732
Preliquidation balances
Sale of assets and distribution
of P215,000 loss
Cash contributed by Gail to
extent of positive net worth
Liabilities
Capital Balances
Dawson
Feeney
P25,000
Other
Assets
P120,000
P(40,000)
P(31,000)
P(65,000)
P(9,000)
60,000
85,000
(120,000)
0
______
(40,000)
18,000
(13,000)
24,000
(41,000)
18,000
9,000
(40,000)
45,000
__________
0
40,000
0
________
(13,000)
________
(41,000)
________
9,000
______
45,000
__________
0
______
0
3,857
(9,143)
5,143
(35,857)
(9,000)
0
(45,000)
0
__________
P
0
______
P
0
9,143
P
0
35,857
P
0
________
P
0
CDG Partnership
Lump-sum Liquidation on December 10, 20X6
Hardin
Capital Balances
Dan
Gail
40%
40%
Noncash
Assets
Liabilities
Carlos
20%
25,000
475,000
(270,000)
(120,000)
(50,000)
(60,000)
260,000
285,000
(475,000)
-0-
(270,000)
43,000
(77,000)
86,000
36,000
86,000
26,000
25,000
310,000
-0-
(270,000)
(77,000)
36,000
(25,000)
1,000
Cash
Distribution of deficit of
insolvent partner:
20/60(P1,000)
40/60(P1,000)
( 732)
_______
DISCOUNT PARTNERSHIP
Schedule of Partnership Liquidation
January 14, 20x4
Explanation
Balances
Allocation of Hardin's
balance
2,400
_______
333
310,000
-0-
(270,000)
(76,667)
(1,000)
667
36,667
-0-
Contribution by Dan to
remedy deficit
36,667
(36,667)
346,667
-0-
(270,000)
(76,667)
-0-
-0-
Payment to creditors
(270,000)
76,667
-0-
270,000
-0-
(76,667)
-0-
-0-
Payment to partner
(76,667)
-0-
-0-
Post-liquidation balances
-0-
2.
76,667
-0-
-0-
-0-
CDG Partnership
Net Worth of Partners
December 10, 20X6
Carlos
Personal assets, excluding

partnership capital interests
Personal liabilities
Personal net worth, excluding
partnership capital interests, Dec. 1, 20X6
Contribution to partnership
Liquidating distribution from partnership
Net worth, December 10, 20X6
Dan
Gail
250,000
(230,000)
300,000
(240,000)
350,000
(325,000)
20,000
60,000
(36,667)
-023,333
25,000
(25,000)
-0-0-
76,667
96,667
This computation assumes that no other events occurred in the 10-day period that changed any
of the partners personal assets and personal liabilities. In practice, the accountant must be sure
that a computation of net worth is current and timely.
The table shows the effects of the transactions between the partnership and each partner. A
presumption of this table is that the personal creditors of Dan or Gail would not seek court action
to block the settlement transactions with the partnership. Upon winding up and liquidation, the
partnership does not have any priority to the partners personal assets. Thus, the personal
creditors may seek to block the transactions with the partnership in order to provide more
resources from which they can be paid. A partner who fails to remedy his or her deficit can be
sued by the other partners who had to make additional contributions or even by a partnership
creditor if the failed partner is liable to the partnership creditor. But those claims are not superior
to the other claims to the partners individual assets.
When accountants provide professional services to partnerships and to its partners, the
accountant should expect, at some time, legal suits involving the partnership and/or individual
partners. A strong and thorough understanding of the legal and accounting foundations of
partnerships will be very important to that accountant.
Problem IV
Cash
Beginning balances
Liquidation expense
Sale of non-cash assets
Contribution by Flowers
Noncash
Assets
Liabilities
P 25,000 P200,000 P165,000

(20,000)
160,000 (200,000)
(165,000)
(165,000)
10,000
Capital and Loan Balances

Merz
Dechter Flowers
P 40,000
(8,000)
(16,000)
P30,000 P(10,000)
(8,000)
(4,000)
(16,000)
(8,000)
10,000
Allocation of Flower's
deficit
Distribution
to partners
Ending balances
(10,000)
0
(6,000)
(10,000)
0
(6,000)
0
0
12,000
0
0
Problem V
Beginning:
Cramer/Bower pay in
from personal worth
to cover
deficit balances:
Allocation of
deficit balances:
Able paid:
Cash
P20,000
(20,000)
P
0
Liabilities
P(30,000)
20,000
P(10,000)
Able
P(10,000)
Bower
P5,000
Cramer
P15,000
P(10,000)
P5,000
P15,000
12,000
P12,000
(10,000)
P 2,000
________
P(10,000)
10,000
P
0
________
P(10,000)
(2,000)
P3,000
(10,000)
P 5,000
P(10,000)
P3,000
P 5,000
______
P 2,000
(2,000)
P
0
________
P
0
8,000
P (2,000)
2,000
P
0
(3,000)
P
0
(5,000)
P
0
Problem VI
Answer:
Cash
70,000
Arthur, Capital
6,000
Baker, Capital
15,000
Casey, Capital
9,000
Other Assets
To record realization of assets at a loss of $30,000, divided
among Arthur, Baker, and Casey in 2:5:3 ratio, respectively.
Trade Accounts Payable
Cash
To record payment of liabilities.
65,000
Arthur, Capital
Loan Receivable from Arthur
To offset Arthur's loan account against Arthur's capital
account.
20,000
Arthur, Capital
Loan Payable to Baker
Casey, Capital
Cash
To record payments to partners, computed as follows:
14,000
20,000
1,000
Capital account balances

Add: Loan payable to Baker
Less: Loan receivable from Arthur
Loss on realization of assets,
100,000
65,000
Arthur
P70,000
(20,000)
20,000
35,000
Baker
P80,000
30,000
Casey
P55,000
P30,000
Balances
Maximum potential additional loss
of P150,000 (P250,000 P100,000 =
P150,000) divided in 2:5:3 ratio
Cash payments
Multiple Choice Problems
1. c
Profit ratio
Prior capital
Loss on sale
of inventory
2.
Prior capital
Loss on sale
of inventory
Allocate Charles'
capital deficit:
JJ = .40/.50
TT = .10/.50
(6,000)
P44,000
(15,000)
P95,000
(9,000)
P46,000
(30,000)
P14,000
(75,000)
P20,000
(45,000)
P 1,000
JJ
CC
TT
Total
40%
50%
10%
100%
(160,000)
(45,000)
(55,000)
(260,000)
24,000
(136,000)
30,000
(15,000)
6,000
(49,000)
60,000
(200,000)
(160,000)
(45,000)
(55,000)
(260,000)
72,000
(88,000)
90,000
45,000
18,000
(37,000)
180,000
(80,000)
9,000
(28,000)
(80,000)
36,000
(45,000)
(52,000)
-0-
3. c (P234,000 P434,000) x 20% = P40,000
4. d
Capital before realization
Liquidation expenses
Loss on sale (134 - 434)
5. a
80,000
(3,600)
(90,000)
(13,600)
90,000
(2,400)
(60,000)
27,600
130,000
(6,000)
(300,000)
(176,000)
Capital before realization - C

Liquidation expenses (12,000 x 50%)
Share on loss on realization
Capital balance after realization
130,000
(6,000)
(132,000)
( 8,000)
Total loss on realization: P132,000/50%

Non-cash assets
Proceeds
(264,000)
434,000
170,000
6. c
Divided by:
Loss absorption abilities
130,000
50%
260,000
130,000
30%
260,000
100,000
20%
500,000
7. d P80,000 (P150,000 P50,00) x 50% = P30,000

8. b
Loss on sale (85,000 33,000)
Additional loss (5:2)
T
40,000
(26,000)
14,000
(4,000)
10,000
D
10,000
(15,600)
( 5,600)
5,600
H
15,000
(10,400)
4,600
( 1,600)
3,000
T
40,000
(10,000)
30,000
D
10,000
(6,000)
4,000
H
15,000
(4,000)
11,000
T
40,000
(31,950)
8,050
(6,550)
1,500
( 400)
1,100
D
10,000
(19,170)
( 9,170)
9,170
H
15,000
(12,780)
2,220
(2,620)
( 400)
400
9. c
Loss on sale (85,000 65,000)
10. a
Loss on sale (85,000 21,100)
Additional loss
11. b
K
60,000
(2,000)
(24,000)
34,000
( 4,000)
30,000
L
40,000
( 4,000)
(48,000)
(12,000)
12,000
M
80,000
( 4,000)
( 48,000)
28,000
( 8,000)
20,000
K
60,000
(2,000)
(24,000)
34,000
_____
34,000
L
40,000
( 4,000)
(48,000)
(12,000)
12,000
M
80,000
( 4,000)
( 48,000)
28,000
______
28,000
12. d
Additional investment
13. a
Cash, beginning
Payment of liquidation expenses
Payment to partners
P90,000
( 5,000)
( 60,000)
P25,000
14. d
H
80,000
I
110,000
J
140,000
Total
330,000
Loss on sale (2:4:4)

(61,000)
19,000
( 4,000)
15,000
(122,000)
(12,000)
12,000
(122,000)
18,000
( 8,000)
10,000
P
70,000
(1,600)
68,400
20%
342,000
Q
50,000
( 3,200)
46,800
40%
117,000
R
100,000
( 3,200)
96,800
40%
242,000
(305,000)
25,000
15. c
Divided by:
Loss absorption abilities
Selling Price
Book value
Loss
183,000
300,000
(117,000)
or,
Quincy capital before liquidation..P 50,000
Less: Share in liquidation expenses (P8,000 x 40%). 3,200
Quincy capital before realization of non-cash assets.P 46,800
Less: Cash received by Quincy (minimum).
0
Share in the loss on realizationP 46,800
Divided by: Profit and loss ratio..
40%
Loss on realization..P117,000
Less; Non-cash assets...................... 300,000
Proceeds from saleP183,000
16. a installment liquidation (refer for more problems in Chapter 5)
P
INTERESTS
Q
Balances before realization

Totall interests... P 70,000 P 50,000 P100,000
Divided by: P&L ratio
20%
40%
40%
Loss absorption abilities.. P350,000 P125,000 P250,000
Priority I. (100,000)
0 P20,000
P250,000 P125,000 P250,000
Priority II (125,000)
(125,000) 25,000
P125,000 P125,000 P125,000 P75,000
PAYMENTS
Q
R
P20,000
P 4,500
Cash, beginning
Add (deduct):
Liquidation expenses paid
Proceeds from sale of assets (?)
Payment to partner before payment to Renquist (priority I only)
17. No answer available Justice P15,533
Capital balances
Potential loss from Douglass (40:35)
Note:
J
23,000
(7,467)
15,533
___
Total
Z
22,000
(6,533)
15,467
P50,000 75,000
P50,000 P95,000
P 90,000
( 8,000)
(170,000)
108,000
P 20,000
D
(14,000)
14,000
0
Total
31,000
0
31,000
1. Regardless there is a forthcoming contribution to be made by Douglass, it is assumed that the P14,000 deficit
may not be recovered for purposes of distribution of cash.
2. The P31,000 cannot be distributed in accordance with profit and loss ratio for reason that the capital balances of
Justice and Zobart is not the same with the P&L ratio (H: 20/42 =48%; J: 22/42 = 52%)
or, alternatively: Using Cash Payment Priority Program (refer to Chapter 5)

J
Z
Capital balances
23,000
22,000
Additional contribution
0
0
Capital balances
23,000
22,000
Divided by: Profit and loss ratio
40/75
35/75
Loss absorption power
43,125
47,143
Loss to reduce Z to D:
(4,018 x 35/55 = 1,875)
4,018
Balances
43,125
43,125
Cash available
Less: Priority I to Douglass (P4,018 x 35/75)
Less: P& L (40:35)
P31,000
1,875
P29,125
(29,125)
P 1,875
P15,533
P15,533
13,592
P15,467
18. a - (P100,000 P72,000 P3,000 = P25,000)

19. b - (P40,000 + P10,000 P2,000 P4,000 = P44,000)
20. a
Loss on sale (4:2:1:3)
Additional loss (2:1:3)
B
25,000
(60,000)
(35,000)
(35,000)
15,000
P
110,000
( 30,000)
80,000
(11,667)
68,333
L
100,000
(15,000)
85,000
( 5,833)
79,167
S
65,000
(45,000)
20,000
(17,500)
2,500
B
25,000
(45,000)
(20,000)
(20,000)
P
110,000
( 30,000)
80,000
( 5,714)
74,286
( 4,286)
70,000
L
100,000
(15,000)
85,000
( 2,857)
82,143
( 2,143)
80,000
S
65,000
(60,000)
5,000
(11,429)
( 6,429)
6,429
21. b- refer to No. 20

22. c refer to No. 20
23. a
Loss on sale (3:2:1:4))
Additional loss (2:1:4)
24. a refer to No. 23
25. d refer to No. 23
26. b
Assets:
Cash
Accounts receivable (net)
Inventory
Equipment
Liabilities:
Accounts payable
P 25,000
26,000
46,000
84,000
Fair Value
P181,000
50,000
D
(14,000)
14,000
27. c
Net Assets equivalent to Investment
P131,000
Net Assets, at book value (P100,000 + P50,000)

Net assets at fair value
Net adjustments
For Wilfred: P19,000 x 70%
For Mike: P19,000 x 30%
P150,000
131,000
P 19,000
P 13,300
P 5,700
Wilfred: P100,000 P13,300 (refer to No. 27)= P86,700

28. d Mike: P50,000 P5,700 (refer to No. 27) = P44,300
29. c [P131,000 (10,000 shares x P10 par)] = P31,000
30. b
Accumulated depreciation
70,000
K, capital (P150,000 + P10,000 + P10,000 P70,000) 100,000
Machinery, at cost
150,000
Rice [P110,000 (P150,000 P70,000)] x 1/3
10,000
Long [P110,000 (P150,000 P70,000)] x 1/3
10,000
31. c
X
90,000
(42,000)
48,000
Y
60,000
(42,000)
18,000)
Z
30,000
(36,000)
( 6,000)
Total
180,000
*(120,000)
60,000
32. c this problem is more on installment liquidation principles.

M
K
100,000
175,000
Loss on sale (50%:30%:20%)
(162,500)
(97,500)
( 62,500)
77,500
62,500
(37,500)
40,000
Additional loss
(15,000)
25,000
C
75,000
(65,000)
10,000
(25,000)
(15,000)
15,000
Total
350,000
*(325,000)
**25,000
______25,000
-0-

Loss on sale (35%:35%:30%)
*balancing figure total reduction in capital
*balancing figure total reduction in capital
Payment to partners: P200,000 P25,000 P150,000 = P25,000**

Theories
True or False
1. True
2. False
3. False
4. False
5. False
Multiple Choice Theories
1. c
6. b
6.
7.
8.
9.
10,
True
True
True
False
True
11.
16.
2.
3.
4.
5.
b
d
b
d
7.
8.
9.
10,
c
a
c
d
12.
13.
14.
15,
a
d
b
c
17.
18.
b
a

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Chapter 4

Balances before liquidation

Balances before liquidation

Balances before liquidation

Balances after realization

Balances before liquidation

Balances before liquidation

Balances before liquidation

Balances before liquidation

Balances after realization

Balances before realization

Personal assets, excluding

P 25,000 P200,000 P165,000

Capital and Loan Balances

Capital account balances

3. c (P234,000 P434,000) x 20% = P40,000

Capital before realization - C

Total loss on realization: P132,000/50%

7. d P80,000 (P150,000 P50,00) x 50% = P30,000

Loss on sale (2:4:4)

Balances before realization

or, alternatively: Using Cash Payment Priority Program (refer to Chapter 5)

18. a - (P100,000 P72,000 P3,000 = P25,000)

21. b- refer to No. 20

Net Assets equivalent to Investment

Net Assets, at book value (P100,000 + P50,000)

Wilfred: P100,000 P13,300 (refer to No. 27)= P86,700

32. c this problem is more on installment liquidation principles.

Capital before realization

*balancing figure total reduction in capital

*balancing figure total reduction in capital

Payment to partners: P200,000 P25,000 P150,000 = P25,000**

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