CHAPTER 3 DISSOLUTION

PROBLEM 4

1 C. 51, 200 Unadjusted Capital

Decrease in AIR 3, 600
Recovrey of Writedown 25, 000
Prepaid Assets 3, 600
Accrued Liabilities 4, 000
B's Capital before admission of C

Sale of Interest to C (102, 400 x 50%)

B's Capital after admission of C

2 A. 102, 400 CA FV
Revaluation:
A/R 120,000 116,400
Inventory 180,000
Prep Assets
Liabiities
Revaluation increase:

3 B. 111, 600 Adjusted balance 285,000

C's contribution 100,000
Net asset after admission 385,000
Interest in asset 20%
Credit capital 77,000
C's Contribution 100,000
Bonus to old partners (23,000)

4 A. 190,000 Adjusted cap balance 285,000

 Divide 60%
100% of partnership 475,000
Interest of C 40%
C should countribute 190,000

5 D. 12,000 & 25,000 List A

D's CC = A & B, capital x 10 %

= (50, 000 + 70, 000) x 10%
= 120, 000 x 10%
= 12, 000

6 B. Bonus to new partner Contributed Capital

New Partner Capital
Net asset after ad
Interest of new partner
Capital Credit
New Partner contri.
Bonus to new partner

7 C. 62,400 A's capital 0

B's Capital 208,800
Interest acquired by D
Actual Contribution
Gain on A and B

8 C. 68,000 , 32,000 , 50,000 Contributed Capital

Capital infusion
Net asset after ad
Interest of Andre
Capital Credit
New Partner contri.
Bonus to New (Andre)
9 B. 54,000 Contributed Capital 110,000
Capital Contribution 40,000
Net asset after ad 150,000
Interest of Andre x 1/3
Capital Credit 50,000
New Partner contri. 40,000
Bonus to new partner 10,000

10 D. Credit to B capital for 320,000 A capital

B Capital

11 A. 112,000 Payment to retiring partner

Capital Balance of retiring P.
Bonus to retiring partner

B 40,000 x 30%/50% = 24,000

C 40,000 x 20%/50% = 16,000

12 C. 1, 100, 000 Net asset 1,000,000

Profit 300,000
NA after profit 1,300,000
Payment to A (200,000)
Adjusted net asset 1,100,000

13 C. 700, 000
Capital Balances
Division of Profit (1.8M)
Balance after Profit
Share in revaluation gain (600k)
Adjusted Balance

Balance before withdrawal

 Payment to C
Bonus to C (200k x 20%/50, 30%/50%)
Balance after withdrawal

14 D. reduction in capital of P55, 000 for C C's share in revaluation Los

Debit to C's capital for the F
Net decrease in C's capital

15 C. 145, 000 Unadjusted Balance C, capital

Share in revaluation loss
Adjusted Balance C, capitalFB of furniture
Notes issued to C

PROBLEM 6- Classroom Discussion

1.) Admission of a new partner

CASE 1 Purchase of Interest from one partner

Revaluation: CA FV Inc/Dec Beginning Capital

A/R 140,000 120,000 (20,000) Share in revaluation
Inventory 200,000 160,000 (40,000) Adjusted Balance
Equipment 500,000 450,000 (50,000) Credit
Liabilities (20,000) (20,000) Debit
(130, 000) Balance after admission

Journal Entries:
Apple, Capital 78, 000
Banana, Capital 52, 000
Accounts Receivable 20, 000
Inventory 40, 000
Equipment 50, 000
Liabilities 20, 000
To record revaluation of assets and liabilities
CASE 2 Purchase of Interest from more than one partner
Apple Banana Carrot Total
Capital after Revaluation 437,000 223,000 - 660,000
Credit 132,000 132,000
Debit (87,400) (44,600) (132,000)
Capital after C's admission 349,600 178,400 132,000 660,000

CASE 3 Amount of Investment

Capital Balance 660,000 80% of the partnership

Divide by: 80%
New Capital Balance 825,000 100% of partnership
Multiply: C's Interest 20%
Carrot shall contribute 165,000

CASE 4 Investment in the Partnership - Bonus to new partner

Contributed Capital 660,000

Investment of Carrot 100,000 Capital before admission
Net asset after admission 760,000 Investment of Carrot
Interest of carrot 20% Bonus to Carrot
Capital Credit 152,000 Capital after admission
Investment of Carrot (100,000)
Bonus to new partner 52,000 Journal Entry
Cash
Apple 52,000 x 60% = 31,200 Apple, Capital
Banana 52,000 x 40% = 44,600 Banana, Capital

CASE 5 Investment in the Partnership - Bonus to new partner

Contributed Capital 660,000

Investment of Carrot 180,000 Capital before admission
 Net asset after admission 840,000 Investment of Carrot
Interest of Carrot x 20% Bonus to Carrot
Capital Credit 168,000 Capital after admission
Investment of Carrot (180,000)
Bonus to old partners (12, 000) Journal Entry
Cash
Apple 12,000 x 60% = 7,200 Apple, Capital
Banana 12,000 x 40% = 4,800 Banana, Capital
Carrot, Capital

2.) Withdrawal, retirement, or death of a partner

CASE 1 Purchase of Interest by remaining partner

A(50%) B(30%)
Unadjusted Balance 320, 000 192, 000
Share in Profit 400, 000 240, 000
Withdrawal (40, 000) (60, 000)
Adjusted Balance 680, 000 372, 000

A B
Balance before withdrawal 680, 000 372, 000
Withdrawal (680, 000) 680, 000
Balance after withdrawal 0 1, 052, 000

Journal Entry
Income Summary 800, 000
A, Capital 400, 000
B, Capital 240, 000
C, Capital 160, 000
to record profit
C, Capital 680, 000
A, Capital

P/L ratio after A's retirement

B (50% + 30%) 80%
C 20%
100%

CASE 2 Settlement of Interest by partnership

 A B
Balance before retirement 680, 000 372, 000
Payment to A (700, 000) 0
Bonus to A 20, 000 (12, 000)
Balance after retirement 0 360, 000

A, Capital 680, 000

B, Capital 12, 000
C, Capital 8,000
Cash 700, 000
to record settlement of interest

Bonus Allocation: B = 20, 000 x 3/ 5 C = 20, 000 x 2/ 5

= 12, 000 = 8, 000

CASE 3 Settlement of Interest by partnership

A B
Balance before retirement 680, 000 372, 000
Payment to A (650, 000) 0
Bonus B and C (30, 000) 18, 000
0 390, 000

A, Capital 680, 000

B, Capital 18, 000
C, Capital 12, 000
Cash 650, 000

Bonus Allocation: B = 30, 000 x 3/ 5 C = 30, 000 x 2/ 5

= 18, 000 = 12, 000

3.) Incorporation of a partnership

A B C
Adjusted Capital Balance 680, 000 372, 000 258, 000
Less: Preference shares 200 x 1, 000 (20, 000) (200, 000) (200, 000)
Remaining Interest 480, 000 172, 000 58, 000
Divide by: Par value OS 50 50 50
No. of ordinary shares 9, 600 3, 440 1,160

A B C
Preference shares 1, 000 1, 000 1, 000
Ordinary shares 9, 600 3, 440 1, 160
Total shares issued 10, 600 4, 440 2, 160
B (40%)
94, 000
(1, 440)
10, 000
1, 440
(1, 600)
102, 400

(51, 200)
51, 200

Inc/Dec Bal. before admission:

Capital Unadjusted
(3,600) Share in revaluation
25,000 Adjusted balance
3,600
(4,000) Bal. after admission
21,000 Capital before admission
Investment of C
Bal. after admission

Bal. after admission A B

Capital before admission 182,600 102,400
Investment of C
Bonus to A & B (23k) 13,800 9, 200
Bal. after admission 196,400 111, 600

A. 23,000 x 60% = 13,800

B. 23,000 x 40% = 9, 200

60% of the partnership

 2 / 5.

List B

D's CC = Partnership, capital x 10%

= (50, 000 + 70, 000 + 130, 000) x 10%
= 250, 000 x 10%
= 25, 000

75,000
18,000
93,000
20%
18,600
18,000
600

x 20% = 27,840
x 20% = 41,760
69,600
132,000
62,400

120,000 Ming 20,000 x 3/5 = 12,000

30,000 Piw 20,000 x 2/5 = 8,000
150,000
x 1/3
50,000 Beg. Balance
30,000 Andre contribution
20,000 Bonus to Andre
New Capital balance
 Blau 10,000 x 3/5 = 6,000
Rubi 10,000 x 2/5 = 4,000

Blau Rubi Lind

Beg. Balance 60,000 50,000
Lind contribution 40,000
Bonus to Lind (6,000) (4,000) 10,000
New Capital balance 54,000 46,000 50,000

320,000
320,000

360,000 A B C
(320,000) Capital Bal. 320,000 192,000 128,000
40,000 Payment to A (360,000)
Bonus to A 40,000 (24,000) (16,000)
Capital Bal. after - 168,000 112,000

A B C Totals
300,000 500,000 200,000 1,000,000
360,000 540,000 900,000 1,800,000
660,000 1,040,000 1,100,000 2,800,000
120,000 180,000 300,000 600,000
780,000 1,220,000 1,400,000 3,400,000

780,000 1,220,000 1,400,000 3,400,000

 (1,600,000) (1,600,000)
(80,000) (120,000) 200,000 -
700,000 1,100,000 0 1,800,000

s share in revaluation Loss (15, 000 / 3) (5, 000)

bit to C's capital for the FV of furniture (50, 000)
t decrease in C's capital 55, 000

200, 000
(5, 000)
195, 000
(50, 000)
145, 000

Apple Banana Carrot Total

ginning Capital 515,000 275,000 - 790,000
are in revaluation (78, 000) (52, 000) - (130, 000)
justed Balance 437,000 223,000 - 660,000
111, 500 111, 500
(111, 500) (111, 500)
lance after admission 437,000 111, 500 111, 500 660,000

Banana, Capital 111, 500

Carrot, Capital 111, 500
to record purchase of interest from Banana
 Apple cap 437, 000 x 20% = 87,400
Banana cap 223,00 x 20% = 44,600
132,000

New P/L ratio:

Apple (100 - 20) x 20% 48%
Banana (100 - 20) x 40% 32%
Carrot 20%
100%

Apple Banana Carrot Total

pital before admission 437,000 223,000 - 660,000
estment of Carrot 100,000 100,000
nus to Carrot (31,200) (20,800) 52,000 -
pital after admission 405,800 202,200 152,000 760,000

urnal Entry
100,000
ple, Capital 31,200
nana, Capital 20,800
Carrot, Capital 152,000

Apple Banana Carrot Total

437,000 223,000 - 660,000
 180,000 180,000
7,200 4,800 (12,000) -
444,200 227,800 168,000 840,000

180, 000
ple, Capital 7, 200
nana, Capital 4, 800
rrot, Capital 168, 000
to record admission of Carrot and bonus to old partners

C(20%) Total
128, 000 640, 000
160, 000 800, 000
(30, 000) (130, 000)
258, 000 1, 310, 000

C Total
258, 000 1, 310, 000
0 0
258, 000 1, 310, 000

A, Capital 40, 000

B, Capital 60, 000
C, Capital 30, 000
Cash 130, 000
to record withdrawals

680, 000
 C Total
258, 000 (310, 000)
0 (700, 000)
(8, 000) 0
250, 000 610, 000

New P/L ratio

B (30 / 50) 60%
C ( 20 / 50) 40%
100%

, 000 x 2/ 5

C Total
258, 000 1, 310, 000
0 (650, 000)
12, 000 0
270, 000 660, 000

, 000 x 2/ 5

Total
1, 310, 000
(600, 000)
710, 000
50
14, 200

Total
3, 000
14, 200
17, 200
 A B Total Adjusted balance
170,000 94,000 264,000 C's contribution
12,600 8,400 21,000 Net asset after admission
182,600 102,400 285,000 Interest in asset
Credit capital
A B C Total C's Contribution
182,600 102,400 - 285,000 Bonus
71,250 71,250
182,600 102,400 71,250 356,250

C Total
- 285,000
100,000 100,000
(23,000) -
77,000 385,000
Ming Piw Andre Total
80,000 40,000 - 120,000
30,000 30,000
(120,000) (8,000) 20,000 -
68,000 32,000 50,000 150,000
 Total
110,000
40,000
-
150,000

Total
640,000
(360,000)

280,000

Division of profit
A 1,800,000 x 20% = 360,000
B 1,800,000 x 30% = 540,000
C 1,800,000 x 50% = 900,000

Division of fully depreciated asset

A 600,000 x 20% = 120,000
B 600,000 x 30% = 180,000
C 600,000 x 50% = 300,000

Capital Bal. of C 1,400,000

Payment to C (1,600,000)
Bonus to C (200,000)

The new P/L ratios after Carrot's admission:

Apple 60%
Banana(40% x 1/2) 20%
Carrot 20%
Journal Entry
Apple, Capital 87, 400
Banana, Capital 44, 600
Carrot, Capital 132, 000
285,000
71,250
356,250
20%
71,250
71,250
0
CHAPTER 4 LIQUIDATION

PROBLEM 1

1 A. 15, 000, 51, 000, 44, 000

Capital balances before liquidaition
Allocation of Loss

2 B. 190, 000 Beans

Capital balance before liq. 190, 000
Allocation of Gain/Loss - (Assets & liabilities a
190, 000

3 A. 243, 000 Jac (30%)

Capital Balance 300, 000
Allocation of Loss (57, 000) (190, 000 x 30%)
243, 000

4 D. 0 Capital Balance Beans Total

Allocation of Loss (70%) 190, 000 490, 000
Amounts received (259, 000) (370, 000)
(69, 000) 120, 000

5 A. 261, 000 Jack (30%) Beans (70%

Capital Balance 300, 000
Allocation of Loss (39, 000)c (91, 000)a
Amounts Received 261, 000
6 A. 560, 000 Jack (30%) Beans(70%
Capital Balance 300, 000
Allocation of Loss (39, 000)a
Amounts Received 261, 000

a. squeeze
b. 390, 000 / 30%

7 D. 12, 800 Loss on sale of NCA [ 70, 000 - ( 480, 000 x 1 / 3) ]

Actual liquidation expense
Actual Loss

Maximum Loss Possible (480, 000 x 2 / 3)

8 D. 0 Cash 0 Capital Balance

Outstanding Liab (30, 000) Allocation of Loss
Total (30, 000)
Equity (570, 000) Deficiency of C absorbed
Loss (600, 000)
Additional Contribution

9 A. 6, 000 please see solution #8

Capital Balance 150, 000

Share in Loss (120, 000)
Share in Deficiency of C (36, 000)
(6, 000)
Additional Contribution 6,000
-
10 B. 17, 600 A B
Capital Balance 250, 000 150, 000
Recivable from A (10, 000)
Payable to B 20, 000
Total Interest 240, 000 170, 000
Divide P/L 50% 30%
Maximum Loss 480, 000 566, 667
66, 667
480, 000 500, 000
(20, 000)
480, 000 480, 000

Cash Payment 50% 30%

A B
1st Priority 66, 667 20, 000
2nd Priority 20, 000 6, 000
Cash Priority Program

In excess of 30, 000, allocate based pm P/L

PROBLEM 6

CASE 1 Lump - Sum Liquidation

Collection on AIR 42, 000 Capital Balances

Sale of Inventory 20, 000 Receivable from A
Sale of Equipment 310, 000 Payable to B
Liquidation Expenses (12, 000) Capital balances before liquidation
Net Cahs Proceeds 360, 000 Allocation of Loss
Less: CA of NCA (470, 000) Amounts received by the partners
Total Loss (110, 000)

CASE 2 Installment Liquidation

Collection AIR 30, 000

 Sale of inventory (120, 000 x 75% x 80%) 72, 000 Capital Balances
Sale of Equipment 185, 000 Receivable from A
Actual liquidation expenses (12, 000) Payable to B
Estimated liquidation (5, 000) Capital Balances be
Net Cash proceeds 270, 000 Allocation of Loss
CA of all NCA (60,000 + 120,000 + 290,000) (470, 000) Amounts received b
Total Loss (200, 000)

CASE 3 Gain on Settlement of Liabilities

Cash = L + E Cash
20, 000 0 460, 000 Total Partner's Equity
250, 000 Loss
270, 000 = 0 460, 000

CASE 4 Marshalling of Assets

A
Net Proceeds 65, 000 Personal Asset 200
CA of NCA (470, 000) Personal Liability (440, 000)
Loss (405, 000) insolvent
insolvent

CASE 5 Reconstruction of information

A (60%) B(40%)
Capital balances before luquidation 350, 000 220, 000
Alllocation of Loss (120, 000) (80, 000)
Amounts Received by Partners 120, 000 140, 000

CASE 6 Non Cash Asset used as payment for claim

A(60%) B(40%)
 Capital Balances before Liquidation 240, 000 220, 000
Allocation of Loss (243, 000) (162, 000)
Total (3, 000) 58, 000
Deficiency of A abosrbed by B 3000 (3, 000)
Tptal - 55, 000
Payment in equipments (20, 000)
- 35, 000

CASE 7 Cash Priority Program

A(60%) B(40%) Total

Capital Balance 250, 000 200, 000
Receivable from A (10, 000)
Payable to B 20, 000
Total Interest 240, 000 220, 000 460, 000
Divide by: P/L ratio 60% 40%
Maximum Loss absorption 400, 000 550, 000
(150, 000)1st
400, 000 400, 000

Priority Payment: B = 150, 000 x 40%

= 60, 000

In excess of 60, 000, allocated to A & B based on P/L ratio

 50% 30% 20%
C D E Total
80, 000 90, 000 70, 000 240, 000
(65, 000) (39, 000 (26, 000) (130, 000)
15, 000 51, 000 44, 000 110, 000

(Assets & liabilities are settled at CA)

A= L + E
690, 000 = 200, 000 + 490, 000

Gain/ Loss = Net Cash Proceeds - CA

= 500, 000 - 690, 000
= 190, 000

squeeze

Beans (70%) Total a. squeeze

190, 000 490, 000 b. 91, 000 / 70%
(91, 000)a 130, 000b c. 130, 000 x 30%
99, 000
 Beans(70%) Total Asset = Liab + Equity Net Cahs Proceeds
190, 000 490, 000 = 200, 000 + 490, 000 CA
(130, 000)b = 690, 000 Gain (Loss)

A 20%
(90, 000) Capital Balance 100, 000
(8, 000) Actual Loss 98, 000 (19, 600)
(98, 000) Total 80, 400
Maximum Possible Loss 320, 000 (64, 000)
(320, 000) 16, 400
Deficiency of C absorbed (3, 600)
12, 800

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

210, 000 150, 000 210, 000
(180, 000) (120, 000) (30, 000) (600, 000)
30, 000 30, 000 (90, 000)
y of C absorbed (54, 000) (36, 000) 90, 000
(24, 000) (6, 000) -
l Contribution 24, 000
0
 C
100, 000 1. First installment First Priority
12, 000

100, 000 2. Second Installment (to satisfy B's claim of 20, 000)
20% 30, 000
500, 000
Second Priority
500, 000
(20, 000) Cash Distributed Per Program
480, 000
Excess of 30, 000 (42, 000 - 30, 000 = 12, 000)
Actual Cash for Distribution
20%
C Total For second Installment B received P17, 600 (8, 000 + 6, 000 +
20, 000
4, 000 10, 000
30, 000

A (60%) B (40%) Total Checking:

250, 000 200, 000 Beg. Cash balance
(10, 000) Net Cash Proceeds fro
20, 000 Less: Payment to outs
efore liquidation 240, 000 220, 000 Cash Available for dis
(66, 000) (44, 000)
by the partners 174, 000 176, 000 350, 000

A(60%) B(40%) Total

Capital Balances 250, 000 200, 000
Receivable from A (10, 000)
Payable to B 20, 000
Capital Balances before liquidation 240, 000 220, 000 460, 000
Allocation of Loss (120, 000) (80, 000) (200, 000)
Amounts received by partners 120, 000 140, 000 260, 000

A
270, 000 Total Interest 240, 000
(460, 000) Allocation of Loss (114, 000)
(190, 000) Amount Received by Partners 126, 000

B A (60%)
380, 000 Capital Balance before liquidation 240, 000
(240, 000) Allocation of Loss (243, 000)
140, 000 (3, 000)
140, 000 Deficiency of A absorved by B 3000
Cash Distribution to Partners -

Solution
Total a. 200, 000 80, 000 / 40%
460, 000 b. 120, 000 [ 240, 000 - (200, 000 x 60%) ]
(200, 000) c. 260, 000 120, 000 + 140, 000
260, 000 d. 270, 000 Net Cash Proceed
CA of NCA (470, 000)
Loss on Realization (200, 000)

Total
 460, 000 Computation of Loss Assets =
405, 000 Cash (Remaining Cash) 35, 000 =
55, 000 Equipment @ settlement Price 20, 000 =
Totals 55, 000 =
55, 000
(20, 000) Total Loss (balancing figure) = 55, 000 - 460, 000 = 405, 000
35, 000

Collection of Accounts Receivable (60, 000 x 1/2 ) 30, 000

Sale of Inventory (120, 000 x 75% x 80% ) 72, 000
Sale of Equipment 185, 000
Actual Liquidation Expense (12, 000)
Estimated Liquidation Expense (5, 000)
Net cash proceeds 270, 000
Cash bal. beg. 20, 000
Accoutns Payable (30, 000
Cash available for distribution to partners 260, 000
Net Cahs Proceeds 560, 000 squeeze
(690, 000)
Gain (Loss) 130, 000b

B 30% C 50%
170, 000 200, 000
(29, 400) 49, 000
140, 600 151, 000
(96, 000) (160, 000)
44, 600 (9, 000)
(5, 400) 9000
-

(600, 000)
 A 50% B 30% C 20% Total
12, 000 12, 000

8, 000 8, 000

6, 000 4, 000 10, 000

- 26, 000 4, 000 30, 000

6, 000 3, 600 2, 400 12, 000

6, 000 29, 600 6, 400 42, 000

600 (8, 000 + 6, 000 + 3, 600)

Checking:
Beg. Cash balance 20, 000
Net Cash Proceeds from sale 630, 000
Less: Payment to outside creditor (30, 000)
Cash Available for distribution to partners 350, 000

Checking:
 Beg. Cash Balance 20, 000
Net Cash Proceeds 270, 000
Payment to outside creditors (30, 000)
Cash available for distribution to partners 260, 000

B Total
220, 000 460, 000
(76, 000) (190, 000)
144, 000 270, 000

B (40%) Total
220, 000 460, 000
(162, 000) (405, 000)
58, 000 55, 000
(3, 000) 0
55, 000 55, 000

270, 000
(470, 000)
(200, 000)
Liability + Equity
0 + 460, 000

0 + 460, 000

A(60%) B(40%)
Available cash for distribution
Allocation:
1st Priority 60, 000
Balance
Payment after priorities:
200, 000 x (605%, 40%) 120, 000 80, 000 (200, 000)
First installment payment 120, 000 140, 000
 Total
260, 000

(60, 000)
200, 000

(200, 000)
-