CHAPTER 20 PARTNERSHIP LUMP-SUM LIQUIDATION

I – Statement of Liquidation – Lump-sum

Assume the following data for QRS Partnership had the following condensed balance sheet just before
liquidation on November 1, 20X4, reports the following balances:

Assets Liabilities and Capital

Cash P24,000 Liabilities P12,000
Noncash assets 84,000 Q, loans 2,400
Q, capital (30%) 9,600
R, capital (50%) 48,000
S, capital (20%) 36,000
Total P108,000 Total P108,000

Required: Prepare statements of liquidation, assuming:

1. The noncash assets were realized at P96,000.
2. The noncash assets were realized at P48,000.
3. The noncash assets were realized at P36,000. The personal assets and liabilities at the partners
on this date are as follows:

Personal Assets Partnership Liabilities

Q P288,000 P240,000
R 216,000 228,000
S 108,000 108,000

4. The noncash assets were realized at P42,000.

5. The noncash assets were realized at P24,000. The personal assets and liabilities of the partners
at this date are as follows:

Personal Assets Partnership Liabilities

Q P288,000 P284,400
R 216,000 228,000
S 117,600 108,000

6. The noncash assets includes goodwill of P54,000 and prepaid expenses of P18,000. The partners
agreed to write-off these accounts since they are valueless. The remaining noncash assets were
realized at P1,200 with liquidation expenses paid amounting to P14,400. The personal assets
and liabilities of the partners on this date are as follows:

Personal Assets Partnership Liabilities

Q P240,000 P204,000
R 216,000 192,000
S 108,000 112,800

7. Following are the data available before liquidating the partnership:

a. Prepaid expenses amounted to P8,400 were refunded to the partnership with the
exception of P1,440 that was forfeited.

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 b. R agreed to personally take certain equipment having a P6,000 book value. (The partners
estimated its current value at P7,200)
c. S agreed to personally take certain furniture having a P3,500 book value. (The partners
estimated its current value at P3,000)
d. The remaining noncash assets were realized at P32,400.

II – Simple Liquidation

The Discount Partnership is being liquidated. The current balance sheet is shown here.

Cash P25,000
Other assets 120,000
Total assets P145,000
Liabilities and Partners’ Capital
Accounts Payable P40,000
Dawson, Capital 31,000
Feeney, Capital 65,000
Hardin, Capital 9,000
Total Liabilities and Partners’ Capital P145,000

Dawson, Feeney, and Hardin share profits and losses in a 30:40:30 ratio.

Required:
1. Prepare a schedule of partnership liquidation for each of the following three independent cases.
a. The noncash assets are sold for P60,000, and any partner with a deficit is unable to
eliminate any of the deficit.
b. The noncash assets are sold for P60,000, and any partner with a deficit is able to invest
cash equal to the amount of the deficit.
c. The noncash assets are sold for P50,000, and any partner with a deficit is able to invest up
to P8,000 cash in the partnership.
2. Prepare all necessary journal entries for No. 1 above.

III – Simple Liquidation

The CC, DD and GG (CDG) Partnership has decided to liquidate as of December 1, 20X4. A balance sheet
as of December 1, 20X4, appears below:

Assets
Cash P25,000
Accounts Receivable (net) 75,000
Inventories 100,000
Property, Plant and Equipment (net) 300,000
Total Assets P500,000

Liabilities and Capital

Liabilities:
Accounts Payable P270,000
Capital:

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 CC, Capital P120,000
DD, Capital 50,000
GG, Capital 60,000
Total Capital 230,000
Total Liabilities and Capital P500,000

Additional Information
1. The personal assets (excluding partnership capital partner as of December 1, 20X4) follow:
CC DD GG
Personal assets P250,000 P300,000 P350,000
Personal liabilities 230,000 240,000 325,000
Personal net worth P20,000 P60,000 P25,000
2. CC, DD, and GG share profits and losses in the ratio of 20:40:40.
3. All of non-cash assets were sold on December 10, 20X4, for P260,000.

Required:

IV – Simple Liquidation

Merz, Dechter, and Flowers are partners in a partnership and share profits and losses 40%, 40%, and
20%, respectively. The partners have agreed to liquidate the partnership and anticipate that liquidation
expense will total P14,000. Prior to the liquidation, the partnership balance sheet reflects the following
book values:

Cash P25,000
Noncash assets 200,000
Note payable to Flowers 12,000
Other liabilities 165,000
Capital, Merz 40,000
Capital, Dechter 18,000
Capital deficit, Flowers (10,000)

Required: Assuming that the actual liquidation expenses are P20,000 and that noncash assets are sold
for P160,000, determine how the assets will be distributed. Flowers has net personal assets of P10,000.

V – Simple Liquidation

The partnership of Able, Bower, and Cramer was liquidated. The partners have shared profits and losses
in the ratio of 2:4:4 Prior to liquidation, their capital balances were the following*:

Able Bower Cramer

P10,000 P(5,000) P(15,000)
*Deficit show in parentheses

Cash totaled P20,000, with liabilities amounting to P30,000. A review of the individual partners’ personal
financial status reveals the following:

Assets Liabilities
Able P5,000 P20,000

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 Bower 6,000 4,000
Cramer 30,000 20,000

VI

The partners of Arthur, Baker and Casey Partnership decided to liquidate on April 1, 20X4. The balance
sheet of the partnership on April 1, 20X4, follows, with the income-sharing ratio indicated
parenthetically:

Assets Liabilities and Capital

Cash P30,000 Trade accounts payable 65,000
Loans receivable from Arthur 20,000 Loans payable to Baker 30,000
Other assets 250,000 Arthur, capital (2) 70,000
Baker, capital (5) 80,000
Casey, capital (3) 55,000
Total P300,000 Total P300,000

On April 1, 20X4, the disposal of other assets with a carrying amount of P100,000 realized P70,000, and
all available cash was distributed.
Required: Prepare journal entries for Arthur, Baker and Casey Partnership on April 1, 20X4, to record the
realization of the other assets and the distribution of available cash to creditors and to partners.

CHAPTER 21 PARTNERSHIP INSTALLMENT LIQUIDATION

I – Statement of Liquidation – Installment; Schedule of Safe Payments and Cash Payment Priority
Program

Assume T, U, V, and W are partners sharing profits 40%:20%:20%:20%, respectively. On January 1, 20X4,
they agree to liquidate. A balance sheet prepared on this date is shown as follows:

Assets Liabilities and Capital

Noncash assets P181,800 Liabilities 84,000
A, loan 6,000
D, loan 3,000
A, capital 26,400
B, capital 25,800
C, capital 20,400
D, capital 16,200
Total P181,800 Total P181,800

The results of liquidation are summarized below:

20X4 Cash Book value Costs of Payment to Cash Payment to
proceeds of Noncash liquidation Creditors Withheld Partners
on Sale of Assets Sold expenses
Noncash paid
Assets
January P72,000 P90,000 P1,200 P66,000 P4,800

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 February 21,600 30,000 1,320 18,000 1,800 P5,280
March 19,200 24,000 1,440 1,200 18,360
April 6,000 19,800 4,800 600 1,800
May 2,400 18,000 960

Distributions of cash to partners are normally done at month-end.

Required:
1. Prepare statement of liquidation for the month of January to May 20X4.
2. Prepare schedule of safe payments to support the distribution of cash payment for the month of
January to May 20X4.
3. Prepare cash payment (pre-distribution) priority program indicating the cash payment to each
partner for the month of January to May 20X4.
4. Using the cash payment priority program indicate the vulnerability ranking for each in the event of
loss suffered by the partnership.

II – Installment; Schedule of Safe Payments

On January 1, 20X4, partners AA, BB and CC, who share profits and losses in the ratio of 5:3:2, decide to
liquidate their partnership. The partnership trial balance at this date is as follows:

Accounts Debit Credit

Cash P18,000
Accounts Receivable 66,000
Inventory 52,000
Machinery and Equipment (net) 189,000
Accounts Payable P53,000
AA, Capital 88,000
BB, Capital 110,000
CC, Capital 74,000
Total P325,000 P325,000

The partners plan a program of piecemeal conversion of assets 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 liquidation transactions is as follows:

January 20X4
1. P51,000 was collected on accounts receivable; the balance is uncollectible.
2. P38,000 was received for the entire inventory.
3. P2,000 liquidation expenses were paid.
4. P50,000 was paid to creditors, after offset of a P3,000 credit memorandum received on January
11, 20X4.
5. P10,000 cash was retained in the business at the end of the month for potential unrecorded
liabilities and anticipated expenses.

February 20X4

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 6. P4,000 liquidated 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 20X4
8. P146,000 was received on sale of all items of machinery and equipment.
9. P5,000 liquidation expenses were paid.
10. No cash was retained in the business.

Required: Prepare a statement of partnership liquidation for the partnership with schedules of safe
payments to partners.

III – Cash Distribution or Payment Priority Program

The partnership of PP, EE, and TT has asked you to assist in winding up its business. You complete the
following information.

1. The trial balance of the partnership on June 30, 20X4, is:

Accounts Debit Credit

Cash P6,000
Accounts receivable – net 22,000
Inventory 14,000
Plant and Equipment (net) 9,000
Accounts Payable P17,000
PP, Capital 55,000
EE, Capital 45,000
TT, Capital 24,000
Total P141,000 P141,000

2. The partners share profit and losses as follows: PP, 50 percent; EE, 30 percent; and TT, 20
percent.
3. The partners are considering an offer of P100,000 for the accounts receivable, inventory, and
plant and equipment as of June 30. The P100,000 will be paid to creditors and the partners in
installments, the number and amounts of which are to be negotiated.

Required: Prepare a cash distribution or cash payment priority program plan as of June 30, 20X4,
showing how much cash each partner will receive if the offer to sell the assets is accepted.

IV – Statement of Liquidation – Installment; Schedule of Safe Payments

Assuming the same information in Problem III and the partners have decided to liquidate their
partnership by instalment instead of accepting the offer of P100,000. Cash is distributed to the partners
at the end of each month; a summary of the transactions follows:

July
1. P16,500 collected on accounts receivable; balance is uncollectible.
2. P10,000 received for the entire inventory.

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 3. P1,000 liquidation expense paid.
4. P17,000 paid to creditors.
5. P8,000 cash retained in the business at the end of the month.

August
6. P1,500 in liquidation expenses paid.
7. As part of payment of his capital, TT accepted an item of equipment that he develop, which had
a book value of P4,000. The partners agreed that a value of P10,000 should be placed on this
item for liquidation purposes.
8. P2,500 cash retained in the business at the end of the month.

September
9. P75,000 received on sale of remaining plant and equipment.
10. P1,000 liquidation expenses paid. No cash retained in the business.

V – Statement of Liquidation – Installment; Schedule of Safe Payments

The DSV Partnership decided to liquidate the partnership as of June 30, 20X4. The balance sheet of the
partnership as of this date presented as follows:

DSV Partnership
Balance Sheet
At June 30, 20X4
Cash P50,000
Accounts receivable (net) 95,000
Inventories 75,000
Property, Plant and Equipment (net) 500,000
Total Assets P720,000
Liabilities:
Accounts Payable P405,000
Partners’ Capitals:
DD, capital P100,000
SS, capital 140,000
VV, capital 75,000
Total Capital P315,000
Total Liabilities and Capital P720,000

The personal assets (excluding partnership loan and capital interests) and personal liabilities of each
partner as of June 30, 20X4, follow:
DD SS VV
Personal Assets P250,000 P450,000 P300,000
Personal Liabilities (P270,000) (P420,000) (P240,000)
Personal Net Worth (P20,000) P30,000 P60,000

The DSV Partnership was liquidated during the months of July, August and September. The assets sold
and the amounts realized follow:
Assets Sold Carrying Amount Amount Realized

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 July Inventories P50,000 P45,000
Accounts receivable (net) 60,000 40,000
Property, plant and equipment 400,000 305,000
August Inventories 25,000 18,000
Accounts receivable (net) 10,000 4,000
September Accounts receivable (net) 25,000 10,000
Property, plant and equipment 100,000 45,000

Required: Prepare a statement of partnership realization and liquidation for the DSV Partnership for the
three-month period ended September 30, 20X4. DD, SS and VV share profits and losses in the ratio
50:30:20. The partners wish to distribute available cash at the end of each month after reserving
P10,000 cash at the end of July and August to meet unexpected liquidation expenses. Actual liquidation
expenses incurred and paid each month amounted to P2,500. Support each cash distribution to the
partners with a schedule of safe installment payments.
VI – Cash Priority Program (Cash Distribution Plan)

Assuming the same information in Problem V and the following amounts of cash was received during
the months of July, August, and September from the sale of DSV Partnership’s noncash assets:

July P390,000
August 22,000
September 55,000

The partnership wishes to keep P10,000 of cash on hand at the end of July and August to pay for
unexpected liquidation expenses.
It paid liquidation expenses of P2,500 at the end of each month, July, August and September.

Required:

1. Prepare a statement, as of June 30, 20X4, showing how cash will be distributed among partners
as it becomes available.
2. Prepare schedules showing how cash is distributed at the end of July, August, and September,
20X4.

VII – Cash Priority Program (Cash Distribution Plan)

The balance sheet of Ames, Beard and Craig Partnership on September 26, 20X4, showed cash, P20,000;
noncash assets, P262,000; liabilities , P50,000; total partners’ capital, P232,000. On that date, the three
partners decided to dissolve and liquidate the partnership. The income-sharing ratio, which was to be
used for gains and losses from realization of noncash assets, and the partners’ capital account balances
as of September 26, 20X4, were as follows (there were no loans receivable from or payable to the
partners):

Income- Partners’
Sharing Ratio Capital
Alice Ames 40% P60,000
Barbara Beard 20% 80,000
Clarence Craig 40% 92,000

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 Totals 100% P232,000

Required: Prepare a cash distribution program for Ames, Beard, and Craig Partnership on September 26,
20X4.
VIII – Journal Entries

The balance sheet of Quanto, Rollo and Simms Partnership prior to liquidation included the following:

Assets P120,000
Liabilities 30,000
Loan payable to Quanto 10,000
Quanto, capital 32,000
Rollo, capital 30,000
Simms, capital 18,000

The three partners shared net income and losses in a 5:3:2 ratio, respectively. Noncash assets realized
P60,000, resulting in a loss of P10,000. Creditors were paid in full, partners were paid P25,000, and cash
of P5,000 was withheld pending future developments.

Required: Prepare undated journal entries to record the foregoing transaction and events. Show
supporting computations for the journal entries presented.