Problem 5:

The Chen Partnership has just completed a very unprofitable year. The partners agree to liquidate. The
financial statements of the partnership have been prepared for the fiscal year ending July 31, 2012. And
the yearend statement of financial position is shown below:

Assets
Cash P 1,000
Accounts Receivable P 80,000
Less: Allow. for bad debts 20,000 60,000
M. Inventory 52,000
Machinery & Equipment 100,000
Less: Accum. Depreciation 60,000 40,000
TOTAL ASSETS: P 153,000

Liabilities and Equity

Accounts payable P 20,000
Notes payable (Due 2013) 86,000
AA, Capital 30,000
BV, Capital 17,000
TOTAL LIABS & EQUITY P 153,000

The partners desired to complete the liquidation process as quickly as possible. Information concerning
the liquidation follows:
1. Accounts receivable equal to the net carrying value plus 20% of the estimated doubtful
accounts were collected.
2. M. Inventory were realized for P 25,000.
3. Machinery and Equipment were realized equal to 60% of their book value.
4. Unrecorded expense vouchers totaling P 2,000 were discovered. this was not yet paid.
5. The bank charged the partnership P 1,000 for paying the note earlier than the due date; the
amount is added to the note.

AA is personally insolvent. However, BV’s personal assets exceed his personal liabilities by P 4,000. AA
and BV share on earnings in the ratio of 4:6, respectively.

Questions to answer:
1. How much is the gain (loss) on realization?
How much cash did AA received?