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TEST I. 20% Use TEST date column

1. If the liquidation proceedings produce a debit balance in a partner’s capital account, the
negative balance of a solvent partner should be eliminated by
A. exercising the right of offset.
B. additional investment.
C. by transferring the negative balance to the other partners.
D. requiring the other partners to pay for this negative balance.
2. In a priority program, for installment liquidation, loss absorption ability is calculated
A. Dividing the partner’s total interest by his profit or loss percentage.
B. Multiplying the partner’s capital balance by his profit or loss percentage.
C. Multiplying the partners’ total interest by his profit or loss percentage.
D. Dividing the partner’s capital balance by his profit or loss percentage.
3.  A partnership recorded the following journal entry, among others, in its liquidation
Cash 200,000
Cruz, Capital 100,000
Javier, Capital 100,000

This entry reflects

A.  share in the realization of non cash assets.
B.  cash distribution to the partners.

C.  additional investment by deficient partners who are solvent.

D.  additional investments by insolvent partners who are deficient.

4. In a limited partnership, the following statements concerning partner C, a

limited part, are correct except
A. Loan due to C has priority over assets just like the outside creditors.
B. C is liable only for investments made.
C. C has limited liability for partnership debt.
D. C has unlimited liability for partnership debt.

5. In a liquidation of a partnership, the following statements are correct except

A. In a liquidation by installment, periodic payments may be made to the partners after
are paid and restricted interests considered.
B. Partnership creditors may take over the deficient partner’s personal net assets if the
partnership is insolvent.
C. In a liquidation by installment, a periodic payment may be made to partners based on
available cash in excess of amounts reserved for contingencies and unpaid debts.
D. In a priority program, the partner with the highest loss absorption balance is most
vulnerable to losses.
6 The following scenarios are possible when partners’ capital accounts are negative except
A. Operation and liquidation losses are greater than the credit balances in the capital
B. Right of offset may be exercised if there is a loan due from deficient partner
C. Cash available becomes insufficient.
D. Partnership may be insolvent.
7. If at the time of partnership liquidation, partner A has a P15,000 capital deficiency
which he offsets
against a P5,000 loan payable to him by the partnership. Partner A
A. is entitled to share in the distribution of cash.  B. is no longer liable to
partnership creditors.
C. is still entitled to allocation of gains and losses. D. is no longer liable to the
other partners.
8 Restricted interest is computed for the following, except:
A. for future liquidation expenses. B. for future distribution to the creditors.
C. possible losses for unsold assets. D. possible losses for partners’ deficiency
9. 1. The ranking of claims against a bankrupt partner which allows for an orderly
of his personal assets is referred to as marshalling of assets.
2. Personal creditors of a deficient and insolvent partner is still assured of recovery from
partnership assets after outside creditors and partners with positive capital balances
are paid.
A. Only the first statement is correct. B. Only the second statement is
C. Both statements are correct. D. Both statements are incorrect.
10. A right of offset may be applied when a deficient partner
A. has a loan due to the partnership.
B. is personally insolvent.
c. has personal assets in excess of personal liabilities
D. has a loan due from the partnership.
11. The Metro Manila partnership owned by Maya, Cane and Terry was terminated.
Partnership is insolvent. All the cash have been distributed to the creditors. Financial
status of the partners showed the following:
Maya (2/4) Cane (1/4) Terry (1/4)
Capital Balances (40,000) 10,000 (10,000)
Net personal assets (10,000) 100,000 5,000

Partnership Creditors
A. must collect their claims from Maya and Terry.
B. must collect the entire P40,000 from Cane.
C. must collect their claims from Cane and Terry.
D. may not require Cane to pay since Cane has capital credit balance.
TEST II- Problems (75%) Final Answers on the date and particular column after Test I.
Computations should start on the peso money columns as well as the back part of your work
Cesar, Donna, and Dave, partners, share profit and loss 30%, 20% and 50%, respectively. Prior
to the liquidation, the partnership financial position reflected the following book values.

Cash P 21,000
Non-cash assets 248,000
Note payable to Dave P 32,000
Other liabilities 154,000
Cesar, Capital –General Partner 60,000
Donna, Capital- General (10,000)
Dave, Capital- Limited Partner 33,000
Actual liquidation expenses paid are P18,000 and that non-cash assets are sold for
P218,000. Donna has net personal assets of P8,000, while the other two partners are solvent
by P3,000.
12. How much cash will each partner receive?
The condensed financial position of the partnership of Alex, Jay, and Josh as of March
31, 2017 follows:
Cash P 28,000 Liabilities P 48,000
Other assets 265,000 Alex, capital (2) 95,000
Jay, capital (2) 80,000
________ Josh, capital (4) 70,000
Total P 293,000 Total P 293,000
The partners voted to dissolve their partnership and liquidate by selling other assets in
installments. P70,000 was realized on the first sale of other assets with a book value of
P150,000 net of P5,000 liquidation expenses paid. 50% of the liabilities were paid. Other
assets include a loan due from Alex of P50,000. All partners are solvent. Cash of P10,000 will
be reserved for future liquidation expenses.
13. How much cash is available for distribution to the partners?
14. How much cash will each partner receive?

Partners Pio, Queen, and Rain, who share profit and loss equally, have the following personal
personal liabilities, and partnership interest:
Bess Bing Bob
Personal assets P 35,000 P 180,000 P 60,000
Personal liabilities 40,000 50,000 75,000
Capital balances 50,000 (70,000) (42,000)

The partnership is insolvent with only P68,000 cash available. Outside creditors were
able to collect from Bing.
15. After applying the doctrine of marshalling of assets, how much cash will Bess receive and
retain for herself?
As of December 31,2016 the books of AJM Partnership showed capital balances of: Apple
Jonah P25,000; and Mandy P4,000. The partners’ profit and loss ratio are 3:2:1,
respectively. The partners decided to dissolve and liquidate the partnership. They sold
all the non-cash assets for P37,000. After settlement of all liabilities for P12,000, they
still have P28,000 cash left for distribution. Deficient partners are assumed to be
16. How much was the loss incurred on the sale of the non-cash assets?
17 How much cash will Jonah receive?
After incurring losses resulting from unprofitable operation for the past few years, the
partners decided to liquidate when their capital balances reflected the following:
Chan, P150,000 (2/5); Chua, P80,000 (2/5) and Chin, P70,000 (1/5).
The non cash assets were sold in installment with cash distributed to the partners as this
became available. The second cash distribution gave the partners almost all of what they
should receive in the second priority of the program. At this point, Chan received a total
of P40,000. The third sale resulted in another P50,000 cash for Chan.
18. What was the total amount of cash distributed for the third sale?
19. Assume instead that on the 3rd sale Chua received P25,000, how much did Chin receive?
20. How much was the total liquidation loss incurred by the partnership?

1. B 2. A 3. C 4. D 5. D 6. B
7. C 8. B 9. A 10. D 11. C

60,000 (10,000) 33,000
Loss on Sale incl liq exp 248-200 (14,400) ( 9,600) (24,000)
Def of Donna 19.6 – 8= 11.6 (4,350) (7,250)
Payment for partners’ captl 41,250 1,750 43,000
Payment for Note 32,000 32,000
1. 12.Total cash received by 41,250 33,750 75,000

To prove: Cash of 21,000 + 200,000 – 154,000 + 8,000 from Donna = P75,000


45,000 80,000 70,000
Loss of P80,000 (20,000) (40,000)
Possible loss for unsold assets &
Future liquidation expenses 75K (18,750) (37,500)
Possible loss for deficiency (3,750) (3,750)
14.Free interest 2,500 37,500 40,000

13. To prove: cash of 28 + 70 – 48 – 10= 40,000

Total partners’ equity= (62,000) and if total cash= P68,000 then Total liabilities 62 + 68=
Cash paid by Bing 130 – 68 = P 62,000


50,000 (70,000) (42,000)

Bing paid creditors 62,000
Bob is insolvent (21,000) (21,000)
Bess receives from Bing 29,000
Bess pays personal creditors (5,000)
15. Bess retains cash of 24,000

Cash of 28,000 + 12,000 paid for liabilities - realized 37,000 = beg balance of P3,000
16. Liab + PE = P85,000 - cash beg of P3,000= non cash of 82,000 – 37,000 realized= 45,000

A 3 J 2 M 1 TOTAL
44,000 25,000 4,000
Loss of P45,000 (22,500) (15,000) (7,500)
Deficiency absorbed P3,500 ( 2,100) ( 1,400)
17. Free interest 19,400 8,600 28,000

Chan Chua Chin Chan Chua Chin

150,000 80,000 70,000
40% 40% 20%
LAA 375,000 200,000 350,000
First Priority (25,000) 10,000
Second Priority (150,000) (150,000 60,000 30,000
Further dist to all
If Chan received P40,000 then out of the second priority he received P30,000 + P15,000 for
Thus Balance of second priority is the difference = 90,000 – 45,000
Further distribution based on what Chan received of P50,000- 30,000= 20,000 / 40% =
18. Total cash from third sale

19. if Chua received P25,000, Chin received P12,500 + 15,000 balance of second priority =

20. If capital balance of Chan is P150,000 – total cash received of P90,000 = P60,000 loss/
40%= P150,000

Ignore 19, because it was just an assumption.

If you use Chua’s share which is P20,000 – 80,000 = P60,000 / .4= P150,000 pa rin ang