PART I: MULTIPLE CHOICE

1. In the liquidation of a Partnership in installment, the partner who receives the first
payment of cash after all liabilities have been paid is the partner having the largest:
A. Capital account balance
B. Income sharing ratio
C. Loan account balance
D. Capital per unit of income sharing ratio
2. When merchandise is billed to a b ranch at a price above home office cost,
A. The net income reported by the branch is overstated
B. The ending inventories reported by the branch are overstated
C. The net income reported by the branch is overstated
D. A and B
3. When Eyob retires from Eyob, Biniyam and Yared partnership, he received cash in
excess of his capital account balance. Under the bonus method, the excess cash
received by Eyob:
A. Reduces the capital balances of Biniyam’s and yared’s
B. Has no effect on the capital balance of Biniyam and Yared
C. Is recognized as a goodwill of the partnership
D. Is recognized as an operating expense of the partnership

The following information is relevant for questions #4 and #5

ABC Trading, based in Addis, bills merchandise shipped to its Bahir Dar Branch at a markup of
50% above home office cost. The home office cost of merchandise shipped to the branch during
the current year amounts to $120,000. The year end separate adjusted trial balances of Gondar
Branch and the home office shows an ending inventory balance of $18,000 and $70,000
respectively.

4. The amount of ending merchandise inventory to be reported in the combined balance

sheet of the home office and the branch should be
A. $88,000 C. $82,000
B. $79,000 D. None
5. The amount of realized gross profit of the home office that resulted from sales made by Gondar
Branch is
A. $54,000 C. $110,000
B. $102,000 D. None
Answer question #6 and #7, which are to be treated independently, based on the following
information:

B, C, and D, an architecture partnership, had the following condensed balance sheet prior to
liquidation:

B, C, & D GP
Balance Sheet
April 30, 2011
Assets Liabilities and Capital
Cash $ 12,000 Liabilities $ 35,000
Noncash Assets 180, 000 Loan Payable to B 15,000
B, capital 45, 000
C, Capital 70,000
D, Capital 27, 000
Total Asset 192,000 Total Liability and Capita 192,000

The partners’ interest in profit/loss was 50%, 30%, and 20% for B, C, and D respectively.

6. If assets with a book value of 60,000 were sold for 70,000, how much of the available
cash should be distributed to partner D?
A. $5,000 C. $9,400
B. $3,000 D. None
7. If assets with a book value of 40,000 were sold for 30,000 and liquidation expense of
$1,000 was paid, how much of the available cash should be distributed to partner C?
A. $7,000 C. $6,000
B. $1,800 D. $None

The following information is relevant for questions #8 to #10 (rounding off is to the nearest
two digits, when necessary)

The profit loss sharing plan specifies an annual Salary Allowance of $15,000 and $12,000
for F and G, respectively. Besides, an interest of 5% is to be allowed on their weighted
average capital balance. The plan also states that any residual profit should be shared at
60% and 40% respectively. However, when profit is lower than the total of the salary
allowance and the imputed interest on weighted average capital, the partners agreed
to give interest on weighted average capital priority over salary allowances.

Number of months is the weighting factor in computing weighted average capital and
withdrawal (total) in excess of $10,000 in considered as a permanent reduction in
capital balance. Net Income of the year was $25,000
 The changes in the partners’ capital and drawing accounts during the year are
summarized as follows:

F capital F drawing G capital G drawing

Beginning Balance 48,000 80,000
March 1 6,000
March 31 12,000 8,000
September 16 8,000 14,000
November 30 3,000
December 31 20,000

8. The respective weighted average capital balance of F and G is

A. $53,396.67 and $76,000
B. $53,250 and $77,000
C. $45,750 and $76,500
D. None
9. What would be the respective share of F and G in the Net Income?
A. $12933.33 and $12066.67
B. $12,964.37 and $12,035.63
C. $12,780.56 and $12219.44
D. None
10. What would be the respective share of F and G if net income of the year is $50,000
A. $27,587.93 and $22,412.07
B. $27,555 and $22,445
C. $27,420 and $22,580
D. None
PART II: WORKOUT

1. The balance sheet prepared on April 30, just before liquidation, shows the following
balances:

H, I, J, &K LLP
Balance Sheet
April 31, 2011
Assets Liabilities and Capital
Cash $ 43,000 Liabilities $56,000
Other assets 154,000 loan from H 40,000
Partner’s Capital
H, capital (5,000)
I, capital 40,000
J, capital 36,000
K, capital 30,000 101,000
Total Assets $197,000 Total Liability and Capital $197,000

H, I, J, &K share profit and loss in the ratio of 4:3:2:1, respectively

Assume that the assets are sold over a three-month period as follows:

Cash Book
Proceeds value
Month of May, 2011 28,000 54,000
Month of June, 2011 70,000 60,000
Month of July, 2011 25,000 40,000

At the start the liquidation process, the partnership was in court litigation being accused
of cancelation of a contract with its customer. The potential liability, which is not
included in the balance sheet, was estimated at $ 6,000. On June 1, 2011, the court
made a decision to dismiss the case as the partnership was found to be not guilty.

Liquidation expense of 10,000 was paid during May and future expenses were estimated
at $7,000. The actual liquidation expenses of June turned out to be $3,000, and $2,000
cash is estimated to meet future expenses. However, July actual liquidation expenses
amounted to $ 1,000.

Required: Prepare the statement Realization and Liquidation and the supporting
Schedule of Safe Payment, assuming that available cash is to be distributed
in installment at the end of each month and partners were able to pay their
actual capital deficits immediately.