Partnership Liquidation

1. On January 1, 20X2, the partners of Allen, Brown, and Cox, 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:
Debit Credit
Cash P 18,000
Accounts receivable 66,000
Inventory 52,000
Machinery and equipment, net 189,000
Allen, loan 30,000
Accounts payable P 53,000
Brown, loan 20,000
Allen, capital 118,000
Brown, capital 90,000
Cox, capital _______ 74,000
P355,000 P355,000

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. A summary of the liquidation transactions is
as follows:

January 20X2:
a. P51,000 was collected on accounts receivable; the balance is uncollectible.
b. P38,000 was received for the entire inventory.
c. P2,000 liquidation expenses were paid.
d. P50,000 was paid to outside creditors, after offset of a P3,000 credit memorandum received on
January 11, 20X2.
e. P10,000 cash was retained in the business at the end of the month for potential unrecorded
liabilities and anticipated expenses.

All partners are insolvent.

Required:
Compute for the safe installment to the partners as of January 31, 20x2. Show supporting
computations in good form.

The heart of the discerning acquires knowledge, for the ears of the wise seek it out.” (Proverbs 18:15)

- END –
 NAME: Date:
Professor: Section: Score:

QUIZ 2:

1. The partnership of Jenson, Smith, and Hart share profits and losses in the ratio of 5:3:2,
respectively. The partners voted to dissolve the partnership when its assets, liabilities, and
capital were as follows:
Assets
Cash P 40,000
Other assets 210,000
P250,000
Liabilities and Capital
Liabilities P 60,000
Jenson, Capital 48,000
Smith, Capital 72,000
Hart, Capital 70,000
P250,000

The partnership will be liquidated over a prolonged period of time. As cash is available it will be
distributed to the partners. The first sale of noncash assets having a book value of P120,000
realized P90,000. How much cash should be distributed to each partner after this sale?
a. Jenson P0; Smith P28,800; Hart P41,200.
b. Jenson P0; Smith P30,000; Hart P40,000.
c. Jenson P35,000; Smith P21,000; Hart P14,000.
d. Jenson P45,000; Smith P27,000; Hart P18,000.

2. A and B formed a partnership on July 1, 2004 to operate two stores to be managed by each of
them. They invested P30,000 and P20,000 and agreed to share earnings 60% and 40%,
respectively. All their transactions were of cash, and all their subsequent transactions were
handled through their respective bank accounts as summarized below:

A B
Cash receipts………………………………………………P79,100 P65,245
Cash disbursements…………………….………………… 62,275 70,695

On December 31, 20x1, all remaining non-cash assets in the two stores were sold for cash of
P60,000. The partnership was dissolved, and cash settlement was effected. In the distribution of
the P60, 000 cash, A received:

a. P24, 000 c. P34, 000

b. 26, 000 d. 36, 000
3. A balance sheet for the partnership of KK, LL and MM, who share profits 2:1:1 respectively,
shows the following balances just before liquidation:

Cash Other assets Liab. KK, Cap. LL. Cap. MM, Cap.
P48,000 P238,000 P80,000 P88,000 P62,000 P56,000

In the first month of liquidation, P128,000 was received on the sale of certain assets, Liquidation
expenses of P4,000 were paid, and additional liquidation expenses of P3,200 are anticipated
before liquidation is completed. Creditors were paid P22,400. Available cash was distributed to
the partners.

The cash to be received by each partner based on the above data:

KK LL MM KK LL MM
a. P56,600 P28,300 P28,300 c. P29,400 P32,700 P26,700
b. 86,000 61,000 55,000 d. 88,000 62,000 56,000

4. On January 1, 2009, partners AAA, BBB and CCC, who share profits and losses in the ratio
of 5:3:2, respectively, decided to liquidate their partnership. On this date, the partnership’s
condensed balance sheet was as follows:
Cash P 50,000
Other assets 250,000
P 300,000

Liabilities P 60,000
AAA, capital 80,000
CCC, capital 90,000
BBB, capital 70,000
Total P 300,000

On June 15, 2009, the first cash sale of other assets with a carrying amount of P150,000
realized P120,000. Safe installment payments to the partners were made the same date. How
much cash should be distributed to each partner?
AAA BBB CCC
a. P 15,000 P 51,000 P 44,000
b. 40,000 45,000 35,000
c. 55,000 33,000 22,000
d. 60,000 36,000 24,000

5. A, B, C, and D are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and 8/21,
respectively. The balances of their capital accounts on December 31, 2004 are as follows:

A………………………………………………………………………. P 1,000
B…………………………………………………………………….. 25, 000
C………………………………………………………………………. 25, 000
D……………………………………………………………………… 9, 000
P 60,000
The partners decide to liquidate, and they accordingly convert the non-cash assets into P23,200
of cash. After paying the liabilities amounting to P3,000, they have P22,000 to divide. Assume
that a debit balance of any partner’s capital is uncollectible.

After the P22, 000 was divided, the capital balance of B was:

a. P3, 200 c. P4, 500

b. 13,800 d. 17, 800

“Be kind and compassionate to one another, forgiving each other, just as in Christ God forgave you.” (Ephesians
4:32)

- END -