UNIT III – PARTNERSHIP LIQUIDATION

Activity 1 – Practice
roblem 1:
The ledger of INSOLVEN COMPANY shows the following balances on July 31, 2020
Debit Credit
Cash 24,000
Accounts receivable 50,000
Allowance for bad debts 10,000
Merchandise inventory 250,000
Furniture and Equipment 120,000
Accumulated depreciation 48.000
Goodwill 10,000
Accounts payable 95,000
Ina, loan 13,000
Ven, loan 10,000
Ina capital (50%) 97,000
Sol, capital (20%) 151,000
Ven, capital (30%) 30,000

The liquidation process lasted the whole month of August and cash distribution was made on August 31, 2020.

REQUIRED: Prepare the statement of liquidation and the journal entries to record liquidation under the following
assumptions:
1. The non cash assets realized P 370,000 cash and P 100,000 had to be paid to liquidate the
liabilities because of unrecorded claims amounting to P 5,000. Liquidation expenses paid P 4,000.
Sol is insolvent
2. The non cash assets realized P 180,000 cash and Ven is insolvent. Liquidation expenses paid,
P 2,000.

Solution:
Case 1: The non cash assets realized P 370,000 cash and P 100,000 had to be paid to liquidate the liabilities
because of unrecorded claims amounting to P 5,000. Liquidation expenses paid P 4,000. Soll is insolvent

INSOLVEN Company
Statement Of Liquidation
August 1 – 31, 2020

Cash Non Account Ina Ven Ina, Sol, Ven,

cash s loan loan capital capital capital
Assets Payable
Balances prior to liquid. 24,000 372,000 95,000 13,000 13,000 97,000 151,000 30,000
Write off of Goodwill _______ (10,000) _______ _______ _______ (5,000) ( 2,000) ( 3,000)
Balances 24,000 362,000 95,000 13,000 10,000 92,000 149,000 27,000
Realization &dist of gain 370,000 (362,000 _______ _______ _______ 4,000 1,600 2,400
)
Balances 394,000 95,000 13,000 10,000 96,000 150,600 29,400
Payment of liq. expanes (4,000) _______ _______ _______ (2,000) ( 800) (1,200)
Balances 390,000 95,000 13,000 10,000 94,000 149,800 28,200
Payment liabilities (100,000) (95,000) ________ _______ ( 2,500) (1,000) (1,500)
_
Balances 290,000 13,000 10,000 91,500 148,800 26,700
Payment of partners’ loan ( 23,000) ( 13,000) ( 10,000) ________ ________ ________
Balances 267,000 91,500 148,800 26,700
Payment of partners’ (267,000) (91,500) (148,800) ( 26,700)
capital
Journal Entries
Date Particulars Debit Credit
Aug. 2020 Ina, capital 5,000
Sol, capital 2,000
Ven, capital 3,000
Goodwill 10,000
Write off of Goodwill

Cash 370,000
Allowance for bad debts 10,000
Accumulated depreciation 48,000
Accounts Receivable 50,000
Merchandise Inventory 250,000
Furniture and Equipment 120,000
Ina, capital 4,000
Sol, capital 1,600
Ven, capital 2,400
Realization of noncash assets & distribution of gain.

Ina, capital 2,000

Sol, capital 800
Ven, capital 1,200
Cash 4,000
Payment of liquidation expenses

Accounts Payable 95,000

Ina, capital 2,500
Sol, capital 1,000
Venl, capital 1,500
Cash 100,000
Payment of liabilities

Ven loan 10,000

Ina, loan 13,000
Cash 23,000
Payment of partners’ loan
Ina, capital 91,500
Sol, capital 148,800
Ven, capital 26,700
Cash 267,000
Payment of partners’ capital

Solution: Case 2: . The non cash assets realized P 180,000 cash and Dedbol is insolvent. Liquidation expenses paid, P 2,000.
INSOLVEN COMPANY
Statement Of Liquidation
August 1 – 31, 2020
Non Account Ina. Ven, Ina, Sol, Ven,
cash s loan loan capital capital capital
Balances prior to liq. 24,000 372,000 95,000 13,000 10,000 97,000 151,000 30,000
Write off of Goodwill _______ (10,000) _______ _______ _______ (5,000) ( 2,000) ( 3,000)
Balances 24,000 362,000 95,000 13,000 10,000 92,000 149,000 27,000
Realization &dist loss 180,000 (362,000) _______ _______ _______ (91,000) (36,400) ( 54,600)
Balances 204,000 95,000 13,000 10,000 1,000 112,600 ( 27,600)
Payment of liq expenes (2,000) _______ _______ _______ (1,000) ( 400) ( 600)
Balances 202,000 95,000 13,000 10,000 112,200 (28,200)
Payment of liaibilities (95,000) (95,000) _______ _______ _______ _______ _______
_ _
Balances 107,000 13,000 10,000 112,200 (28,200)
Offset of loan a _______ ______ (10,000) _______ _______ 10,000
Balances 107,000 13,000 112,200 (18,200)
Absorption of def. _______ ______ (13,000) (5,200) 18,200
Balances 107,000 13,000 (13,000) 107,000
 Offset of loan _______ (13,000) 13,000
Balances 107,000
Payment of partner’s (107,000 (107,000)
capital )
Journal Entries
Date Particulars Debit Credit
Aug. 2020 Ina, capital 5,000
Sol, capital 2,000
Ven, capital 3,000
Goodwill 10,000
Write off of Goodwill

Cash 180,000
Allowance for bad debts 10,000
Accumulated depreciation 48,000
Ina, capital 91,000
Sol, capital 36,400
Ven, capital 54,600
Accounts Receivable 50,000
Merchandise Inventory 250,000
Furniture and Equipment 120,000
Realization of noncash assets & distribution of loss.

Ina, capital 1,000

Sol, capital 400
Ven, capital 600
Cash 2,000
Payment of liquidation expenses

Accounts Payable 95,000

Cash 95,000
Payment of liabilities

Ven loan 10,000

Ven, Capital 10,000
Offset of loan against deficiency

Ina, capital 13,000

Sol, capital 5,200
Ven, Capital 18,200
Absorption of dedbol’s deficiency

Ina, loan 13,000

Ina, Capital 13,000
Offset of loan against deficiency.
Smayl, capital 107,000
Cash 107,000
Payment of capital

Problem 2:
The following balances are found in the books of THORNADO Partnership as of July 1, 2020 when the partners
decide to sell the assets and liquidate the partnership.
Accounts Payable P 420,000
Donny, Loan 50,000
Thor, Capital 80,000
Nap. Capital 180,000
Donny, Capital 140,000

Personal assets and liabilities of the partners are as follows:

Assets Liabilities P/L ratio
Thor P 240,000 P 230,000 1
Nap 500,000 600,000 1
Donny 450,000 420,000 2
 Donny was instructed to act as partner in charge of the liquidation.

REQUIRED: Prepare Statement of Liquidation and journal entries to record partnership liquidation if non cash
assets were sold for P 400,000.
THORNADO Partnership
Statement of Liquidation
July 1, 2020

Non cash Accounts Donny Capital

Cash Assets Payable Loan Thor 1/4 Nap 1/4 Donny
2/4
Balances prior to liquidation 870,000 420,000 50,000 80,000 180,000 140,000
Realization of NCA & dist. loss 400,000 (870,000) ____ _____ (117,500) (117,500) ( 235,000)
Balances 400,000 420,000 50,000 (37,500) 62,500 ( 95,000)
Payment of liabilities 400,000 (400,000) _______ _______ _______ _______
Balances 20,000 50,000 (37,500) 62,500 (95,000)
Offset of loan _______ _______ (50,000) _______ _______ (50,000)
Balances 20,000 ( 37,500) 62,500 ( 45,000)
Investment by Thor & Donny 40,000 _______ 10,000 _______ 30,000
Balances 40,000 20,000 ( 27,500) 62,500 ( 15,000)
Additional loss to Nap _______ _______ 27,500 (42,500) 15,000
Balances 40,000 20,000 20,000
Payment of liabilities (20,000) (20,000) _______ _______ _______
Balances 20,000 20,000
Payment to Nap (20,000) . . (20,000)

Journal Enries
July, 2014 Cash 400,000
Thor, Capital 117,500
Nap. Capital 117,500
Donny, Capital 235,000
Non Cash Assets 870,000
Realization of non cash assets & dist. of loss

Accounts Payable 400,000

Cash 400,000
Payment of liabilities

Donny loan 50,000

Donny, Capital 50,000
Exercise of offset

Cash 40,000
Thor, Capital 10,000
Donny, Capital 30,000
Additional investment

Nap., Capital 42,500

Thor, Capital 27,500
Donny, Capital 15,000
Absorption of deficiency

Accounts Payable 20,000

Cash 20,000
Payment of liabilities

Nap, Capital 20,000

Cash 20,000
Payment to partner
\
\

Problem 3:
Kay, Leny, Terry and Jane are partners sharing profits in the ratio 2:4:8:2, respectively. On December 31, 2019, the capital and
loan account balances are as follows:
Kay, loan P 5,000
Jane, loan 10,000
Kay, capital 5,000
Leny, capital 100,000
Terry, capital 125,000
Jane, capital 4,500

The partners decide to liquidate their firm and they accordingly convert the non-cash assets into P 106,000 cash. After paying
the liabilities of P 35,000, they have P 83,500 to divide. Deficient partner is insolvent.

REQUIRED: Prepare a Statement of Liquidation and Journal entries

Solution:
KLTJ Partnership
Statement of Liquidation
December 31, 2019

Assets Accounts Kay Jane Capital

Cash Non Payable Loan Loan Kay Leny Terry Jane
Cash 2/16 4/16 8/16 2/16
Balances prior to liq. 12,500 272,000 35,000 5,000 10,000 5,000 100,000 125,000 4,500
Realization & loss 106,000 (272,000) _______ _______ _______ (20,750) (41,500) (83,000) (20,750)
_ _
Balances 118,500 35,000 5,000 10,000 (15,750) 58,500 42,000 (16,250)
Payment of liabilities (35,000) (35,000) _______ _______ _______ _______ _______ _______
_ _ _ _ _
Balances 83,500 5,000 10,000 (15,750) 58,500 42,000 (16,250)
Offset of loan _______ (5,000) (10,000) 5,000 _______ _______ 10,000
Balances 83,500 ( 10,750) 58,500 42,000 ( 6,250)
Absorption of dif. _______ 10,750 (5,667) (11,333) 6,250
Balances 83,500 52,833 30,667
Payment to partners (83,500) (52,333) (30,667)

Journal Entries
Dec. 2019 Cash 106,000
Kay, Capital 20,750
Leny. Capital 41,500
Terry, Capital 83,000
Jane, Capital 20,750
Non Cash Assets 272,000
Realization of non cash assets & dist. of loss

Accounts Payable 35,000

Cash 35,000
Payment of liabilities

Kay loan 50,000

Jane, laon 10,000
Kay, Capital 5,000
Jane, capital 10,000
Exercise of offset

Leny, Capital 5,667

Terry, Capital 11,333
Kay., Capital 10,750
Jane, Capital 6,250
Absorption of deficiency

Leny, Capital 52,333

 Terry, Capital 30,667
Cash 83,500
Payment of partners’ capital

Problem 4:

Partners Bee, Cee, Dee and Lee have decided to dissolve their partnership. They plan to sell the assets
gradually in order to minimize losses. All available cash less the amount retained to provide future expenses, is
to be distributed to the partners at the end of each month. They share profits and losses as follows: Bee, 40%;
Cee, 35%; Dee, 15% and Lee, 10%. The partnership trial balance as of December 31, 2019, the date on which
liquidation begins, is as follows:
Non cash assets P 885,000
Accounts Payable P 130,000
Notes Payable 250,000
Bee, loan 60,000
Cee, loan 20,000
Dee, Loan 80,000
Bee, capital 80,000
Cee, capital 85,000
Dee, capital 100,000
Lee, capital 80,000
P 885,000 P 885,000

A summary of the liquidation transactions is as follows:

Cash Liquidation Cash distributed
Realized Expenses Paid to the partners
January, 2020 P 415,000 P 3,000 P 25,000
February, 2020 60,000 2,000 60,000
March, 2020 (final distribution) 70,000 1,000 ?

The personal assets and liabilities of the partners are as follows:

Bee Cee Dee Lee
Personal assets P 160,000 P 50,000 P 90,000 P 100,000
Personal Liabilities 70,000 90,000 80,000 55,000

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

2. Journal entries to record the liquidation

3. Prepare a cash priority program , showing how cash will be distributed among the partners by
installments as it becomes available.

4. Using the program above, prepare schedules summarizing the payments to be made to partners at the end
of each month. Indicate what part of the payments are to be applied against loan balances and against
capital balances.

Note: Solution - Excel

Problem 5:

The following balances are found in the books of THORNADO Partnership as of July 1, 2016 when the partners
decide to sell the assets and liquidate the partnership.

Accounts Payable P 420,000

Donny, Loan 50,000
Thor, Capital 80,000
Nap. Capital 180,000
Donny, Capital 140,000

Personal assets and liabilities of the partners are as follows:

Assets Liabilities P/L ratio
Thor P 240,000 P 230,000 1
Nap 500,000 600,000 1
Donny 450,000 420,000 2

Donny was instructed to act as partner in charge of the liquidation. It was agreed that distribution of cash to the
partners would be made on the last day of each month during the liquidation period, provided there was sufficient
cash on hand for this purpose.
The results of liquidation are summarized below:

Cash Collected Book Value Accounts Liquidation Cash w/held for

Payable Paid Expenses Paid future expenses
August P 270,000 P 420,000 P 220,000 P 20,000 -
September 200,000 180,000 150,000 10,000 P 5,000
October 100,000 270,00 40,000 10,000 -

REQUIRED:
1. Statement of Liquidation with supporting schedule of safe payments.

2. Prepare a cash priority program , showing how cash will be distributed among the partners by
installments as it becomes available.

3. Using the program above, prepare schedules summarizing the payments to be made to partners at
the end of each month. Indicate what part of the payments are to be applied against loan balances
and against capital balances.

Note: Solution – Excel

 UNIT III – PARTNERSHIP LIQUIDATION

Activity 2 – Multiple Choice problems: Lump sum liquidation: With supporting computations.

For items 1 – 3:
Joe, Rolly and Kee have decided to dissolve their partnership as of September 1, 2020. They have been dividing
profits and losses in the ratio of 4:3;3 and their capital balances as of January 1, 2020 were as follows:
Joe P 25,000
Rolly 30,000
Kee 10,000

The net income for the period January 1 to August 31, 2020 was P 22,000. As of September 1, 2020, cash balance
is P 20,000, non-cash assets include goodwill of P 15,000 and the liabilities are P 45,000.

1. The total partnership assets as of September 1 is:

a) P 132,000 b) P 87,000 c) P 110,000 d) not given
Solution:
Total Capital as of January 1 65,000
Add: net income 22,000
Total partners’ equity 87,000
Add: Liabilities 45,000
Total partnership assets 132,000

Joe (40%) Rolly(30%) Kee(30%)

Capital balances as of January 1 25,000 30,000 10,000
Net income Jan. to Aug. 8,800 6,600 6,600
Write off of goodwill (6,000) (4,500) (4,500)
Capital balances prior to liq. 27,800 32,100 12,100

2. For Joe to receive P 20,000 in settlement of his share in equity, the non-cash assets with realizable value must
be sold for:
a) P 62,500 b) P 77,500 c) P 52,500 d) not given

Solution:
Joe, capital 27,800
Amount to be received 20,000
Share of Joe in the loss on realization 7,800
Divided by p.l of joe 40%
Loss on realization 19,500
Book value of non cash assets with realizable value (132,000 – 35,000) 97,000
Proceeds from realization 77,500

3. If Rolly receives P 18,000, loss from the realization of assets must be:
a) P 47,000 b) P 85,000 c) P 62,000 d) not given
Solution:
Rolly, capital 32,100
Amount to be received 18,000
Share of Joe in the loss on realization 14,100
Divided by p.l of joe 30%
Loss on realization 47,000
Francisco, Manuel and Gomez are partners with profit sharing ratio of 6:3:1, respectively. Their balance sheet as
of July 31, 2020 contains the following:
Cash P 50,000 Liabilities P 170,000
Non-cash assets 250,000 Francisco, loans 20,000
Manuel, loans 40,000
Francisco, capital 20,000
Manuel, capital 15,000
________ Gomez, capital 35,000
P 300,000 P 300,000

The partners are personally solvent.

4. If the non-cash assets are sold for P 280,000, Francisco, Manuel and Gomez are entitled to cash settlement of:
Francisco _______________ Manuel ___________________ Gomez ______________

Solution:
Francisco (60% Manuel (30%) Gomez (10%)
Capital balances as of July 31 20,000 15,000 35,000
Loan balances 20,000 40,000 ______
Total interest 40,000 55,000 35,000
Gain on realization (70,000) 18,000 9,000 3,000
Cash to be received 58,000 64,000 38,000

5. If the non-cash assets are sold for P 200,000 and creditors to whom the partnership owes P 30,000
cannot be located yet, Francisco, Manuel and Gomez are entitled to cash distribution of:
Francisco _______________ Manuel ___________________ Gomez ______________

Solution:
Francisco (60% Manuel (30%) Gomez (10%)
Capital balances as of July 31 20,000 15,000 35,000
Loan balances 20,000 40,000 ______
Total interest 40,000 55,000 35,000
Loss on realization (50,000) (30,000) (15,000) (5,000)
Cash to be received 10,000 40,000 30,000

6. If cash available for distribution to the partners were P 10,000, it should be given to:
a) Francisco and Manuel on their loan accounts in the ratio of 20:40.
b) Francisco, Manuel and Gomez in the profit sharing ratio.
c) Gomez on his capital account
d) none of the above

Solution
Francisco (60% Manuel (30%) Gomez (10%)
Capital balances as of July 31 20,000 15,000 35,000
Loan balances 20,000 40,000 ______
Total interest 40,000 55,000 35,000
Loss on realization (120,000) (72,000) (36,000) (12,000)
Balances (32,000) 19,000 23,000
Absorption of loss 32,000 (19,000) (13,000)
Cash to be received 0 0 10,000
For items 7 – 8:

Lina, Anne and Tintin are partners sharing profits equally. On January 1, 2020, the capital and drawings of the
partners are:
Capital Drawing
Lina P 60,000 P 36,000
Anne 48,000 24,000
Tintin 180,000 12,000

Due to the failure of the firm’s debtors to settle their accounts, the partners lose heavily and are Therefore
compelled to liquidate. After exhausting all the partnership assets including those arising from the operating profit of
P 41,400 in 2019, there still remain P 50,400 liabilities on December 31, 2020. Lina had no personal assets but the
others are well off.

7. The loss on realization:

a) P 307,800 b) P 358,200 c) P 338,400 d) not given
Solution:
Total Partners’ interest 257,400
Liabilities 50,400
Loss on realization 307,800

8. In the settlement to partners, how much would Tintin receive?

a) P 79,200 b) P 46,800 c) P 181,800 d) not given
solution:
Lina Anne Tintin
Capital balances as of Jan. 1 60,000 48,000 180,000
Share in net profit 13,800 13,800 13,800
drawings (36,000) (24,000) (12,000)
Total interest 37,800 37,800 181,800
Loss on realization (307,800) (102,600) (102,600) (102,600)
Balances (64,800) (64,800) 79,200
Absorption of loss 64,800 (32,400) (32,400)
Balances 0 (97,200) 46,800
Additional investment by Anne 97,200
Cash received by Tintin 46,800

For items 9 – 11:

Tentacles Co. owned and managed by the partners Teen, Tack and Less was liquidated on December 31, 2020
with assets sold for P 396,000 and liabilities of P 275,000 paid except for the loan from Tack in the amount of
P 25,000. Profits and loss ratio of 1:2:3 respectively and the partners are solvent except Less. Capital balances of
the partners are as follows:
Teen Tack Less

Before the sale P 280,000 P 70,000 P 120,000

After the sale 231,000 (28,000) (27,000)

9. What was the book value of the non-cash assets just before the liquidation?
a) P 690,000 b) P 294,000 c) P 770,000 d) P 745,000
Solution:
Teen Capital before the sale 280,000
Teen Capital after the sale 231,000
Share of Teen on the loss on realization 49,000
 Divide by p/l ratio of Teen 1/6
Loss on realization 294,000
Cash realized from sale of assets 396,000
Book value of non cash assets sold 690,000

10. What was the cash balance before liquidation?

a) P 0 b) P 80,000 c) P 25,000 d) P 102,000

Solution:
Total Capital before sale and loan 495,000
Total liabilities 275,000
Total assets 770,000
Book value of non cash assets sold 690,000
Cash balance before liquidation 80,000

11. Cash available for distribution to the partners is:

a) P 121,000 b) P 201,000 c) P 96,000 d) P 396,000

Solution:
Cash balance before liquidation 80,000
Cash realized from non cash assets 396,000
Total 476,000
Less: payment for liabilities 275,000
Cash availbale for distribution to partners 201,000

QQ, RR and SS decided to dissolve the partnership on July 31, 2020. Their capital balances and profit and loss
ratio on this date, before distribution follow:
Capital balances profit and loss ratio
QQ P 280,000 25%
RR 360,000 30%
SS 160,000 45%

The net loss from January 1 to July 31, 2020 is P 60,000. Also on this date, cash and liabilities are P 170,000 and
P 290,000, respectively.

12. Which of the following is inconsistent with the result of the partnership liquidation if RR received P 309,000 in
full settlement of his interest in the firm?
a) Total cash paid to partners is P 920,000
b) The proceeds from the sale of non-cash assets is P 750,000.
c) SS received P 83,500 in full settlement of his interest
d) QQ’s share in the loss in realization is P 27,500.
solution:
QQ (25%) RR (30%) SS (45%)
Capital balances as of July 31 280,000 360,000 160,000
Share in net loss (15,0000 (18,000) (27,000)
Total interest 265,000 342,000 133,000
Loss on realization (110,000) (27,500) (33,000) (49,500)
Cash received by partners 237,500 309,000 83,500

Total partners equity before realization 740,000

Total liabilities 290,000
Total assets 1,030,000
Less: Cash balance before realization 170,000
Book value of non cash assets 860,000
Loss on realization 110,000
Proceeds from sale of non cash assets 750,000
13. AA, BB, CC and DD are partners sharing profits in the ratio of 3/21, 4/21, 6/21 and 8/21. Their capital balances
on December 31, 2020 are as follows:
AA ……………………………………………………P 500
BB ……………………………………………………. 12,500
CC …………………………………………………….. 12,500
DD …………………………………………………….. 4,500

The partners decide to liquidate their firm and they accordingly convert the noncash assets into P11,600 cash.
After paying liabilities of P 1,500, they have P 11,100 to divide. What is the gain (loss) on realization?

a) (P11,250) b) P 18,900 c) (P18,400) d) (P18,900)

Solution:
Total partners equity before realization 30,000
Total liabilities 1,500
Total assets 31,500
Less: Cash balance before realization:
Liabilities paid 1,500
Cash available to partners 11,100
Total 12,600
Cash realized from sale of non cash assets 11,600 1,000
Book value of non cash assets 30,500
Cash realized from sale of non cash assets 11,600
Loss on realization (18,900)

14. Mona and Liza are partners with capital balances, loan balances and profit and loss ratio as follows:

Capital Balances Loan Balances Profit and loss

Mona P 24,500 P 4,000 60%
Liza 15,500 3,500 40%

The partners decide to liquidate the partnership. The firm’s liabilities amounted to P 36,000 including partners
loan.
After realization of assets, cash on hand amounts to P 37,500. In the settlement of partners, Mona and Liza
should
receive:
Mona Liza Mona Liza
a) P 22,500 P 15,000 c) P 5,400 P 3,600
b) P 1,500 P 1,000 d) P 28,500 P 19,000

solution:
Mona (60%) Liza (40%)
Capital balances 24,500 15,500
Loan balances 4,000 3,500
Total interest 28,500 19,000
Loss on realization (10,000) (6,000) (4,000)
Cash received by partners 22,500 15,000
15. CC, DD and EE are partners sharing profits and losses in the ratio of 5:3:2. During the year their investments
and
withdrawals are as follows:
Investment Withdrawals
CC……………………. P 40,000 P 25,000
DD ……………………. 35,000 12,500
EE …………………….. 75,000 12,500

On December 31, 2020, the partners decided to liquidate the business. After exhausting partnership assets,
liabilities of P 25,000 remain unpaid. CC is personally insolvent. The gain (loss) on realization and the amount of
cash EE will received upon liquidation are:

a) P25,000 , and P 37,500, respectively c) P 125,000 and P 37,500, respectively

b) (P25,000) , and P 37,500, respectively d) (P125,000)and P 18,500, respectively

solution:
CC (50% DD ( 30%) EE (20%)
Investments 40,000 35,000 75,000
Withdrawals (25,000) (12,500) (12,500)
Total interest 15,000 22,500 62,500
Loss on realization (125,000) (62,500) (37,500) (25,000)
Balances (47,500) (15,000) 37,500
Additional loss 47,500 (28,500) (19,000)
Balances 0 43,500 18,500
Additionla investment 43,500
Cash received by partners 18,500
 UNIT III – PARTNERSHIP LIQUIDATION

Activity 3 – Multiple Choice Problems - Installment liquidation. With supporting computations.

For 1 – 2:
ABC Partnership engaged in real estate business had the following condensed statement of financial position prior
to liquidation:

Cash P 12,000 Liabilities P 35,000

Non-cash assets 180,000 Loan Payable to A 15,000
A, capital (50%) 45,000
B Capital (30% 70,000
________ C, Capital (20% 27,000
P 102,000 P 102,000

The percentages in parenthesis after the partners’ capital balances represent their respective interests in profits and
losses.

1. If assets with book value of P 60,000 were sold for P 70,000, how much of the available cash could be
distributed to Partner A?
a) P 5,000 b) P 0 c) P 35,000 d) P 37,000

Solution:
A (50% B ( 30%) C (20%)
Capital balances 45,000 70,000 27,000
Loan balances 15,000
Total interest 60,000 70,000 27,000
Gain on realization (10,000) 5,000 3,000 2,000
Balances 65,000 73,000 29,000
Possible loss (120,000) (60,000) (36,000) (24,000)
Safe payment to partners 5,000 37,000 5,000

2. Assuming assets with a book value of P 70,000 were sold for P 50,000 and that all available cash was
distributed, for what amount would the remaining assets have to be sold in order for Partner B to received a
total of P 79,000 cash from all liquidation activities.
a) P 150,000 b) P 160,000 c) P 155,000 d) P 165,000

Solution:
A (50% B ( 30%) C (20%)
Capital balances 45,000 70,000 27,000
Loan balances 15,000
Total interest 60,000 70,000 27,000
Loss on realization (20,000) (10,000) (6,000) (4,000)
Balances 50,000 64,000 23,000

B, capital 64,000
Cash to be received by B 79,000
Share in the Gain on realization 15,000
Divide by plratio 30%
Total Gain on realization 50,000
Book value of remaining non cash assets 110,000
Cash to be realized from sale of remaining non cash assets 160,000
3. A local partnership is in the process of liquidation and is currently reporting the following balances:
Angela, Capital (50% ) P 19,000
Wendy, Capital (30% ) 18,000
Cassy, Capital (20%) ( 12,000)

Cassy has indicated that the P 12,000 deficit will be covered by a forthcoming contribution. However, the two
remaining partners have asked to receive the P 25,000 in cash that is presently available. The available cash
should be distributed as follows:

a) Angela, P 13,000; Wendy, P 12,000 c) Angela, P 12,000; Wendy, P 13,000

b) Angela, P 11,500; Wendy, P 13,500 d) Angela, P 12,500; Wendy, P 12,500

Solution:
Angela (50% Wendy ( 30%) Cassy (20%)
Capital balances 19,000 18,000 (12,000)
Absorption of loss (7,500) (4,500) 12,000
Safe payment to partners 11,500 13,500

4. A, R, D and J are partners who share profits and losses on a 4:3:2:1 basis, respectively. They are presently
beginning to liquidate the business. At the start of this process, capital balances are as follows:
A, Capital P 60,000
R, Capital 27,000
D, Capital 43,000
J, Capital 20,000

Which of the following statements is true?

a) The first available P 2,000 will go to J
b) A , will be the last partner to receive any available cash
c) The first available P 3,000 will go to D.
d) A will collect a portion of any available cash prior to J receiving money

Solution – Cash distribution Program

Loss absorption potential Cash payment
A R D J A R D J
Capital 60,000 27,000 43,000 20,000
Divide –p/l 40% 30% 20% 10%
Loss Abs. 150,000 90,000 215,000 200,000
P-I to D _______ ______ (15,000) _______ 3,000
Balances 150,000 90,000 200,000 200,000
P-II to D & J _______ ______ (50,000) (50,000) 10,000 5,000
Balances 150,000 90,000 150,000 150,000
P- III to A,D,J (60,000) (60,000) (60,000) 24,000 12,000 6,000
Balances 90,000 90,000 90,000 90,000 24,000 25,000 11,000

AA, BB and CC are partners with a profit and loss ratio of 2:3:5. The partners are retiring and plan to liquidate the
partnership. On January 1, 2020, the trial balance of the partnership shows the following:

Cash P 40,000 Liabilities P 160,000

Other Assets 700,000 AA, loan 60,000
AA, Capital ( 20,000)
BB, Capital 100,000
 _________ CC, Capital 440,000
P 740,000 P 740,000

5. In preparing an advance cash distribution plan, how much CC will receive under priority 2?
a) P 273,333 b) P 40,000 c) P 66,667 d) P 16,667
Solution – Cash distribution Program
Loss Absorption potential Cash payment
AA BB CC AA BB CC
Capital (20,000) 100,000 440,000
Loan 60,000 ______ _______
Total interest 40,000 100,000 440,000
Divide –p/l ratio 20% 30% 50%
Loss Absorption 200,000 333,333 880,000
Priority I – CC _______ _______ (546,667) 273,333
Balances 200,000 333,333 333,333
P II - BB & CC _______ (133,333) (133,333) 40,000 66,667
Balances 200,000 200,000 200,000 40,000 340,000

6. If P 440,000 cash is available for distribution to partners, how much CC receives?

a) P 277,500 b) P370,000 c) P 2,500 d) P 58,000
Solution:
Cash AA BB CC
Cash distribution 440,000
P–1 (273,333) 273,333
P – II (106,667) 40,000 66,667
P – III (60,000) 12,000 18,000 30,000
Total 12,000 58,000 370,000

7. After distributing P 440,000, who will get the next P 120,000?

a) CC, P 120,000 c) AA, P 24,000; BB, P 36,000; CC P 60,000
b) BB, P 45,000; CC, P 75,000 d) AA, P 4,000 ; BB, P 43,500; CC P 72,500

solution:
Cash AA BB CC
Cash distribution 120,000
P – III (120,000) 24,000 36,000 60,000

8. If BB receives P 10,000, how much CC must receive at this point?

a) P 273,333 b) P 16,667 c) P 290,000 d) P 300,000 e) not given

Solution:
Cash AA BB CC
Cash distribution
P–I 273,333
P II 10,000 16,667
10,000 290,000

9. A partnership has gone through liquidation and now reports the following account balances:
Cash 16,000
Loan from Jane 3,000
Wayne, capital (2,000) deficit
Jane, capital ( 5,000) deficit
Fair, capital 13,000
Roy, capital 7,000
 Profits and losses are allocated on the following basis: Wayne, 30 percent; Jane, 20 percent; Fair, 30% and
Roy, 20 percent.
Which of the following events should occur now?
a) Jane should receive P 3,000 cash because of the loan balance
b) Jane should receive P 3,000; Fair P 8,800 and Rogers, P 5,400.
c) Fair should receive P 11,800 and Rogers P 4,200
d) Fair should receive P 10,600 and Rogers, P 5,400.

Solution:
Wayne (30%) Jane (20%) Fair (30%) Roy (20%)
Capital balances (2,000) (5,000) 13,000 7,000
Loan balances _____ 3,000
Total interest (2,0000 (2,000) 13,000 7,000
Possible loss (4,000) 2,000 2,000 (2,400) (1,600)
Safe payment to partners 10,600 5,400

10. When Fay and Joy, partners who share earnings equally were incapacitated in an airplane accident, a liquidator
was appointed to wind up their business. The accounts showed Cash, P 35,000, Other Assets, P110,000;
Liabilities, P20,000; Fay, capital, P71,000 and Joy, Capital P54,000. Because of highly specialized nature of
non-cash assets, the liquidator anticipated that considerable time would be required to dispose of them. The
expenses of liquidating the business (advertising, rent, travel, etc.) are estimated at P10,000.

How much cash can be distributed safely to each partner at this point?

a) P 35,000 b) P 15,000 c) P 5,000 d) P 115,000 e) not given

Solution:
Cash 35,000
Less: payment for liabilities 20,000
Estimated liquidation expense 10,000 30,000
Cash available for distribution 5,000

11 – 12:
Partners Arce, Bello and Cruz share profits and losses in the ratio of 5:3:2. At the end of a very unprofitable year,
they decided to liquidate the firm. The partner’s capital account balances at this time are as follows:
Arce P 22,000
Bello 24,900
Cruz 15,000

The liabilities accumulate to P 30,000, including a loan of P 10,000 from Arce. The cash balance is P 6,000. All the
partners are personally solvent. The partners plan to sell the assets in installment.

11. If Arce received a total of P 20,000 as a result of the liquidation, what was the total amount realized from the
sale of the non-cash assets?
a) P 61,900 b) P 85,900 c) P 73,900 d) P 24,000

Schedule of safe payment:

Arce Bello Cruz
Capital 22,000 24,900 15,000
Loan 10,000
Total interest 32,000 24,900 15,000
Loss on realization (12,000) (7,200) (4,800)
Cash received 20,000 17,700 10,200

Or:
Cash distribution based on cash distribution program:
Arce Bello Cruz
P–I 2,400
P - II 3,300 2,200
P - III 20,000 12,000 8,000
 Total 20,000 17,700 10,200

Cash payment for liaibilities 20,000

Cash distribution to partners 47,900
Total 67,900
Less, cash balance prior to realization 6,000
Cash realized from non cash assets 61,900
12. If Cruz received P 6,200 on the first installment of cash, how much did Bello received at that time?
a) P 10,000 b) P 11,700 c) P 5,000 d) P 6,200

Arce Bello Cruz

P–I 2,400
P - II 3,300 2,200
P - III 10,000 6,000 4,000
Total 10,000 11,700 6,200

Solution – Cash distribution Program

Loss Absorption potential Cash payment
Arce (50%) Bello (30%) Cruz (20%) Arce Bello Cruz
Capital 22,000 24,900 15,000
Loan 10,000 _______ _______
Total interest 32,000 24,900 15,000
Divide by p/l 50% 30% 20%
Loss abs. 64,000 83,000 75,000
P 1 – Bello (8,000) 2,400
Balances 64,000 75,000 75,000
P - II Bello & Cruz (11,000) (11,000) 3,300 2,200
Balances 64,000 64,000 64,000 5,700 2,200

13. Kevin, Paul and Rey have capital balances of P 60,000, P 100,000 and P 36,000, respectively and they share
profits in the respective ratio of 4:2:1. Paul received P 52,000 as a result of the liquidation of the partnership.

Loss on assets realization is:

a) P 118,000 b) P 132,000 c) P 144,000 d) P 168,000

Book value of non cash assets (total partners equity) 196,000

Less: cash realized (cash distributed to partners) 64,000
Cash realized from non cash assets 132,000

Kevin Paul Rey

P–I 28,000
P - II 24,000 12,000
Total 52,000 12,000

Solution – Cash distribution Program

Loss Absorption potential Cash payment
Kevin Paul Rey Kevin Paul Rey
Capital 60,000 100,000 36,000
Divide by p/l 4/7 2/7 1/7
Loss abs. 105,000 350,000 252,000
P 1 – Paul (98,000) 28,000
Balances 105,000 252,000 252,000
P - II Paul & Rey (147,000) (147,000) 42,000 21,000
Balances 105,000 105,000 105,000 70,000 21,000
For 14 and 15:
The statement of financial position for the partnership of Bee, Cee, and Dee who share profits in the ratio
of 2:1:1, shows the following balances just before the liquidation:
Cash P12, 000
Other assets 59, 500
Liabilities 49, 000
Bee, capital 22, 000
Cee, capital 15, 000
Dee, capital (15, 000)

On the first installments of the liquidation, a gain of P 8,000 was realized from the sale of certain assets.
Liquidation expenses of P1, 000 was paid, and additional liquidation expenses are anticipated. Liabilities paid
amounted to P34,400. Remaining book value of other assets is P 4,500. On the first payment to partners, Bee
receives P6,500.

14. The proceeds from sale of other assets is:

a) P 79,500 b) P 67,500 c) P 63,000 d) not given

15. The amount of cash withheld for the anticipated liquidation expenses and unpaid liabilities is:
a) P 15,750 b) P 11,250 c) P 3,250 d) not given
Solution:
Other Assets 59,500
Less: book value of remaining non cash assets 4,500
Book value of non cash assets sold 55,000
Add: gain on realization 8,000
Proceeds from sale of non cash assets 63,000
Add: cash balance before realization 12,000
Total Cash balance 75,000
Less: payments for:
Liquidation expenses paid 1,000
Liabilities 49,000
Partners capital 13,750 63,750
Cash withheld for anticipated liquidation expense 11,250
To compute for payment to partners:
Cash distribution Program
Loss Absorption potential Cash payment
Bee Cee Dee Bee Cee Dee
Capital 22,000 15,000 (15,000)
Divide by p/l 2/4 ¼ ¼
Loss abs. 44,000 60,000 (60,000)
P 1 – Cee (16,000) 4,000
Balances 44,000 44,000 (60,000)
P - II Bee &Cee (44,000) (44,000) 22,000 11,000
Balances 22,000 15,000

Cash distribution to partners based on cash distribution program

Bee Cee Dee
P–I 4,000
P - II 6,500 3,250
Total 6,500 7,250
Schedule of safe payment:
Bee 2/4 Cee 1/4 Dee 1/4
Capital 22,000 15,000 (15,000)
Gain on realization (8,000) 4,000 2,000 2,000
Balances 26,000 17,000 (13,000)
Liquidation expenses (500) ( 250) ( 250,)
Balances 25,500 16,750 (13,250)
Possible loss (28,500) (19,000) (9,500)
Safe payments 6,500 7,250