PARTNERSHIP LIQUIDATION

Problem No 1

Lump-sum Liquidation

Case 1. The Merchandise Inventory and Other assets were sold for 160,000 and 190,000, respectively.

Magbanua: 3/10 - 30%

Claudio: 5/10 - 50%

Yat: 2/10 - 20%

Cash Merchandise Other Accounts Claudio, Magbanua, Claudio, Delfin,

Inventory Assets Payable Loan Capital Capital Capital

P/L Ratio 30% 50% 20%

Balances 77,750 155,750 208,500 50,000 1,000 133,000 158,000 100,000

before
liquidation

Sale of 160,000 (155,750) 1,275 2,125 850

Merchandise
Inventory and
Distribution of
profit

Balances 237,750 - 208,500 50,000 1,000 134,275 160,125 100,850

Sale of Other 190,000 (208,500) (5,550) (9,250) (3,700)

Assets and
distribution of
loss

Balances 427,750 - 50,000 1,000 128,725 150,875 97,150

Payment of (50,000) (50,000)

Accounts
Payable

Balances 377,750 - 1,000 128,725 150,875 97,150

Payment to (377,750) (1,000) (128,725) (150,875) (97,150)

partners
Journal Entries:

1. Realization of Merchandise Inventory and distribution of profit.

Cash 160,000

Merchandise Inventory 155,750

Magbanua, Capital 1,275

Claudio, Capital 2,125

Yat, Capital 850

2. Realization of Other Assets and distribution of loss.

Cash 190,000

Magbanua, Capital 5,550

Claudio, Capital 9,250

Yat, Capital 3,700

Other Assets 208,500

3. Payment of Accounts Payable.

Accounts Payable 50,000

Cash 50,000

4. Payment to Partners.

Claudio, Loan 1,000

Magbanua, Capital 128,725

Claudio, Capital 150,875

Yat, Capital 97,150

Cash 377,750

Case 2 - The Merchandise Inventory and Other Assets were sold for 20,000 and 50,000 respectively.

Cash Merchandise Other Accounts Claudio, Magbanua, Claudio, Yat,

Inventory Assets Payable Loan Capital Capital Capital
 P/L Ratio 30% 50% 20%

Balances 77,750 155,750 208,500 50,000 1,000 133,000 158,000 100,000

before
liquidation

Sale of 20,000 (155,750) (40,725) (67,875) (27,150)

Merchandise
Inventory and
distribution
of loss

Balances 97,750 - 208,500 50,000 1,000 92,275 90,125 72,850

Sale of Other 50,000 (208,500) (47,550) (79,250) (31,700)

Assets and
distribution
of loss

Balances 147,750 - 50,000 1,000 44,725 10,875 41,150

Payment of (50,000) (50,000)

Accounts
Payable

Balances 97,750 - 1,000 44,725 10,875 41,150

Payment to (97,750) (1,000) (44,725) (10,875) (41,150)

partner

Journal Entries:

1. Realization of Merchandise Inventory and distribution of profit.

Cash 20,000

Magbanua, Capital 40,725

Claudio, Capital 67,875

Yat, Capital 27,150

Merchandise Inventory 155,750

2. Realization of Other Assets and distribution of loss.

Cash 50,000
Magbanua, Capital 47,550

Claudio, Capital 79,250

Yat, Capital 31,700

Other Assets 208,500

3. Payment of Accounts Payable.

Accounts Payable 50,000

Cash 50,000

4. Payment to Partners.

Claudio, Loan 1,000

Magbanua, Capital 44,725

Claudio, Capital 10,875

Yat, Capital 41,150

Cash 97,750

Problem No. 2

Lump-Sum Liquidation, Solvent and Insolvent

a. All of the Non-cash assets were sold for P 1,560,000, deficient partner is solvent

Sarah Rubie Diana

Personal assets P 600,000 P750,000 P 1,050,000

Personal liabilities (750,000) (360,000) (855,000)

Personal net worth P (150,000) P 390,000 P 195,000

Financial capacity Insolvent Solvent Solvent

Non-cash Rubie, Sarah, Rubie, Diana,

Cash Liabilities
Assets Loan Capital Capital Capital
 P/L Ratio 40% 30% 30%

Balances
before 120,000 2,730,000 1,380,000 150,000 660,000 360,000 300,000
liquidation

Sale of
Non-cash
(2,730,000 (468,000 (351,000
Assets and 1,560,000 (351,000)
) ) )
distributio
n of loss

Balances 1,680,000 - 1,380,000 150,000 192,000 9,000 (51,000)

Payment
of (1,380,000 (1,380,000
Accounts ) )
Payable

Balances 300,000 - 150,000 192,000 9,000 (51,000)

Additional
investment
by a
51,000 51,000
deficient
solvent
partner

Balances 351,000 150,000 192,000 9,000 -

Payment (150,000 (192,000

(351,000) (9,000)
to partners ) )

Journal Entries:

1. Realization of Non-cash Assets and distribution of loss.

Cash 1,560,000

Sarah, Capital 468,000

Rubie, Capital 351,000

Diana, Capital 351,000

 Accounts Receivable 420,000

Inventories 570,000

Property and Equipment (net) 1,740,000

2. Payment of Liabilities.

Accounts Payable 1,380,000

Cash 1,380,000

3. Additional investment of a deficient solvent partner.

Cash 51,000

Diana, Capital 51,000

4. Payment to partners.

Rubie, Loan 150,000

Sarah, Capital 192,000

Rubie, Capital 9,000

Cash 351,000

b. All Non-cash assets were sold for P 1,650,000, deficient partner is insolvent.

Sarah Rubie Diana

Personal Assets P 600,000 P 750,000 P 1,050,000

Personal Liabilities (750,000) (360,000) (1,155,000)

Personal net worth P (150,000) 390,000 P (105,000)

Financial capacity Insolvent Solvent Insolvent

Non-cash Rubie, Sarah, Rubie, Diana,

Cash Liabilities
Assets Loan Capital Capital Capital

P/L Ratio 40% 30% 30%

Balances 120,000 2,730,000 1,380,000 150,000 660,000 360,000 300,000

 before
liquidation

Sale of
Non-cash
(2,730,000 (432,000 (324,000
Assets and 1,650,000 (324,000)
) ) )
distributio
n of loss

Balances 1,770,000 - 1,380,000 150,000 228,000 36,000 (24,000)

Payment
of (1,380,000 (1,380,000
Accounts ) )
Payable

Balances 390,000 - 150,000 228,000 36,000 (24,000)

Additional
investment
by a
(13,714) (10,286) 24,000
deficient
solvent
partner

Balances 390,000 150,000 214,286 25,714 -

Payment (150,000 (214,286

(390,000) (25,714)
to partners ) )

Journal Entries:

1. Realization of Non-cash Assets and distribution of loss.

Cash 1,650,000

Sarah, Capital 432,000

Rubie, Capital 324,000

Diana, Capital 324,000

Accounts Receivable 420,000

Inventories 570,000

Property and Equipment (net) 1,740,000

2. Payment of Liabilities.

Accounts Payable 1,380,000

Cash 1,380,000

3. Deficiency absorbed by other partner.

Sarah, Capital 13,714

Rubie, Capital 10,286

Diana, Capital 24,000

4. Payment to partners.

Rubie, Loan 150,000

Sarah, Capital 214,286

Rubie, Capital 25,714

Cash 390,000