PARTNERSHIP LIQUIDATION

PROBLEM 4: MULTIPLE CHOICE- COMPUTATIONAL

1. A
Solution:
Net proceeds 385,000.00
Less: Carrying amount of all non-cash assets (450,000.00)
Total loss (65,000.00)

2. B

Solution:
Sale of the non-cash assets 56,000.00
Less: Carrying amount of all non-cash assets (212,000.00)
Total loss (156,000.00)

3. C

Solution:
Net proceeds 320,000.00
Less: Carrying amount of all non-cash assets (720,000.00)
Total loss (400,000.00)

4. A

Solution:
Asset= Liabilities + Equity
224,000 ≠ 120,000 + 1,880,000

Cash 224,000.00
Less: Payment for Liabilities (120,000.00)
Cash available for distribution to partners 104,000.00
Total Partner's Equity (1,880,000.00)
Loss (balancing figure in acctg. equation) (1,776,000.00)

5. B

Solution:
Asset= Liabilities + Equity
0 ≠ 0 + 490,000

Jack, Capital 300,000.00

Beans, Capital 190,000.00
Cash available for distribution to partners 490,000.00

6. A

Solution:
Asset= Liabilities + Equity
500,000 ≠ 200,000 + 490,000

Cash 500,000.00
Less: Payment for Liabilities (200,000.00)
Cash available for distribution to partners 300,000.00
Total Partner's Equity (490,000.00)
Loss (balancing figure in accounting equation) (190,000.00)

7. D
Asset= Liabilities + Equity
Solution: 120,000 ≠ 0 + 490,000

Cash 120,000.00
Total Partner's Equity (490,000.00)
Loss (balancing figure in accounting equation) (370,000.00)

8. A

Solution:
Step 1:
Jack (30%) Beans (70%) Total
Capital balances 300,000.00 190,000.00 490,000.00

before the liquidation

Allocation of loss: ? ? ?
Amounts received by the partners ? 99,000.00 ?

Step 2:
Jack (30%) Beans (70%) Total
Capital balances 300,000.00 190,000.00 490,000.00
before the liquidation
Allocation of loss: ? (91,000.00) ?
Amounts received by the partners ? 99,000.00 ?
99,000-190,000=(91,000) share of Beans in the loss

9. A

Solution:
Work Backwards
Net proceeds 560,000.00
Payment to outside creditors (200,000.00)
Cash available for distributions to partners (360,000.00)

10. A

Solution: CASH PRIORITY PROGRAM

A (50%) B (30%) C (20%)

Cash balances before liquidation 250,000.00 150,000.00 100,000.00
Add: Loans 20,000.00
Less: Receivables (10,000.00)
Total partner's interest 240,000.00 170,000.00 100,000.00
Divided by: P/L percentage 50% 30% 20%
Maximum Loss Absorption Capacity 480,000.00 566,667.00 500,000.00
Difference between 1st and 2nd (66,667.00)
Balance 480,000.00 500,000.00 500,000.00
Difference between 1st, 2nd and 3rd (20,000.00) (20,000.00)
Equal Balance of MLAC 480,000.00 480,000.00 480,000.00

Installment Distribution
Amount A (50%) B (30%) C (20%)
Cash Available 12,000.00
Allocation:
1st- Priority (12,000.00) 120,000.00
2nd- Priority - -
3rd- Priority - - - -

1st Installment - 120,000.00 -

*1st Installment= 20,000 - 12,000 = 8,000 (Remaining)

ARTNERSHIP LIQUIDATION

Smith (60%) Jones (40%) Total

Capital balances 195,000.00 155,000.00 350,000.00
Receivable from Smith (20,000.00) (20,000.00)
Total 175,000.00 155,000.00 330,000.00
Allocation of loss: (39,000.00) (26,000.00) (65,000.00)
(65,000 x 60%; 40%)
Amounts received by partners 136,000.00 129,000.00 265,000.00

A (50%) B (25%) C (25%)

Capital balances 76,000.00 64,000.00 56,000.00
Allocation of loss: (78,000.00) (39,000.00) (39,000.00)
(156,000 x 50%; 25%; 25%)*
Totals (2,000.00) 25,000.00 17,000.00
Allocation of capital deficiency to other 2,000.00 (1,000.00) (1,000.00)
partners: (2,000 x 25%/50%; x 25%/50%)
Amounts received by partners - 24,000.00 16,000.00

A (50%) B (30%) C (20%)

Capital balances 250,000.00 86,000.00 40,000.00
Payables account 64,000.00 20,000.00
Total 250,000.00 150,000.00 60,000.00
Allocation of loss: (200,000.00) (120,000.00) (80,000.00)
(400,000 x 50%; 30%; 20%)
Totals 50,000.00 30,000.00 (20,000.00)
Additional contribution of C 20,000.00
Amounts received by the partners 50,000.00 30,000.00 -

A (20%) B (30%) C (50%)

Capital balances 400,000.00 680,000.00 800,000.00
Allocation of loss: (355,200.00) (532,800.00) (888,000.00)
(1,776,000 x 20%; 30%; 50%)
Totals 44,800.00 147,200.00 (88,000.00)
Allocation of capital deficiency (35,200.00) (52,800.00) 88,000.00
to other partners:
88,000 x (20%/50%) & (30%/50%)
Amounts received by the partners 9,600.00 94,400.00 -

Jack (30%) Beans (70%) Total

Capital balances 300,000.00 190,000.00 490,000.00
Amounts received by partners 300,000.00 190,000.00 490,000.00
The partners shall receive equal amounts to their claims

Jack (30%) Beans (70%) Total

Capital balances 300,000.00 190,000.00 490,000.00
Allocation of loss: (57,000.00) (133,000.00) (190,000.00)
(190,000 x 30%; 70%)
Amounts received by the partners 243,000.00 57,000.00 300,000.00

Jack (30%) Beans (70%) Total

Capital balances 300,000.00 190,000.00 490,000.00
Allocation of loss: (111,000.00) (259,000.00) (370,000.00)
(370,000 x 30%; 70%)
Totals 189,000.00 (69,000.00) 120,000.00
69,000.00 69,000.00
Amounts received by the partners 189,000.00 - 189,000.00

Step 3:
Jack (30%) Beans (70%)
Capital balances 300,000.00 190,000.00

before the liquidation

 Allocation of loss: (39,000.00) (91,000.00)
Amounts received by the partners 261,000.00 99,000.00
(91,000 ÷ 70% P/L ratio of Beans)= 130,000 total loss
(130,000 x 30% P/L ratio of Jack)= 39,000 share of Jack in the loss

Jack (30%) Beans (70%) Total

Capital balances 300,000.00 190,000.00 490,000.00
before the liquidation
Allocation of loss: (39,000.00) (91,000.00) (130,000.00)
Amounts received by the partners 261,000.00 99,000.00 360,000.00
See the computation above No. 8

3RD 1ST 2ND

Payments to
A (50%) B (30%) C (20%)

20,000.00 1st installment

6,000.00 4,000.00 2nd installment

26,000.00 4,000.00

Amount A (50%) B (30%)

Cash Available 30,000.00
Allocation:
1st- Priority (8,000.00) 8,000.00
2nd- Priority (10,000.00) 6,000.00
3rd- Priority 12,000.00 6,000.00 3,600.00
(12k x 30%; 20%; 50%)
2nd Installment 6,000.00 17,600.00
Total
196,000.00
(156,000.00)

40,000.00
-

40,000.00

Total
376,000.00
84,000.00
460,000.00
(400,000.00)

60,000.00
20,000.00
80,000.00

Total
1,880,000.00
(1,776,000.00)

104,000.00
-
104,000.00

Total
490,000.00
(130,000.00)
360,000.00

C (20%)
4,000.00
2,400.00

6,400.00