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CHAPTER 3

Partnership Liquidation
EXERCISES
Exercise 3 - 1
Capital balances before liquidation
Loan from partners
Total partners interest
Loss on realization (P46,000 P12,000)
Balances
Additional loss to partners
Balances
Additional loss to partners
Distribution of cash to partners

Aguilar
P 11,000
2,000
P 13,000
(13,600)
P( 600)
600
--------

Benito
P 10,300

Casimiro
P 13,700

David
P 9,000

---------

P 10,300
( 10,200)
P
100
( 300)
P ( 200)
200
---------

P 13,700
( 6,800)
P 6,900
( 200)
P 6,700
(
133)
6,567

P 9,000
( 3,400)
P 5,600
( 100)
P 5,500
(
67)
5,433

Duque
P 50,000
15,000
( 15,000)
P 50,000
( 32,500)
P 17,500
( 11,250)
P 6,250

Espino
P 22,500
7,500
( 10,000)
P 20,000
( 16,250)
P 3,750
( 5,625)
P( 1,875)

Felipe
P 20,000
7,500
( 10,000)
P 17,500
( 16,250)
P 1,250
( 5,625)
P( 4,375)

Total
P 92,500
30,000
( 35,000)
P 87,500
( 65,000)
P 22,500
( 22,500)
------

Exercise 3 - 2
Original investments
Net income for 2007
Drawings in 2007
Total partners interest before dissolution
Net assets distributed to partners
Balances
Loss to partners distributed 2:1:1
Cash settlement among partners
Exercise 3 - 3
1.

2.

3.

Guarin, Capital
Receivable from Guarin
To offset receivable from Guarin against his capital.

1,500

Salary Payable to Henson


Henson, Capital
To include salary payable to Henson to his interest.

500

Henson, Capital (P24,500 x 40%)


Guarin, Capital (P24,500 x 60%)
Loss from Liquidation
To distribute loss from liquidation to partners.

Henson, Capital (P9,500 + P500 - P9,800)


Guarin, Capital (P18,000 - P1,500 - P14,700)
Cash
Exercise 3 - 4
1.
Original investment

1,500

500
9,800
14,700
24,500

4.

200
1,800
2,000
Ibarra
P 60,000

Javier
P 54,000

Katindig
P 16,000

AA1 - Chapter 3 (2008 edition)

page 2

Net loss for six months*


Loss on realization (P121,000 - P49,000 = P72,000)
Balances
Additional loss to partners
Cash distribution to Ibarra
*

2.

(18,000)
(36,000)
P 6,000
( 1,200)
( 4,800)

Total capital, March 1 (P60,000 + P54,000 + P16,000)


Net assets, Aug. 31 (P5,000 + P121,000 - P32,000)
Net loss

(12,000)
(24,000)
P 18,000
( 800)
P130,000
94,000
P 36,000

Book value of other assets


Total loss on realization
Capital balance of Katindig after dist. of net loss
Excess of personal liabilities over personal assets
Maximum amount of loss that can be absorbed by Katindig
Fractional share of Katindig
Cash that must be realized on sale of other assets

Exercise 3 5
1.
Book value of other assets (P459,000 P3,000)
Cash realized:
Accounts receivable [P180,000 (P60,000 x 20%)]
Merchandise inventory
Prepaid advertising
Machinery and equipment (P120,000 x 60%)
Loss on realization

( 6,000)
(12,000)
P( 2,000)
2,000

P121,000
P 10,000
( 5,000)
P 5,000
1/6__

( 30,000)
P 91,000

P456,000
P168,000
75,000
2,400
72,000

317,400
P138,600

Lesaca Manalo Partnership


Statement of Liquidation
December 31, 2008
Cash
Balances before liquidation
Sale of assets and distribution
of loss
Balances
Payment of liabilities
Balances
Additional investment
Manalo
Balances
Payment of liabilities
Balances
Additional loss to Lesaca
Payment to Lesaca

by

P 3,000
317,400

Other
Assets

Liabilities
AP
NP

Capital
Lesaca

Manalo

P456,000
( 456,000
)

P60,000

P258,000

P90,000
( 55,440)

P 51,000
( 83,160)

P60,000
( 59,400)

P258,000
( 258,000
)

P34,560
( 1,200)

(P32,160)
( 1,800)

P33,360

(P33,960)
12,000

P33,360

(P21,960)

P33,360
( 21,960)
P11,400

(P21,960)
21,960

P320,400
( 320,400
)

P600

12,000
P 12,000
(
600)
P 11,400

P
(

600
600)

P 11,400

Exercise 3 6
Capital balances before liquidation
Restricted interest possible loss
Non-cash assets
P600,000

Nocum
P180,000

Oliva
P300,000

Pascua
P240,000

Quinto
(P 33,000)

AA1 - Chapter 3 (2008 edition)

page 3

Liquidation expenses
9,000
Unrecorded liabilities
15,000
Total
P624,000
Balances
Restricted interest possible loss to
Nocum, Oliva and Pascua for the
deficiency of Quinto
Balances
Restricted interest possible loss to
Oliva and Pascua for the deficiency of
Nocum
Safe payment

( 156,000)
P 24,000

( 156,000)
P144,000

( 156,000)
P 84,000

( 156,000)
(P189,000)

( 63,000)
(P 39,000)

( 63,000)
P 81,000

( 63,000)
P 21,000

189,000
-

( 19,500)
P 61,500

( 19,500)
P 1,500

39,000
-

Exercise 3 - 8
Rama, Sison and Toledo
Cash Priority Program
PAYMENTS
Capital balances
Add Loan balances

Rama
P30,000
20,000

Sison
P70,000
20,000

Toledo
P40,000
30,000

Rama

Sison

Toledo

AA1 - Chapter 3 (2008 edition)

page 4

Total partners interest


P50,000
Profit and loss ratio
40%
Loss absorption balance
P125,000
Allocation I Cash to Toledo
reducing LAB to an amount
reported for Sison
(P125,000 x 20%)
Balances
P125,000
Allocation II - Cash to
Sison &
Toledo reducing LAB to an amount
reported for Rama
P100,000 x 40%
P100,000 x 20%
Balances
P125,000
Allocation III - Further cash
distribution may be made in the
P & L ratio
Exercise 3-9
1.

Balances before liquidation


January:
Sale of assets and dist. Of
loss
Payment of liquidation
expenses

P70,000
20%
P350,000

P225,000

(125,000)
P225,000

P25,000

(100,000)
P125,000

P40,000
(100,000)
P125,000

20,000
P45,000

P40,000

Julian, Lagman and Magno


Cash Priority Program
January 1, 2008

Capital balances before liquidation


Add Note payable to Magno
Total partners interest
Profit and loss ratio
Loss absorption balances
Allocation I Cash to Lagman reducing
LAB to an amount reported for Julian
(P60,000 x 3/10)
Balances
Allocation II Cash to Julian & Lagman
reducing LAB to an amount reported
for Magno (P40,000 x 3/10)
Balances
Allocation III Further cash distributions
may be made in the P & L ratio

2.

P90,000
40%
P225,000

Julian
P 36,000

Lagman
P 54,000

P 36,000
3/10
P120,000

P 54,000
3/10
P180,000

Magno
P18,000
14,000
P 32,000
4/10
P80,000

P120,000

(60,000)
P120,000

P80,000

( 40,000)
P80,000

(40,000)
P80,000

P80,000

Julian

PAYMENTS
Lagman
Magno

P18,000

P12,000
P12,000

12,000
P20,000

Julian, Lagman and Magno


Statement of Liquidation
January to March, 2008
Cash
P12,000

Other
Assets
P146,000

30,000

( 38,000)

( 3,600)

Liabilities
P36,000

NP to
Magno
P14,000

Julian
P36,000

PAYMENTS
Lagman
Magno
P54,000
P18,000

( 2,400)

( 2,400)

( 3,200)

( 1,080)

(1,080

(1,440)

AA1 - Chapter 3 (2008 edition)

Payment of liabilities
Distribution of cash to
partners (sch. 1)
Balances
February:
Sale of assets and
distribution of gain
Payment of liquidation
expenses
Distribution of cash to
partners (sch. 2)
Balances
March:
Sale of assets and
distribution of loss
Balances
Offset of loan against
deficiency
Final payment to partners

page 5

( 36,000)

(36,000)

( 2,400)
P32,520

(2,400)
P48,120

P13,360

2,700

2,700

3,600

(2,520)

(2,520)

(3,360)

P14,000

(10,000)
P22,700

(25,600)
P22,700

P13,600

P14,000

(11,100)
P11,600

(11,100)
P11,600

(14,800)
P(1,200)

(P11,600
)

(P11,600
)

P108,000
44,000

P14,000

(35,000)

(8,400)
(35,600)
P73,000
36,000
P36,000

(73,000)
( 1,200)
(P12,800)

(P36,000)

1,200

Schedule 1
Installment Liquidation
January 31, 2008
Cash available
Allocation I Payable to Lagman

Amount
P2,400
P2,400

Julian

Lagman

Mango

P2,400

Schedule 2
Installment Liquidation
February 29, 2008
Cash available
Allocation I Balance
Payable to Lagman
Allocation II Payable to Julian and
Lagman
3. Journal entries
January
Cash
Julian, Capital
Lagman, Capital
Magno, Capital
Other Asset
Julian, Capital
Lagman, Capital
Magno, Capital
Cash

Amount
P2,400

Julian

P2,400
P20,000

Lagman

Mango

P2,400
P10,000
P10,000

10,000
P25,600

30,000
2,400
2,400
3,200
38,000
1,080
1,080
1,440
3,600

AA1 - Chapter 3 (2008 edition)

page 6

Liabilities
Cash

36,000
36,000

Lagman, Capital
Cash
February

March

2,400
2,400

Cash
Other assets
Julian, Capital
Lagman, Capital
Magno, Capital

44,000
35,000
2,700
2,700
3,600

Julian, Capital
Lagman, Capital
Magno, Capital
Cash

2,520
2,520
3,360

Julian. Capital
Lagman, Capital
Cash

10,000
25,600

Cash
Julian, Capital
Lagman, Capital
Magno, Capital
Other assets

36,000
11,100
11,100
14,800

8,400

35,600

73,000

Note Payable to Magno


Magno, Capital

1,200

Note Payable to Magno


Julian, Capital
Lagman, Capital
Cash

12,800
11,600
11,600

1,200

36,000

Exercise 3 - 10
U, V and W Co.
Cash Priority Program
PAYMENTS
Capital balances
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to Villa reducing
LAB to an amount reported for
Waldo (P4,900 x 2/7)
Balances
Allocation II - Cash to Villa & Waldo
reducing LAB to an amount
reported for Urbe
P21,000 x 2/7
P21,000 x 1/7

Urbe
P 11,200
4/7
P 19,600

Villa
P13,000
2/7
P 45,500

Waldo
P 5,800
1/7
P 40,600

P 19,600

( 4,900)
P 40,600

P 40,600

Urbe

Villa

Waldo

P 1,400

( 21,000)

6,000
(21,000)

P 3,000

AA1 - Chapter 3 (2008 edition)

Balances
Allocation III - Further cash distribution
may be made in the P & L ratio

2.

page 7

P 19,600

P 19,600

Book value of assets


Loss on realization:
Capital balance of Urbe prior to realization
Cash to be received by Urbe
Share of Urbe in the loss on realization
Fractional share of Urbe
Cash to be realized of the sale of assets

P 19,600

P 7,400

P 30,000
P 11,200
10,000
P 1,200
4/7_

2,100
P 27,900

3.

Allocation III - P3,200 4/7 = P5,600 x 1/7


Allocation II
Total cash received by Waldo

4.

Book value of assets


Total cash available
Allocation I
Allocation II - P1,800 - P1,400 = P400 2/3
Loss on liquidation

P 30,000

Exercise 3 11
Partnership Books
1. Inventories
Capital Adjustment Account
2.

3.

4.

5.

6.

Accumulated Depreciation
Equipment
Capital Adjustment Account
Goodwill
Capital Adjustment Account
P980,000 P924,000 = P56,000

P 3,000

800
3,000
P 3,800

P 1,400
600

2,000
P 28,000

90,000
90,000
160,000
80,000
80,000
56,000
56,000

Capital Adjustment Account


Belen, Capital (3/4)
Bgnes, Capital (1/4)

226,000

Colored Co. Stocks


Allowance for Uncollectible Accounts
Accounts Payable
Accounts Receivable
Inventories
Equipment
Goodwill

980,000
12,000
104,000

Belen, Capital
Bagnes, Capital
Cash
Colored Co. Stocks

563,500
458,500

169,500
56,500

124,000
296,000
520,000
156,000

42,000
980,000

AA1 - Chapter 3 (2008 edition)

page 8

New Corporations Books


1. Authorized to issue 50,000 shares of P50 par value Ordinary Share Capital.
2.

3.

Cash
Ordinary Share Capital
PIC in Excess of Par

700,000

Accounts Receivable
Inventories
Equipment
Goodwill
Allowance for Doubtful Accounts
Accounts Payable
Ordinary Share Capital
PIC in Excess of Par

124,000
296,000
520,000
156,000

500,000
200,000

12,000
104,000
700,000
280,000

Problem 3 2 (Case 3 cont.)


Calma, Daza and Esteban
Schedule of Cash Distribution to Partners
Capital balances before cash distribution
Add loan balance
Total partners interest
Restricted interest - possible loss to Calma and Esteban
in the ratio of 2:1 if Daza fails to pay his deficiency
Free interests - amounts to be paid to partners
Payment to apply on:
Loan
Capital
Cash distribution

Calma
P 27,000

Daza
P ( 3,000)

P 27,000

P ( 3,000)

( 2,000)
P 25,000
P 25,000
P 25,000

Esteban
P 46,000
8,000
P 54,000

3,000
-

( 1,000)
P 53,000

P 8,000
45,000
P 53,000

AA1 - Chapter 3 Partnership Liquidation (2005)


Suggested Answers

page

Problem 3 2 (Case 4 cont.)


Calma, Daza and Esteban
Schedule of Cash Distribution to Partners
Capital balances before cash distribution
Add loan balance
Total partners interest
Restricted interest - possible loss to Calm and Esteban in
the ratio of 2:1 if Daza fails to pay his deficiency
Balances
Restricted interest - possible loss to Esteban if Calma fails
to pay his deficiency
Free interests - amounts to be paid to partners
Payment to apply on:
Loan
Capital
Cash distribution

Calma
P 9,000

Daza
P (21,000)

P 9,000

P (21,000)

Esteban
P 37,000
8,000
P 45,000

(14,000)

21,000

P( 5,000)

P 38,000

5,000
-

( 5,000)
-

P 8,000
25,000
P 33,000

( 7,000)

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 - 3
1.

a.

b.
c.

d.

e.

f.

g.
h.
2.

a.
b.

Cash
Accumulated Depreciation
Fuentes, Capital (P72,000 x 5/15)
Goco, Capital (P72,000 x 5/15)
Herrera, Capital (P72,000 x 3/15)
Isla, Capital (P72,000 x 2/15)
Merchandise Inventory
Accounts Receivable
Store Fixtures

48,000
25,000
24,000
24,000
14,400
9,600

Accounts Payable
Cash (P28,000 + P48,000)

76,000

55,000
60,000
30,000
76,000

Fuentes, Capital
Herrera, Capital
Isla, Capital
Goco, Capital

4,500
2,700
1,800

Fuentes, Capital
Isla, Capital
Herrera, Capital

1,500
600

Fuentes, Loan
Isla, Loan
Fuentes, Capital
Isla, Capital

2,000
3,000

Cash
Fuentes, Capital
Herrera, Capital

6,000

Accounts Payable
Cash

4,000

Isla, Loan
Cash

2,000

Accounts Payable
Fuentes, Capital

4,000

Isla, Loan
Fuentes, Capital
Herrera, Capital

2,000
3,000

9,000

2,100

2,000
3,000
1,000
5,000
4,000
2,000
4,000

5,000

Problem 3 3 (cont.)
3.

a.

Accounts Payable

4,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

Herrera, Capital
b.

4,000

Isla, Capital
Fuentes, Capital
Herrera, Capital

2,000
1,000
1,000

Schedule to support the entries in Requirement 1

Balances before liquidation


Distribution of loss
Balances
Additional loss for the
deficiency of Goco
Balances
Additional loss for the
deficiency of Herrera
Balances
Offset against debit balance
in capital account
Balances
Additional investment by
partners
Payment to Isla

L O A N
Fuentes
Isla
P 2,000
P 5,000

C A P I T A L
Goco
Herrera
P15,000
P10,000
( 24,000) ( 14,400)
P( 9,000) P( 4,400)

P 2,000

P 5,000

Fuentes
P27,000
( 24,000)
P 3,000

P 2,000

P 5,000

( 4,500)
P( 1,500)

9,000
-

( 2,700)
P( 7,100)

( 1,800)
P( 2,400)

P 2,000

P 5,000

( 1,500)
P( 3,000)

2,100
P( 5,000)

(
600)
P( 3,000)

( 2,000)
-

( 3,000)
P 2,000

2,000
P( 1,000)

P 2,000

1,000
-

P( 5,000)
-

5,000
-

Isla
P 9,000
( 9,600)
P( 600)

3,000
-

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 -5
JKLM Trading Co.
Schedule To Accompany Statement of Liquidation
Amounts to be Paid to Partners
February 28, 2008
Capital balances before dist. of cash
Add Loan balances
Total partners interest
Restricted interest - possible loss if
nothing is realized on remaining assets
Balances
Restricted interest - additional possible
loss if Manabat is unable to pay his
deficiency (20:30:30)
Free interest - payments to partners
Payment to apply on
Loan
Capital
Total cash distribution

Jocson
P 19,128
15,000
P 34,128

Kaimo
P 88,992

Legarda
P 101,532

Manabat
P 22,878

P 88,992

P 101,532

P 22,878

( 25,494)
P 8,634

( 38,241)
P 50,751

( 38,241)
P 63,291

( 25,494)
P( 2,616)

( 654)
P 7,980

( 981)
P 49,770

(
981)
P 62,310

P 49,770
P 49,770

P 62,310
P 62,310

2,616
-

P 7,980
P 7,980

JKLM Trading Co.


Schedule To Accompany Statement of Liquidation
Amounts to be Paid to Partners
March 31, 2008
Capital balances before dist. of cash
Add Loan balance
Total partners interest
Restricted interest - possible loss if
nothing is realized on remaining assets
Free interest - payment to partners
Payment to apply on:
Loan
Capital
Total cash distribution

Jocson
P 18,348
7,020
P 25,368

Kaimo
P 38,052

Legarda
P 38,052

Manabat
P 22,098

P 38,052

P 38,052

P 22,098

( 16,524)
P 8,844

( 24,786)
P 13,266

( 24,786)
P 13,266

(16,524)
P 5,574

P 7,020
1,824
P 8,844

P 13,266
P 13,266

P 13,266
P 13,266

P 5,574
P 5,574

Problem 3 6
QRS Partnership

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Schedule to Accompany Statement of Liquidation


Amounts to be Paid to Partners
July 31, 2008
Quizon
Roman
Balances before cash distribution
P116,250
P159,750
Add Loan balance
150,000
Total partners interest
P116,250
P309,750
Restricted interest possible loss of P480,000
on remaining unsold assets and cash
withheld of P30,000
( 255,000)
( 153,000)
Balances
( P138,750)
P156,750
Restricted interest possible loss of P138,750
to Roman and Silva
138,750
( 83,250)
Balances
P 73,500
Restricted interest possible loss to Roman
( 6,000)
Payment to Roman to apply on loan
P 67,500
QRS Partnership
Schedule to Accompany Statement of Liquidation
Amounts to be Paid to Partners
August 31, 2008
Quizon
Roman
Balances before cash distribution
P 93,000
P145,800
Add Loan balance
82,500
Total partners interest
P 93,000
P228,300
Restricted interest possible loss of P375,000
on remaining unsold assets and cash
withheld of P30,000
( 202,500)
( 121,500)
Balances
( P109,500)
P106,800
Restricted interest possible loss of P109,500
to Roman and Silva
109,500
( 65,700)
Payment to Roman to apply on loan and to
Silva
to apply on capital
P 41,100

Problem 3 - 7
Requirement 1
Tabora, Ureta and Veloso
Cash Priority Program

Silva
P151,500
P151,500
( 102,000)
P 49,500
( 55,500)
(P 6,000)
6,000

Silva
P142,200
P142,200
( 81,000)
P 61,200
( 43,800)
P 17,400

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

January 1, 2008
Capital balances
Loan balances
Total partners interest
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to Ureta to
reduce LAB to amount
reported for Tabora
Balances
Allocation II - Cash to Tabora
and Ureta to reduce LAB to
amount reported for Veloso
Balances
Allocation III - Further cash
distribution may be made
based on P & L ratio

Tabora
P120,000
45,000
P165,000
50%
P330,000

Ureta
P 90,000
30,000
P120,000
30%
P400,000

Veloso
P 40,000
13,000
P 53,000
20%
P265,000

P330,000

( 70,000)
P330,000

P265,000

( 65,000)
P265,000

( 65,000)
P265,000

P265,000

PAYMENTS
Tabora
Ureta
Veloso

P21,000

P32,500
P32,500

19,500
P40,500

Requirement 2
Amount
January:
Cash available
Allocation I - payable to Ureta
February:
Cash available
Allocation I - Bal. payable to Ureta
Allocation II - Payable to Tabora and
Ureta in the ratio of 50:30

P15,000

P40,000
6,000

P 6,000

P34,000
P90,000
18,000
P72,000

April:
Cash available
Allocation III - Based on P & L ratio

P30,000
30,000

b.

Neri, Capital
Ordan, Capital
Pacia, Capital

Ureta

P15,000
15,000

March:
Cash available
Allocation II - Balance
Allocation III - Based on P & L ratio

Problem 3 8 (cont.)
Requirement 1
January:
a.
Cash
Accounts Receivable

Tabora

Veloso

P21,250
P21,250

12,750
P18,750

P11,250
36,000
P47,250

P 6,750
21,600
P28,350

P14,400
P14,400

P15,000

P 9,000

P 6,000

112,000
112,000
2,200
1,100
1,100

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Cash
c.
d.

February:

a.
b.

c.

d.

March:

a.

b.

c.

4,400

Accounts Payable
Cash
Pacia, Loan
Pacia, Capital
Cash

38,000
9,000
7,000
16,000

Cash
Accounts Receivable
Neri, Capital
Ordan, Capital
Pacia, Capital
Cash
Accounts Payable
Cash
Neri, Capital
Ordan, Capital
Pacia, Capital
Salary Payable to Neri
Neri, Capital
Ordan, Capital
Pacia, Capital
Cash
Cash
Neri, Capital
Ordan, Capital
Pacia, Capital
Accounts Receivable
Neri, Capital
Ordan, Capital
Pacia, Capital
Cash
Neri, Capital
Ordan, Capital
Pacia, Capital
Cash

Problem 3 - 9
Requirement 1

38,000

Wilson, Yuson and Zapata


Cash Distribution Schedule
June 30, 2008

36,000
36,000
1,400
700
700
2,800
39,000
38,000
500
250
250
6,000
1,400
3,700
8,700
19,800
35,000
4,000
2,000
2,000
43,000
2,000
1,000
1,000
4,000
39,500
19,750
19,750
79,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Wilson
P 67,000
12,000
P 55,000
50%
P110,000

Capital balances
Receivable from partners
Total partners interest
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to
Yuson to reduce LAB
to amt. reported for Zapata
Balances
P110,000
Allocation II - Cash to Zapata
and Yuson to reduce LAB
to amt. reported for Wilson
Balances
P110,000
Allocation III - Based on P & L
ratio (P6,000 + P100,000 P17,000 = P89,000 P14,000)
TOTALS

Yuson
P 45,000
P 45,000
30%
P150,000

Zapata
P 31,500
7,500
P 24,000
20%
P120,000

30,000
P120,000

P120,000

10,000
P110,000

10,000
P110,000

P AY M E N T S
Wilson
Yuson

Zapata

P 9,000

3,000

P 2,000

P37,500

22,500

15,000

P37,500

P 34,500

P17,000

Problem 3 9 Requirement No 2
Wilson, Yuson and Zapata
Cash Distribution Schedule
July 1 - September 30, 2008
Capital balances before liquidation
July - Dist. of loss on sale of assets (1)
Liquidation expenses
Payment of liabilities
Payment to partners (2)
Balances

Liabilities
P 17,000

Wilson
P 55,000
(4,750)
(500)

Yuson
P 45,000
(2,850)
(300)

Zapata
P 24,000
(1,900)
(200)

P 49,750

(6,500)
P 35,350

P 21,900

(17,000)
-

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Aug.- Liquidation expenses


Equipment taken by Zapata
Gain on transfer of eqt. to Zapata
Payment to Yuson (3)
Balances
Sept- Dist. of loss on sale of assets (4)
Liquidation expenses
Final distribution to partners
(1)
(2)
(3)
(4)

(750)

(450)

(3,000)

(1,800)
(4,000)
P 32,700
(6,000)
(300)
P26,400

P 52,000
(10,000)
(500)
P41,500

(300)
(10,000)
(1,200)
P 12,800
(4,000)
(200)
P8,600

(P22,000 + P14,000) - (P16,500 + P10,000) = P9,500 loss on sale of assets


(P6,000 + P26,500 - P1,000 - P17,000) - P8,000 cash withheld = P6,500 cash dist. Req. 1
schedule of cash distribution below8,000 1,500 2,500 +4,000
(P99,000 - P4,000 BV of equipment taken by Zapata) - P75,000 = P20,000 loss on sale
Schedule of Cash Distribution
August 31, 20068
Wilson
Yuson
Zapata

Capital balances after dist.


of equipment to Zapata
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to
Yuson to reduce LAB to
amt. reported for Wilson
Balances
Allocation II - Cash to Wilson
& Yuson to reduce LAB to
amount reported for Zapata
Balances
Allocation III P & L ratio

P 52,000
50%
P104,000

P 36,700
30%
P122,333

P 12,800
20%
P 64,000

P104,000

18,333
P104,000

P 64,000

40,000
P 64,000

40,000
P 64,000

Wilson

Yuson

Zapata

P 5,500

P 64,000

P20,000
P20,000

12,000
P 17,500

Problem 3 - 9 - Requirement 3
Cash available in September
Allocation I Balance
Allocation II
Balance - Allocation III

Amount
P76,500
1,500
32,000
P43,000

Wilson

Yuson

Zapata

P 20,000
21,500
P 41.500

P 1,500
12,000
12,900
P 26,400

P 8,600
P 8,600

Problem 3 -10
Arceo, Basco and Cervo
Statement of Changes in Partners Capital
For the Period January 1, 2006 to May 31, 2008
2006:
Original investment
Distribution of net income (sch. 1)

Arceo

Basco

P50,000
15,200

P30,000
12,800

Cervo

Total
P 80,000
28,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

Drawings
Balance, December 31
2007:
Investment of Cervo (sch. 2)
Distribution of net loss
Drawings
Balances, December 31
2008:
Distribution of cash in Feb. (sch. 3)
Distribution of cash in April (sch. 4)
Balances
Sale of assets & distribution of loss
in May (sch. 5)
Final cash distribution

page

(7,000)
P58,200

(6,000)
P36,800

(13,000)
P 95,000

(9,100)
4,200
(4,900)
P40,000

(4,900)
3,000
(3,900)
P25,000

P54,000
4,800
(4,200)
P45,000

40,000
12,000
(13,000)
P110,000

(5,000)
(7,000)
P28,000

(5,000)
P20,000

(5,000)
(8,000)
P32,000

(10,000)
(20,000)
P 80,000

(17,500)
P 10,500

(12,500)
P 7,500

(20,000)
P 12,000

(50,000)
P 30,000

Schedule 1 - Distribution of 2006 net income


Salaries
Remainder 65%:35%
Total

Arceo
P10,000
5,200
P15,200

Schedule 2 - Admission of Cervo


Total capital before admission of Cervo
Investment of Cervo
Total capital
Interest acquired by Cervo
Capital credit of Cervo
Investment of Cervo
Bonus to Cervo from old partners (shared 65%:35%)
Schedule 3 - Cash distribution in February
Capital balances before dist. of cash
Restricted interest - possible loss if nothing
is realized on remaining assets (P100,000)
Free interest - amount to be paid to partners

Basco
P10,000
2,800
P12,800

Total
P20,000
8,000
P28,000

P 95,000
40,000
P135,000
40%
P 54,000
40,000
P 14,000
Arceo
P40,000

Basco
P25,000

Cervo
P45,000

35,000
P 5,000

25,000
P ------

40,000
P 5,000

Arceo
P 35,000

Basco
P25,000

Cervo
P40,000

28,000
7,000

20,000
P 5,000

32,000
P 8,000

Schedule 4 - Cash distribution in April


Capital balances before dist. of cash
Restricted interest - possible loss if nothing
is realized on remaining assets (P80,000)
Free interest - amount to be paid to partners

Schedule 5 - Loss on realization of assets in May


Capital balances equal to net assets

P80,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Cash realized on sale of assets


Loss on realization

30,000
P50,000

Problem 3-11
Partnership Books
1.
Inventories
Prepaid Expenses
Goodwill
Accrued Expenses
Leony, Capital
Espie, Capital
2.

3.

60,000
3,000
243,000
6,000
200,000
100,000

Rover Corp. Stocks


Accounts Payable
Accrued Expenses
Allowance for Uncollectible Accounts
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Furniture and Equipment
Goodwill

4,500,000
600,000
6,000
120,000

Leony, Capital
Espie, Capital
Rover Corp. Stocks

2,600,000
1,900,000
4,500,000

Corporations Books
1.
Cash
Accounts Receivable
Inventories
Prepaid Expense
Furniture and Equipment
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Accrued Expenses
Ordinary Share Capital
2.

450,000
660,000
1,350,000
3,000
2,520,000
243,000

Land
Cash
Pre-Operating Expenses
Ordinary Share Capital
PIC in Excess of Par
Rover Corporation
Statement of Financial Position
July 1, 2008

450,000
660,000
1,350,000
3,000
2,520,000
243,000
120,000
600,000
6,000
4,500,000
3,600,000
1,500,000
450,000
4,800,000
750,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

Assets
Cash
Accounts Receivable (net of Allow
of P120,000)
Inventories
Prepaid Expenses
Land
Furniture and Equipment
Goodwill
Total Assets

page

P 1,950,000
540,000
1,350,000
3,000
3,600,000
2,520,000
243,000
P10,206,000

Liabilities and Shareholders Equity


Accounts Payable
P 600,000
Accrued Expenses
6,000
Total Liabilities
P 606,000
Shareholders Equity
Ordinary Share Capital
P9,300,000
PIC in Excess of Par
750,000
Retained Earnings (deficit)
(450,000)
Total Shareholders Equity
P9,600,000
Total liabilities and SH equity
P10,206,000

MULTIPLE CHOICE
1.
2.
3.
4.

D
D
C
C

5.

6.

Share on loss on realization


(P39,000 + P4,800 P33,000)
Percentage ownership of Imperial
Total loss on realization

P10,800
20%
P54,000

Total capital
Cash available
Loss on realization

P70,000
28,000
P42,000

Capital bal. before liquidation


Loss on realization
Balances
Addl loss to Gueco & Tiangco
for the deficiency of Barcelon
Cash distribution to partners
7.

8.

Gueco
P 40,000
( 21,000)
P 19,000

Tiangco
P 25,000
(14,000)
P 11,000

Bacelon
P 5,000
( 7,000)
P( 2,000)

( 1,200)
P 17,800

( 800)
P 10,200

2,000
P ---0---

Total capital (P360,000 + P72,000)


Total liabilities
Total loss on liquidation

Capital balances
Drawing
Distribution of net income
Loss on liquidation
Balances
Additional loss to partners
Cash to be distributed
Coronel

Alarcon
P 100,000
( 60,000)
24,000
(172,000)
P(108,000
108,000
to

P432,000
84,000
P516,000
Baretto
P 80,000
( 40,000)
24,000
(172,000)
P(108,000)
( 54,000)

Coronel
P 300,000
(20,000)
24,000
(172,000)
P 132,000
( 54,000)
P 78,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

9.

10

page

Total capital
Loans from partners
Total partners interest
Cash available to partners (P37,500 P28,500)
Total loss on realization
Doria
P 24,500
4,000
P 28,500
( 23,100)
P 5,400

Capital balances before liquidation


Loan balances
Total partners interest
Loss on realization
Balances cash to be paid to partners
11

12

13

Total assets = Total capital + Total liabilities


= P60,000 + P 3,000
Less Cash = P3,000 + P22,200 P23,200
Book value of noncash assets

Additional loss
Payment to Lazaro

15
16
17

Jurado
P 1,000
( 5,400)
P( 4,400)
4,400

P 5,400

Katindig
P25,000
( 7,200)
P(17,800)
3,920

Lazaro
P25,000
( 10,800)
P14,200
( 5,880)
P 8,320

Total credits equal debits (P130,000 + P44,000 +


P90,000)
Less Cash
Book value of other assets
Loss on realization [(P50,000 + P17,600 P55,200)/40%]
Cash received from sale of other assets

A
A
B
Capital balances
Loss on realization
Additional loss
Amt to be rec.from the part.

Esper
P 50,000
(112,000)
P(62,000)
(3,000)

Elma
P 15,500
3,500
P 19,000
( 15,400)
P 3,600
P 63,000
___2,000
P 61,000

P61,000 P23,200 = P37,800 x 3/21

Capital balances
Loss on realization

14

P40,000
7,500
P47,500
9,000
P38,500

Ester
P50,000
( 56,000)
P(6,000)
6,000

Ethel
P50,000
( 56,000)
P(6,000)
( 1,500)

Marcelo
P 9,000
( 14,400)
P( 5,400)
5,400

P264,000
40,000
P224,000
31,000
P193,000

Elmer
P 75,000
( 56,000)
P19,000
(1,500)
P 17,500
200,00
0
P217,500

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

18

19

20

D
Initial investment
Purchases
Sales
Interest
Dividends
Cash held
Equal share
Cash received (paid)

Urbe
P 137,500,000
( 1,237,500,000)
1,339,250,000
(
2,200,000)
1,100,000
P 238,150,000
172,012,500
(P 66,137,500)

Capital balances before liquidation


Loss on liquidation (P180,000)
Cash to be received by Delia

Delia
P480,000
( 72,000)
P408,000

Erma
P135,000
( 90,000)

Delia
P480,000
( 216,000)
P264,000
( 108,000)

Erma
P135,000
( 270,000)
(P135,000)
135,000

A
Capital balances before liquidation
Loss on liquidation (P540,000)
Addl loss to Delia & Flora
Cash to be received by Flora

21

D
Capital balances before liquidation
Loss on liquidation (P180,000)
Balances
Possible loss if remaining
inventories are not sold
Balances
Add loss to Delia & Flora
Distribution of cash to partners

22
23
24

D
B
A

25

26

page

Delia
P480,000
( 72,000)
P408,000
(192,000)
P216,000
( 156,000)
P 60,000

Viray
P 137,500,000
( 495,000,000)
462,000,000
(
1.375,000)
2,750,000
P 105,875,000
172,012,500
P 66,137,500
Flora
P165,000
( 18,000)

Flora
P165,000
( 54,000)
P111,000
( 27,000)
P 84,000
Erma
Flora
P135,000 P165,000
( 90,000) ( 18,000)
P 45,000 P147,000
( 240,000)
(P
195,000)
195,000
-

Estrada
P 40,000
( 16,000)

( 48,000)
P 99,000
( 39,000)
P 60,000

Fortuna
P 65,000
(16,000)

Gener
P 48,000
( 8,000)

Balances before liquidation


Loss on sale of assets - P40,000
Possible loss if nothing is realized
on remaining assets - P90,000
( 36,000)
(36,000)
(18,000)
Balances
P( 12,000) P 13,000
P 22,000
Addl possible loss to Fortuna and
Gener for deficiency of Estrada
12,000
( 8,000)
( 4,000)
Balances - cash to be distributed
P --------P 5,000
P 18,000
Capital balance of Gener before distribution of cash
P 18,000
Share in the cash to be withheld for possible liquidation
expenses - P3,000 x 20%/60% (shared by Fortuna
& Gener)
( 1,000)
Cash to be received by Gener
P 17,000
The remaining cash will be distributed according to profit and loss ratio.
Thus the P14,000 will be distributed as follows:

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

27

28

29

page

Estrada
- P14,000 x 40% = P5,600
Fortuna - P14,000 x 40% = P5,600
Gener
- P14,000 x 20% = P2,800
Total capital before drawing and net loss
Drawing
Net loss for the year
Total liabilities
Total assets
Cash on hand
Amount of noncash assets before liquidation
Capital balance of Aguila before dist. of net loss
Share in net loss (P20,000 x 60%)
Capital balance of Aguila before liquidation
Cash to be received by Aguila
Share of Aguila in the gain on sale of other assets
Percentage share of Aguila
Total gain on sale of other assets
Book value of other assets
Cash to be realized from sale of other assets
D
Capital balances
Drawing
Net loss
Total partners interest
Profit and loss ratio
Loss absorption bal.
Alloc. I - Cash to Corpuz
Balances
Alloc. II -Cash to Balweg
and Corpuz
Balances
Alloc. III - Based on
P & L ratio

P 135,000
( 10,000)
( 20,000)
5,000
P 110,000
(
700)
P 109,300
P 25,000
( 12,000)
P 13,000
19,000
P
6,000
60%
P 10,000
109,300
P 119,300
PAYMENTS

Aguila
P 25,000

Balweg
P 50,000

( 12,000)
P 13,000
60%
P 21,667

( 5,000)
P 45,000
25%
P180,000

P 21,667

P180,000

Corpuz
P 60,000
(10,000)
( 3,000)
P 47,000
15%
P313,333
(133,333)
P180,000

P 21,667

(158,333)
P 21,667

(158,333)
P 21,667

Cash received by Corpuz


Cash received from Allocation I
Cash received from Allocation Ii
Fractional share (B 25% and C -15%)
Total cash distributed
Fractional share of Balingit
Cash received by Balingit
30

31

- P450,000 / 30% = P150,000


- P250,000 / 50% = P 50,000
- P250,000 / 20% = P125,000

D
1st P500,000

Priority
Creditors
100%

Nera
Capital

Balweg

Corpuz

P 20,000
P 39,583
P 39,583

23,750
P43,750

P 33,000
( 20,000)
P 13,000
15/40
P 34,667
x 25/40
P 21,667
Vulnerability
Ranking
3
1
2

B
Nera
Ochoa
Perez

Aguila

Ochoa
Capital

Perez
Loan

Perez
Capital

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

next P75,000
next P375,000
Remainder

32

100%
60%
30%

26.67%

13.33%
20.00%

50%

Nera
Ochoa
Perez
Total
P450,000
P250,000
P250,000
P950,000
( 150,000)
( 250,000)
( 100,000) ( 500,000)
P300,000
-----P150,000
P450,000
( 225,000)
(150,000) ( 375,000)
P 75,000
--------P 75,000
Reyes (20%)
Santos (40%)
Torres (40%)
Net capital balances
P100,000
P440,000
P310,000
Possible loss of P700,000
( 140,000)
(280,000)
( 280,000)
Balances
(P 40,000)
P160,000
P 30,000
Possible loss from Reyes debit balance
40,000
( 20,000)
( 20,000)`
Cash distribution
-----P140,000
P 10,000
Equities
Loss to absorb Ochoa
Balances
Loss to absorb Perez
Balance

33

34
35

D
C

Capital balances
Add Loan
Total partners interest
Divided by P & L ratio
Loss absorption capacity
Allocation 1
Balances
Allocation II

Roger
P108,000
P108,000
30%
P360,000
P360,000
( 60,000)
P300,000

Sergio
P120,000
30,000
P150,000
50%
P300,000
P300,000
P300,000

Tito
P129,000
P129,000
20%
P645,000
( 285,000)
P360,000
( 60,000)
P300,000

Roger

Sergio

P57,000
P18,000
P18,000

Allocation III P & L ratio

36

37

38

Roger
Amount available
Allocation 1 to Tito
Allocation II 30%, 20%

P72,000
57,000
P15,000

Amount available
Allocation II Balance
Allocation III

P120,000
15,000
P105,000

D
Capital balances
Revaluation of assets
Adjusted capital
Par of capital stock
Shares of stock to be recd by partners

39

Capital balances

Sergio

Tito
P57,000
6,000
P63,000

P9,000
P9,000
Roger

Sergio

Tito

P 9,000
31,500
P40,500

P52,500
P52,500

P 6,000
21,000
P27,000

Jacinto
P400,000
200,000
P600,000
P100
6,000 sh.

Tito

Mapa
P600,000
200,000
P800,000
P100
8,000 sh

Magno
P1,000,000
200,000
P1,200,000
P100
12,000 sh
P260,000

12,000
P69,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

40

41

page

Adjustment in assets (P20,000 P10,000 P3,000)


Adjusted capital

7,000
P267,000

Total capital (P94,800 + P214,200)


Adjustments in assets (P6,600 P20,000 P22,000)
Adjusted capital
Ordinary Share Capital (720 x 2 x P10)
Preference Share Capital

P309,000
( 35,400)
P273,600
14,400
P259,200

Ordinary shares (P14,400 / P10)


Preference shares (P259,200 / P100)

1,440 sh..
2,592 sh.

C
Capital balances before incorporation
Adjustment in assets
Adjusted capital
Ordinary Share Capital (720 @P10)
Preference Share Capital

Roldan
P94,800
( 11,800)
P83,000
7,200
P75,800

Moises
P214,200
( 23,600)
P190,600
7,200
P183,400

Preference shares
Ordinary shares

758
720

1,834
720