PARTNERSHIP ACCOUNTING PRACTICAL ACCOUNTING 2

Partnership Formation

I
On June 1, 2010, AB, CD and EF decided to pool their assets and form BDF Partnership.
After formation the partners will participate in the profits and loss ratio of 40%, 25% and
35% for AB, CD and EF, respectively. The balance sheets on June 1 before the adjustments
were as follows:

AB CD EF
Cash P 42,000 P 28,000 P 34,000
Accounts receivable 250,000 325,000 280,000
Allowance for doubtful accounts (18,000) (24,000) -
Notes receivable - - 120,000
Merchandise inventory 75,000 90,000 60,000
Prepaid rent - 36,000 20,000
Building 400,000
Accumulated depreciation (60,000)
Equipment 210,000
Accumulated depreciation (25,000
)
Total assets P 689,000 P 640,000 P 514,000

Accounts payable P 36,000 P 41,000 P 34,000

Note payable 240,000
Capital 653,000 359,000 480,000
Total liabilities and capital P 689,000 P 640,000 P 514,000

The firm is to take over business assets and assume business liabilities. Capitals are to be
based on net assets transferred after the following adjustments:
 4% of the accounts receivable of AB may prove to be uncollectible, while the accounts
receivable of CD is estimated to be 90% realizable and accounts receivable of EF
amounting to P7,000 is deemed worthless.
 Interest at 15% on notes receivable amounting to P90,000 dated April 1, 2010 should
be accrued and interest at 12% on the balance of the notes dated February 2010. (use
360 days)
 The inventory of AB should be valued at P90,000, while P18,000 of the inventory of
CD is considered worthless.
 2/3 of the prepaid rent of CD is unexpired, while 1/4 of the prepaid rent of EF has
expired.
 The building is under depreciated by P20,000.
 The equipment is to be valued at P160,000.
 Interest at 10% on notes payable dated May 1, 2010 should be accrued, (use 360
days)
 AB has office supplies on hand which have been charged to expense amounting to
P9,000. These are still to be used by the partnership.
 Accrued expense of P2,450 is to be recognized in the books of EF.

Required: Assume the use of new set of books, prepare:

1. Adjusting entries on the books of AB, CD and EF.
2. Closing entries on the books of AB, CD and EF.
3. Journal entries to record the investments of AB, CD and EF, under the:

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 a. Net investment method
b. The partners’ capital balances are to be made equal with their profit and loss
ratio.
i. Either by withdrawing or investing additional cash
After formation, the new capital of the partnership is based on the adjusted
capital balance of AB, so that CD and EF may either withdraw or invest
additional cash to make the partners’ capital balance in proportionate to their
profits and losses ratio.
ii. Bonus method

II
On June 30, 2010 GH, the sole proprietor of the GH Company, expands the company and
establish a partnership with IJ and KL. The partners plan to share profits and losses as
follows: GH, 50%; IJ, 25% and KL, 25%. They also agree that the beginning capital balances
of the partnership will reflect this same relationship.

GH asked IJ to join the partnership because his many business contacts are expected to be
valuable during the expansion. IJ is also contributing P70,000 cash and a building that has
an original cost of P910,000, book value of P735,000, tax basis of P542,500 and a fair
market value of P647,500. The building is subject to a P423,500 mortgage that the
partnership will assume. KL is contributing P115,500 cash and marketable securities
costing P441,000 to KL but are currently worth P603,750.

GH’s investment in the partnership is the GH Company. He plans to pay off the notes with
his personal assets. The other partners have agreed that partnership will assume the
accounts payable.
The balance sheet for the GH Company follows:

GH Company
Balance Sheet
June 20,2010

Assets Liabilities and Capital

Cash P 105,000 Accounts payable P 556,500
Accounts receivable, net 504,000 Notes payable 651,000
Inventory 756,000 GH, capital 892,500
Equipment* 735,000
Total Assets P 2,100,000 Total Liabilities and Capital P 2,100,000
*net of accumulated depreciation of P210,000

The partners agree that the inventory is worth P892,500, and the equipment is worth half
its original cost, and the allowance established for doubtful accounts is correct.
How much is the agreed capital of GH if the partners agree to use the bonus method to
record the formation and if the partners agree to use the goodwill approach to record the
formation?
Bonus Goodwill
A. P1,417,500 P1,438,500
B. P1,215,375 P1,438,500
C. P1,215,375 P1,417,500
D. P1,417,500 P1,215,375

III

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MN and OP decided to form a partnership on June 1, 2010. The partnership will take over
their assets as well as assume their liabilities. As of June 1, 2010, the net assets of MN and
OP are P220,000 and P309,375 respectively. Liabilities of MN are 55% less than the value
of its net assets while liabilities of OP are 40% more than the value of its net assets. The
partners agreed on a 25:75 profit and loss ratio. Furthermore, the partners arrive on the
following agreements: MN’s inventory is undervalued by P11,000. An allowance for
doubtful account is to be set up in the books of MN and OP at 10% of the accounts
receivable balances (MN, P27,500; OP, P41,250). Accrued salary of P20,250 was not
recognized in OP’s books.
How much cash should MN invest/(withdraw) so that their capital interest would be
equal to their profit and loss ratio?
A. P 95,000 C. P133,250
B. P(133,250) D. P (95,000)

IV
QR and ST decided to combine their businesses and form a partnership. Below are their
balance sheets before any adjustments:
QR ST
Cash P P 1,098,360
2,048,400
Accounts receivable 1,031,960 2,498,716
Inventories 528,160 1,144,448
Property, plant & equipment 613,380 852,224
(net)
Other assets 8,800 15,840
Total Assets P 4,230,700 P 5,609,588

Accounts payable P 787,336 P 1,072,060

Notes payable 1,000,000 -
Mortgage payable - 1,440,000
QR, Capital 2,443,364 -
ST, Capital __________ ___3,097,528
Total Liabilities & Equity P 4,230,700 P 5,609,588

The partners agreed that the property, plant and equipment of QR is under depreciated by
P80,000 and that of ST is over depreciated by P200,000. Accounts receivable of P 108,000
in QR’s book and P140,000 in ST’s book are uncollectible. The partnership decided to
assume the mortgage liability of ST. The partnership agreement provides for a profit and
loss ratio and capital interest of 60% to QR and 40% to ST. ST is willing to invest or
withdraw cash from the partnership to comply with the agreement.
Compute for the capital balances of QR and ST right after the formation.
A. P 6,896,292 ; P4,597,528 C. P2,255,364 ; P1,503,576
B. P 6,896,292 ; P3,157,528 D. P2,255,364 ; P3,157,528
Compute for the total assets after the formation.
A. P5,618,336 C. P6.618,336
B. P8,058,336 D. P9,840,288

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Partnership Operation and Statement of Partners’ Capital

I
AB, QR and XY are manufacturers’ representative in the wholesale business. Their capital
accounts in the AQX Partnership for 2010 were as follows:
AB QR XY
January 1, Balances P135,000 P180,000 P75,000
March 1, withdrawal 36,000
April 1, investment 30,000
May 1, investment 72,000
June 1, investment 27,000
August 1, withdrawal 9,000
October 1, withdrawal 54,000
December 1, investment 18,000

Required: For each of the following independent income-sharing agreements, prepare

an income distribution schedule.
a. Monthly salaries are P30,000 to AB, P50,000 to QR and P45,000 to XY. AB receives a
bonus of 5% of net income after deducting his bonus. Interest is 12% of ending capital
balances. Any remainder is divided by AB, QR and XY in a 25:40:35 ratio. The Income
Summary account has a credit balance of P2,835,000 before closing.
b. Interest is 10% of weighted average capital balances. Annual salaries are P480,000 to
AB, P630,000 to QR and P510,000 to XY. QR receives a bonus of 25% of net income
after deducting the bonus and his salary. Any remainder is divided in a 2:3:4 ratio by
AB, QR and XY, respectively. Net income was P1,050,000 before any allocations.
c. XY receives a bonus of 20% of net income after deducting the bonus and the salaries.
Annual salaries are P600,000 to AB, P540,000 to QR and P750,000 to XY. Interest is
15% of the ending capital in excess of P140,000. Any remainder is to be divided by AB,
QR and XY in the ratio of their beginning capital balances. Net income was P1,740,000
before any allocations.
d. Monthly salaries are P32,000 to AB, P40,000 to QR and P42,000 to XY. QR receives a
bonus of 10% of net income after deducting his bonus. Interest is 25% on the excess
of the ending capital balances over the beginning capital balances. Any remainder is to
be divided by AB, QR and XY in a 3:2:1 ratio. The Income Summary account has a debit
balance of P750,000 before closing.
e. Annual salaries of P450,000 to AB, P540,000 to QR and P810,000 to XY are allowed to
the extent of the earnings only. Any remainder is to be divided equally among the
partners. Net income before allocation is P960,000.

II
QR, ST and UV opened an accounting practice on January 1, 2010. The business is to be
reported as a partnership with QR and ST serving as senior partners because of their years
of experience. To establish the business, QR, ST and UV contributed cash and other
properties valued at P750,000, P640,000 and P480,000, respectively. A partnership
agreement is drawn up that carries the following stipulations:
a. Regular drawings are allowed annually against shares of net income up to an
amount equal to 25% of the beginning capital balance for the year.
b. Profits and losses are allocated according to the following plan:
• A salary allowance is credited to each partner in an amount equal to P490 per
billable hour worked by that individual during the year. The billable hours for the
partners during the year were as follows: QR, 1,315; ST, 1,250; UV, 1,145.
• Interest is credited to the partners’ capital accounts at the rate of 10% of the
average monthly balance for the year.
• An annual bonus is to be credited to QR. The bonus is to be 20% of net income
after the bonus, the salary allowance and the interest.

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 • Any remaining partnership profit or loss is to be divided in the ratio of 60:20:20,
QR, ST and UV, respectively.

Because of monetary problems encountered in getting the business started, QR made an

additional investment of cash on March 1 amounting to P52,500 and ST on July 1
amounting to P135,000 while UV withdrew P45,000 on August 1. The partnership net
income for the year was P2,200,000 before any allocations. Each partner withdraws the
maximum allowable amount for the year.
Required: Prepare a statement of partners’ capital account for the year ending December
31, 2010 with supporting schedule of profit distribution.

III
The partnership of X, Y and Z was formed on January 1, 2010. The original investments
were as follows: X, P840,000; Y, P1,260,000; Z, P1,890,000. According to the partnership
agreement, net income or loss will be divided among the respective partners as follows: (1)
salaries of P126,000 for X, P105,000 for Y, and P84,000 for Z. (2) interest of 8% on the
average capital balance during the year to each partner. (3) remainder is divided equally.

Additional information is as follows: Net income of the partnership for the year ended
December 31, 2010 was P735,000. X invested an additional P210.000 in the partnership on
July 1, 2010. Z withdrew P315,000 from the partnership on October 1, 2010. X, Y and Z
made regular drawings against their shares of net income during 2010 of P105,000 each.
The partner’s capital balances as of December 31, 2010 are:
X Y Z
A. P1,179,500 P1,393,700 P1,731,800
B. 1,074,500 1,288,700 1,626,800
C. 966,000 1,071,000 1,416,800
D. 1,284,500 1,393,700 1,731,800

IV
CD partnership begins its first year of operations with the following capital balances: C,
Capital, P224,000 ; D, Capital, P112,000. According to the partnership agreement, all profits
will be distributed as follows: C will be allowed a salary of P268,800 and P134,400 to D. The
partners will be allowed with interest equal to 10% of the beginning capital balance of the
year. C will be allowed a bonus of 10% of the net income after bonus. The remainder will be
divided on the basis of the beginning capital for the first year and equally for the second
year. Each partner is allowed to withdraw up to P11,200 per year. Assume that the income
summary has a debit balance of P16,800 on the first year and a credit balance of P61,600
on the second year. Assume further that each partner withdraws the maximum amount
from the business each period.
What is the balance of P’s capital account at the end of the second year?
A. P95,200 B. P39,480 C. P296,520 D. P201,600

V
KFC, CPK and UCC formed a partnership on January 1, 2009, with each partner contributing
P600,000 cash. The partnership agreement provided that UCC receive a salary of P30,000
per month for managing the partnership business. UCC has never withdrawn any money
from the partnership. KFC withdrew P120,000 in each of the years 2009 and 2010, and CPK
invested an additional P240,000 in 2009 and withdrew P240,000 during 2010. Due to an
oversight, the partnership has not maintained formal accounting records, but the following
data as of December 31, 2010 is available.

Cash P 855,000 Accounts payable P 570,000

Accounts receivable 600,000 Notes payable 315,000
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Merchandise inventory 1,200,000
Computer equipment, net 1,110,000
Prepaid expenses 120,000
P3,885,000 P 885,000
Additional data:
1. The partners agree that income for 2010 was about half of the total income for the
first two years of operations.
2. The partnership agreement provides that profits, after allowance for UCC's salary,
are to be divided each year on the basis of beginning of the year capital balances.

For the year ended December 31, 2010, the capital balances of the partners are:
KFC CPK UCC
A. P600,000 P960,000 P1,080,000
B. P561,818 P850,909 P1,587,273
C. P480,000 P720,000 P1,080,000
D. P561,818 P720,000 P1,587,273

VI
A, B, and C formed a partnership on January 1, 2010 with initial capital contribution of
P450,000, P562,500, and P675,000 respectively. The partnership agreement provides that
income be shared among the partners as follows: Salaries are to be provided for A, B, and C
amounting to P67,500, P54,000, and F40,500 respectively. Interest of 12% on the average
capital during 2010 is to be given to A, B, and C. Bonus of 5% of the net income before
salaries and interests is to be given to A. Any remainder is to be divided among the partners
using the ratio 1:2:2 respectively.

The partnership treats the partners’ salaries as part of their operating expenses. The
net income reported for the year ending December 31, 2010 amounted to P234,000.
A contributed additional capital of P67,500 on July 1 and made a withdrawal of
P22,500 on Oct. 1; B contributed additional capital of P45,000 on Aug. 1 and made a
withdrawal of P22,500 on Oct. 1; and C made a withdrawal of P67,500 on Nov. 1.
Compute for the amount of income allocated to each partner.
A B C
A. P139,815 P129,555 P126,630
B. P140,940 P128,430 P126,630
C. P 98,055 P 69,435 P 66,510
D. P146,295 P126,315 P123,390

Admission of a New Partner

I
Nonoy and Binay are partners with capitals of P240,000 and P120,000 respectively. They
share profits in the ratio of 3:1. The partners agree to admit Frank as a member of the firm.
Required: Record the admission of Frank for each c the following situations:
1. Frank purchases 1/3 interest of Nonoy and Binay for P96,000 which is divided
between them in proportion to the equities given up.
2. Frank purchases a 1/3 interest in the firm. Frank pays the partners P180,000 which
is to be divided between them in proportion to the equities given up. Before Frank’s
admission, however, Inventory undervaluation is recorded on the firm books.
3. Frank invest the amount needed to give him a 1/3 interest in the capital of the
partnership. No goodwill or bonus is recorded.
4. Frank invest P180,000 for a ½ interest in the firm. No goodwill is recorded.
5. Frank invest P150,000 for a ¼ interest in the firm. The total firm capital is to be
P510,000.
6. Frank invest P165,000 for ¼ interest in the firm. Goodwill is to be recorded.

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 7. Frank invest P100,000 for a ¼ interest in the firm. The assets of the partnership are
fairly valued except for Land account, which is overvalued before Frank’s admission.

II
On August 1, 2010, Marie and Paz formed a partnership. Marie contributed inventory of
P500,000 with a fair value of P300,000 while Paz contributed cash of P250,000 and a land
valued that cost her P900,000 with a carrying amount of P1,000,000 and a fair value of
P1,250,000. The partnership did not assume the mortgage attached to the property worth
P250,000.

The partners agree to allocate profits and losses as follows:

1. Each partner shall receive 5% interest on the amount of his beginning capital.
2. Marie will receive a salary of P8,000 per month.
3. The remainder will be divided equally on the first year of operation and 60% and
40% on subsequent years.
4. Marie and Paz are allowed to withdraw P5,000 per month. Any withdrawal is treated
as a direct reduction of capital.

In 2010, the partnership has a credit balance of income summary of P100,000. On July 1,
2011, Ivonne was admitted in the partnership by investing P800.000 for a 25% interest,
goodwill is to be recorded.

After admission of Ivonne, the partners agreed to divide profits as follows:

1. Each partner shall receive 5% interest on the amount of his beginning capital.
2. All partners will receive a salary of P2,000 per month.
3. The balance to be divided 45% to Marie, 30% to Paz and 25% to Ivonne.
4. Each partner is allowed to withdraw P2,000 per month. Any withdrawal is treated as
a direct reduction of capital.
In 2011, the partnership earned a profit of P300,000 evenly throughout the year. How much is the
capital balance of Marie at the end of December 31, 2011.
A. P707,623.44
B. P694,554.69
C. P670,652.97
D. P705,586.25

III
Pedro, Chris and Paul are partners with present capital balances of P393,750; P472,500;
and P157,500, respectively. The partners share profits and losses according to the following
percentages; 60% for Pedro; 20% for Chris and 20% for Paul. Brian is to join the
partnership upon contributing P157,500 cash, plus an equipment with fair market value of
P315,000 of the partnership in exchange for 25% interest in the capital and 20% interest in
the profits and losses. The existing assets of the original partnership are overvalued by
P96,250. The original partners will share the balance of profits and losses in their original
ratio.
Calculate the capital balances of each partner in the new partnership.
Pedro Chris Paul Brian
A. P630,000 551,250 236,250 472,500
B. P409,500 477,750 162,750 350,000
C. P393,750 472,500 157,500 472,500
D. P467,250 497,000 182,000 350,000

IV
The following are the capital balances and the profit and loss ratio of the partners in the
SUPERHEROES Company on December 31, 2010:

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 Capital Account Balances P & L Ratio
SPIDERMAN P 120,000 25%
BATMAN 160,000 50%
WOLVERINE 400,000 25%
Total assets P 680,000 100%

On January 1, 2011, PICACHU is admitted to the partnership under the following

agreement:
 PICACHU is to share 1/3 in the profit and loss while the other partners continue to
participate in the profits and loss in their original ratio.
 PICACHU is to pay BATMAN P48,000 for ¼ of the latter’s equity in the partnership
net assets and is to invest P280,000 cash in the partnership.
 The total capital after PICACHU’s admission is P1,040,000, of which PICACHU’s
capital account is to show P300,000.
The capital account balances of the partners after PICACHU’s admission are
A. SPIDERMAN, P147,000; BATMAN, P166,000; WOLVERINE, P427,000
B. SPIDERMAN, P145,000; BATMAN, P170,000; WOLVERINE, P425,000
C. SPIDERMAN, P138,336; BATMAN, P156,774; WOLVERINE, P418,336
D. SPIDERMAN, P145,000; BATMAN, P166,000; WOLVERINE, P427,000
What is the new profit and loss ratio of all partners after PICACHU’s admission?
A. SPIDERMAN, 25.00%; BATMAN, 50.00%; WOLVERINE, 25.00%; PICACHU, 33.33%
B. SPIDERMAN, 18.75%; BATMAN, 37.50%; WOLVERINE, 18.75%; PICACHU, 25.00%
C. SPIDERMAN, 25.00%; BATMAN, 25.00%; WOLVERINE, 25.00%; PICACHU, 25.00%
D. SPIDERMAN, 16.67%; BATMAN, 33.33%; WOLVERINE, 16.67%; PICACHU, 33.33%

Retirement/Withdrawal of a Partner

I
A, B, and C are partners sharing profits in the ratio of 2:1:2, respectively. On December 31,
2010, C decided to withdraw from the partnership. Their capital balances on this date were
as follows:
A,Capital P 80,000
B,Capital 92,000
C,Capital 164,000

Required: Record the withdrawal of C under t ach of the following independent assumption.
1. C sold his interest to A and B for P140,000; the interest being divided using the
profit ratio by the remaining partners.
2. C sold his interest to the partnership for P170,000 cash.
3. C sold his interest to the partnership for P176,000 cash and only goodwill method
attributable to C was recorded by the partnership.
4. Assume the same facts in number (3) except that total goodwill attributable to all
the partners was recorded by the partnership.
5. C sold his interest to the partnership for P155,000 cash and partnership building is
undervalued by P30,000. Capital of the partnership after C’s retirement was
P211,000.
6. C accepts cash of P140,000 and an equipment with a current fair value of P18,000.
The equipment costs P60,000, is 60% depreciated, and has no residual value. Record
any gain or loss on disposal of the equipment directly to the partners' capital
accounts.
II
On December 30, 2010, the balance sheet of Danger Co. has the following balances: Total
assets P450,000: Willie loan P25,000; Willie capital P103,750; Manny capital P96,250 and
Loren capital P225,000. The partners share profits and losses in the ratio of 25% to Willie,
25% to Manny, and 50% to Loren. It was agreed among the partners that Willie retires from
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the partnership and the partnership assets be adjusted to their fair values of P510,000 as of
December 31, 2010. The partnership also suffered net loss of P150,000. The partnership
would pay Willie P108,500 cash for his total interest in the partnership.
What is the total capital of Manny after retirement of Willie assuming the use of partial goodwill
method?
A. P73,750 C. P33,000
B. P73,000 D. P43,750
What is the total capital of Loren after retirement of Willie assuming the use of total goodwill
method?
A. P185,000 C. P106,250
B. P184,500 D. P183,500
What is the total capital of Manny after retirement of Willie assuming the use of bonus method?
A. P73,000 C. P76,750
B. P73,750 D. P76,000

III
The total of the partner, capital accounts was P110,000 before the recognition of
partnership asset revaluation in preparation for the withdrawal of a partner whose profit
or loss sharing is 2/10. He was paid P28,000 by the firm in final settlement for his interest.
The remaining partners’ capital accounts, excluding their share of the asset revaluation,
totaled P90,000 after his withdrawal.
The total asset revaluation of the firm agreed upon was:
A. P40,000 C. P20,000
B. P28,000 D. P8,000

IV
L , M and N are partners sharing profits on a 5:3:2 ratio and have the following account
balances: P150,000, 90,000 and 60,000 respectively. On January 1, 2010, O was admitted
into the partnership by investing P40,000 with a 20% share in the profits. The old partners
continue to participate in profits proportionate to their original ratios.

For the year 2010, the partnership books showed a net profit of P50,000. It was disclosed,
however that the following errors were made.
2009 2010
Accrued expenses not recorded at year end 2,400
Inventory overstated 6,200
Purchases not recorded, for which goods have been
received and inventoried 4,000
Income received in advance not adjusted 3,000
Unused supplies not taken up at year end 1,800

On January 1, 2011, L sold his interest to M for P100,000. After which M, N and O agreed to
share annual profits of P300,000 equally between themselves. During 2011, the partners
withdrew P20,000 to M; P10,000 to N and P5,000 to O.

At the end of 2012, M decided to retire from the partnership and was paid P425,360 cash. It
was agreed that the inventory with book value of P50,000 would be adjusted to reflect their
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fair values of P35,000 and that total goodwill method would be used. Income earned for the
year was P195,000.
The share of partner L in the 2010 corrected net income:
A. P12,220 C. P 19,220
B. P18,800 D. P 20,000
The capital of M at the end of 2010:
A. P92,880 C. P88,932
B. P101,280 D. P102,000
The capital of O at the end of 2011:
A. P151,920 C. P169,110
B. P172,400 D. P173,000
The capital of N at the end of 2012 is:
A. P270,080 C. P 250,080
B. P211,920 D. P 249,600

Lumpsum Liquidation

I
Boy, Coy and Doy are partners with profit and loss rat 3 of 2:3:5. The partners decided to
liquidate the partnership. The partnership’s statement of financial position on December
31, 2009 before liquidation is as follows:
Assets Liabilities and Capital

Cash P 70,000 Liabilities P200,000

Non-cash assets 595,000 Boy, Loan 45,000
Boy, 35,000
Capital
Coy, 105,000
Capital
Doy, Capital 280,000
Total P665.000 Total P665,000
Required: Prepare a statement of liquidation under the following assumptions:
1. The non-cash assets are sold for P245,000. Assume that all partners are solvent.
2. The non-cash assets are sold for P171,500. Liquidation expenses of P17,500 are
paid. Boy, being solvent contributes sufficient cash to cover the debit balance in his
capital account. The other partners are insolvent.
3. The non-cash assets are sold for P126,000. Boy is insolvent and is unable to repay
partnership for his debit balance. The other partners are solvent.

II – ICPA #2
Kevin, Paul and Rey have capital balances of P60,000, P100,000 and P36,000, respectively
and they share profits in the respective ratio of 4:2:1. Paul received P52,000 as a result of
the liquidation of the partnership. Loss on assets realization is:
A. P118,000 C. P144,000
B. P132,000 D. P168,000

III
On December 31, 2009, the accounting records of Tito, Vic and Joey Partnership included the
following ledger account balances:
Receivable from Tito 132,000
Loan to Joey 40,500
Salary payable to Vic 135,000
Tito, Capital 553,500
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 Vic, Capital 452,500
Joey, Capital 486,000
Total assets includes cash amounting to P234,500. The partnership was liquidated on December
31, 2009, and Tito received P351,500 cash pursuant to the liquidation. Tito, Vic and Joey share net
income and losses in a 5:3:2 ratio, respectively. In the settlement to partners, how much cash is paid
to Vic?
A. 587,500 C. 542,000
B. 545,500 D. 0

IV
The partnership of MM, NN and OO was dissolved on October 31, 2009 and the account balances
after all noncash assets are converted to cash on Nov. 1, 2009, along with residual P/L sharing ratios,
are:
Cash P50,000 Accounts payable P120,000
NN, Capital (30%) 60,000 MM, Capital (30%) 90,000
OO, Capital (40%) 100,000
Personal assets and liabilities of the partners at November 1, 2009 are:
Personal Assets Personal Liabilities
MM P80,000 P90,000
NN 100,000 61,000
OO 190,000 80,000
If OO contributed P70,000 to the partnership to provide cash to pay the creditors, what amount of
M’s P90,000 partnership equity would appear to be recoverable:
A. P90,000
B. P81,000
C. P79,000
D. P0

Installment Liquidation

I
On January 1, 2009, the partners of AB, CD and EF who share profits and losses in the ratio of
5:3:2, respectively, decide to liquidate their partnership. The partnership trial balance at this
date is as follows:
Cash 18,000
Accounts Receivable 66,000
Inventory 52,000
Machinery and Equipment – net 189,000
AB, Loan 30,000
Accounts Payable 53,000
CD, Loan 20,000
AB, Capital 118,000
CD, Capital 90,000
EF, Capital 74,000
Total 355,000

The partners plan a program of piecemeal conversion of assets in order to minimize

liquidation losses. All available cash, less an amount retained to provide for future expenses, is
to be distributed to the partners at the end of each month. No interest accrues on partners’
loans during liquidation. A summary of the liquidation transactions is as follows:

January 2009
1. P51,000 was collected on accounts receivable, the balance is uncollectible.
2. P38,000 was received for the entire inventory.

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 3. P2,000 liquidation expenses were paid.
4. P50,000 was paid to outside creditors, after offset of a P3,000 credit memorandum
received on January 11, 2009.
5. P10,000 cash was retained in the business at the end of the month for potential
unrecorded liabilities and anticipated expenses
February 2009
6. P4,000 liquidation expenses were paid.
7. P6,000 cash was retained in the business at the end of the month for potential
unrecorded liabilities and anticipated expenses
March 2009
8. P146,000 was received on sale of all items of machinery and equipment.
9. P5,000 liquidation expenses were paid.
10. The P30,000 loan from AB is approved by the partners for offset against his capital
account.
11. No cash was retained in the business.
Required: Prepare a statement of liquidation with supporting schedule of safe payments to
partners.

II
Statement of financial position for the partnership of R, T, and W who share profits 2:1:1,
respectively, shows the following balances just before liquidation:
Cash P72,000 Liabilities P120,000
Other Assets 357,000 R, Capital 132,000
T, Capital 93,000
W, Capital 84,000
Total 429,000 Total 429,000
In the first month of liquidation, P192.000 was received on the sale of certain assets.
Liquidation expenses of P6,000 were paid, and additional liquidation expenses of P4,800
are anticipated before liquidation is completed. Creditors were paid P33,600. Available
cash was distributed to the partners. How much cash W should receive?
A. P44,100
B. P40,050
C. P49,050
D. P28,950

III
JFK Partnership, engaged in steel manufacturing business, had the following condensed financial
position prior to liquidation:
Cash P48,000 Liabilities P140,000
Noncash Assets 720,000 Loan payable to J 60,000
J, Capital (50%) 180,000
F, Capital (30%) 280,000
K, Capital (20%) 108,000
Total 768,000 Total 768,000

Assuming assets with a book value of P280,000 were sold for P200,000 and that all available cash
was distributed. For what amount would the remaining assets have to be sold in order for Partner F
to receive a total of P316,000 cash after liquidation.
A. P620,000 C. P28,000
B. P600.000 D. P600,000

IV
X, Y and Z share profits in the ratio of 5:3:2. The following balances are obtained prior to
partnership liquidation:

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 X Y Z
Capital balances P60,000 P45,000 P20,000
Loan balances 22,500 15,000 6,500

Assets are sold and cash is distributed to the partners in monthly installments during the course of
liquidation as follows:
January P7,500
February 20,000
March 45,000
April (final distribution) 15,000
Required:
1. Prepare a program to show how cash should be distributed by the liquidator during the
entire course of liquidation
2. Using the program developed above, prepare schedules summarizing the payments to be
made to partners at the end of each month.

V – ICPA #2
Ebay, Amazon and Sulit divide profits and losses in a 2:3:4 ratio. Just prior to liquidating their
partnership, their respective account balances were P50,000, P96,000 and P74,000 as of April 1,
2009. Their total assets include cash of P5,000 and a loan to Ebay for P10,000, while their total
liabilities of P90,000, include a loan from Sulit for P30,000. The partners agreed to distribute cash, as
it becomes available, at each month-end. Realization proceeds were P68,000 in April, P56,000 in May
and P63,000 in June. In the cash distribution on June 30, 2009, the distributive share of Sulit
amounted to:
A. P14,000 C. P28,000
B. P21,000 D. P35,000

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