Chapter 4

Partnership – Part 4

PROBLEM 4-1: TRUE OR FALSE

1. FALSE
2. FALSE
3. TRUE
4. FALSE - ₱3 - ₱1 liabilities = ₱2
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. TRUE
11. FALSE - ₱2 net proceeds (squeeze) - ₱5 carrying amount = (₱3 loss)
12. TRUE
13. FALSE - ₱6 - ₱1 liabilities = ₱5 available to partners x 50% = ₱2.5
14. TRUE
15. FALSE - ₱3

PROBLEM 4-2: THEORY & COMPUTATIONAL

1. D

2. D

3. Solutions:

Case #1: Lump-sum liquidation

Net cash proceeds 50,000

Carrying amount of non-cash assets (80,000)
Total loss on sale (30,000)

A (80%) B (20%) Totals

Capital balances before liquidation 20,000 18,000 38,000
Loans payable to partners 10,000 17,000 27,000
Total 30,000 35,000 65,000
Allocation of loss
(24,000) (6,000) (30,000)
(-30K x 80%); (-30K x 20%)
Amounts received by the partners 6,000 29,000 35,000

1
Checking:
Available cash (from sale) 50,000
Outside creditors (15,000)
Available cash for distribution to partners 35,000

Case #2: Installment liquidation

Net cash proceeds - first sale 45,000

Carrying amount of all non-cash assets (80,000)
Loss (35,000)

A (80%) B (20%) Totals

Capital balances before liquidation 20,000 18,000 38,000
Loans payable to partners 10,000 17,000 27,000
Total 30,000 35,000 65,000
Allocation of loss
(28,000) (7,000) (35,000)
(-35K x 80%); (-35K x 20%)
Amounts received by the partners - 1st sale 2,000 28,000 30,000

Checking:
Available cash (from 1st sale) 45,000
Outside creditors (15,000)
Available cash for distribution to partners 30,000

Case #3: Installment liquidation

Net cash proceeds - first sale 15,000

Carrying amount of all non-cash assets (80,000)
Loss (65,000)

A (80%) B (20%) Totals

Capital balances before liquidation 30,000 (28,000) 2,000
Loans payable to partners 20,000 10,000 30,000
Total 50,000 (18,000) 32,000
Allocation of loss
(52,000) (13,000) (65,000)
(-65K x 80%); (-65K x 20%)
Amounts received by the partners - 1st sale (2,000) (31,000) (33,000)

2
Answer: The partners receive nothing from the 1st sale.

Checking:
Available cash (from sale) 15,000
Outside creditors (15,000)
Available cash for distribution to partners -

4. Solutions:

Case #1: Lump-sum liquidation

Collection from accounts receivable (60K x 70%) 42,000

Sale of inventory 20,000
Sale of equipment 310,000
Liquidation costs (12,000)
Net proceeds 360,000
Carrying amt. of all non-cash assets,
except Receivable from A (60K + 120K +290K) (470,000)
Loss (110,000)

A (60%) B (40%) Totals

Capital balances before liquidation 250,000 200,000 450,000
Payable to (Receivable from) partners (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss
(-110K x 60%); (-110K x 40%) (66,000) (44,000) (110,000)
Amounts received by the partners 174,000 176,000 350,000

Checking:
Available cash (20K on hand + 360K from sale) 380,000
Outside creditors (30,000)
Available cash for distribution to partners 350,000

Case #2: Lump-sum liquidation

Collection from accounts receivable (60K x 1/2) 30,000

Sale of inventory 20,000
Liquidation expenses (12,000)
Estimated liquidation costs (5,000)
Net proceeds 33,000
Carrying amt. of all non-cash assets, except Receivable from A (470,000)
Loss (437,000)

3
 A (60%) B (40%) Totals
Capital balances before liquidation 250,000 200,000 450,000
Payable to (Receivable from) partners (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss
(262,200) (174,800) (437,000)
(-437K x 60%); (-437K x 40%)
Total (22,200) 45,200 23,000
Allocation of deficiency to other partner 22,200 (22,200) -
Amount received by partners - 23,000 23,000

Checking:
Available cash (20K on hand + 33K from sale, net) 53,000
Outside creditors (30,000)
Available cash for distribution to partners 23,000

PROBLEM 4-3: EXERCISES – COMPUTATIONAL

1. Solution:
Net cash proceeds 32,000
Carrying amount of non-cash assets (40,000)
Total loss on sale (8,000)

A (50%) B (50%) Totals

Capital balances before liquidation 20,000 15,000 35,000
Allocation of loss (-8K x 50%); (-8K x 50%) (4,000) (4,000) (8,000)
Amounts received by the partners 16,000 11,000 27,000

2. Solution:

Net cash proceeds 32,000

Carrying amount of non-cash assets (120,000)
Total loss on sale (88,000)

A (50%) B (50%) Totals

Capital balances before liquidation 60,000 45,000 105,000
Allocation of loss
(44,000) (44,000) (88,000)
(-88K x 50%); (-88K x 50%)

4
Amounts received by the partners 16,000 1,000 17,000

3. Solution:
Net proceeds 300,000
Carrying amt. of other assets (450,000)
Loss (150,000)

A (40%) B (30%) C (30%) Totals

Capital balances
60,000 270,000 45,000 375,000
before liquidation
Allocation of loss (60,000) (45,000) (45,000) (150,000)
Amounts received by
- 225,000 - 225,000
the partners

4. Solutions:

Case #1: Lump-sum liquidation

Net cash proceeds (50,000 – 5,000) 45,000

Carrying amount of non-cash assets (80,000)
Total loss on sale (35,000)

A (80%) B (20%) Totals

Capital balances before liquidation 36,000 22,000 58,000
Loans payable to partners 10,000 17,000 27,000
Total 46,000 39,000 85,000
Allocation of loss
(28,000) (7,000) (35,000)
(-35K x 80%); (-35K x 20%)
Amounts received by the partners 18,000 32,000 50,000

Checking:
Available cash (on hand + from sale, net) 20K + 45K 65,000
Outside creditors (15,000)
Available cash for distribution to partners 50,000

Case #2: Installment liquidation

Net cash proceeds - first sale (45K – 5K) 40,000

Carrying amount of all non-cash assets (80,000)
Loss (40,000)

5
 A (80%) B (20%) Totals
Capital balances before liquidation 36,000 22,000 58,000
Loans payable to partners 10,000 17,000 27,000
Total 46,000 39,000 85,000
Allocation of loss
(32,000) (8,000) (40,000)
(-40K x 80%); (-40K x 20%)
Amounts received by the partners - 1st sale 14,000 31,000 45,000

Checking:
Available cash (on hand + from 1st sale, net) 20K + 40K 60,000
Outside creditors (15,000)
Available cash for distribution to partners 45,000

5. Solutions:

Case #1: Lump-sum liquidation

Collection from accounts receivable (60% x 180K) 108,000

Sale of inventory 50,000
Sale of equipment 310,000
Liquidation costs (10,000)
Net proceeds 458,000
Carrying amt. of all non-cash assets,
(650,000)
except Receivable from B (180K + 160K +310K)
Loss (192,000)

A (60%) B (40%) Totals

Capital balances before liquidation 240,000 190,000 430,000
Payable to (Receivable from) partners 20,000 (10,000) 10,000
Total 260,000 180,000 440,000
Allocation of loss
(115,200) (76,800) (192,000)
(-192K x 60%); (-192K x 40%)
Amount received by partners 144,800 103,200 248,000

Case #2: Lump-sum liquidation

Collection from accounts receivable (50% x 180K) 90,000

Sale of inventory 20,000
Sale of equipment 120,000
Liquidation expenses (10,000)

6
Estimated liquidation costs (5,000)
Net proceeds 215,000
Carrying amt. of all non-cash assets,
(650,000)
except Receivable from B (180K + 160K +310K)
Loss (435,000)

A (60%) B (40%) Totals

Capital balances before liquidation 240,000 190,000 430,000
Payable to (Receivable from) partners 20,000 (10,000) 10,000
Total 260,000 180,000 440,000
Allocation of loss
(261,000) (174,000) (435,000)
(-192K x 60%); (-192K x 40%)
Total (1,000) 6,000 5,000
Allocation of deficiency to other partner 1,000 (1,000) -
Amount received by partners - 5,000 5,000