Partnership Liquidation

115. The following condensed balance sheet is presented for the partnership of
AA, BB, and CC, who share profits and losses in the ratio of 4:3:3,
respectively:

Cash P 160,000
Other assets 320,000
Total P 480,000

Liabilities P 180,000
AA, capital 48,000
BB, capital 216,000
CC, capital 36,000
Total P 480,000

The partners agreed to dissolve the partnership after selling the other assets
for P200,000. Upon the dissolution of the partnership. AA should have
received.

a. P 0 c. P72,000

b. 48,000 d. 84,000

(AICPA)

Answer: (a)

AA BB CC
Capital balances before liquidation P48,000 P216,000 P36,000
Loss on realization (P320,000 –
P200,000): (48,000) (36,000) (36,000)
4:3:3
Cash received P 0 P180,000 P 0

116. W, X, and Y are partners sharing profits and losses in the ratio of 4:3:3,
respectively. The condensed balance sheet of Heidi Partnership as of
December 31, 20x5 is:

Cash P 50,000
Other assets 130,000
 Total assets P 180,000

Liabilities P 40,000
W, capital 60,000
X, capital 40,000
Y, capital 40,000

Total liabilities and capital P 180,000

Assume instead that the Heidi Partnership is dissolved and liquidated by

installments, and the first realization of P40,000 cash is on the sale of other
assets with book value of P80,000. After the payment of liabilities, the
available cash shall be distributed to W, X, and Y respectively, as follows:

a. P36,000: P27,000: and. P27,000

b. P44,000; P28,000; and, P28,000

c. P16,000: P12,000: and, P12,000

d. P24,000: P13,000; and, P13,000

(PhilCPA)

Answer: (d)

W X Y
Balances before liquidation P 60,000 P 40,000 P 40,000
Loss on realization (80,000 – P40,000):
4:3:3 (16,000) (12,000) (12,000)

Balances P 44,000 P 28,000 P 28,000

Loss in possible unrealization of noncash assets

(P130,00 – P80,000) : (20,000) (15,000) (15,000)
4:3:3
Cash received P 24,000 P 13,000 P 13,000
 117. The partners of the M&N Partnership started liquidating their business on July
1, 20x5, at which time the partners were sharing profits and losses 40% to M
and 60% to N. The balance sheet of the partnership appeared as follows:

Assets Liabilities & Equity

Cash P 8,800 Accounts P 32,400
Payable
Receivable 22,400 M, capital P 31,000
Inventory 39,400 M, drawing ( 5,400) 25,600
Equipment P 65, 200 N, capital P 33,200
Accumulated N, drawing ( 200) 33,000
Depreciation (30,800) 34,400 N, loan 14,000

Total P 105,000 Total P 105,000

During the month of July, the partners collected P600 of the receivables with
no loss. The partners also sold during the month the entire inventory on which
they realized a total of P32,400. How much of the cash was paid to M's
capital on July 31, 20x5?

a. P25,600 c. P320

b. 5,400 d. 0

(PhilCPA)

Answer: (c)

M N
Drawing P(5,400) P(200)

Loan - 14,000

Capital 31,000 33,200

Total interest P25,600 P47,000

Loan on realization: 40%: 60% P 600
Receivables – collection

Less: book value 22,400 P21,800

 Proceeds – inventory P32,400

Less: book value 39,400 7,000

Unrealized noncash assets 34,400

P63,200 (25,280) (37,920)

P 320 P 9,080

118. Larry, Marsha, and Natalie are partners in a company that is being
liquidated. They share profits and losses 55 percent, 20 percent, and 25
percent, respectively. When the liquidation begins they have capital
account balances of P108,000, P62,000, and P56,000, respectively. The
partnership just sold equipment with a historical cost and accumulated
depreciation of P25.000 and P18,000, respectively for P10,000. What is the
balance in Marsha's capital account after the transaction is completed?

a. P62,000 c. P62,600

b. P61,400 d. P65,000

Answer: (c)

P62,000 + [P10,000 - (P25,000 - P18,000)] (.20)

P62,000 + (P3,000) (.20)
P62,000 + (P600)
P62,600 (c)

119. After operating for five years, the books of the partnership of Bo and By
showed the following balances:

Net assets P 169,000

Bo, Capital 110,500
By, Capital 58,500

If liquidation takes place at this point and the net assets are realized at book
value, the partners are entitled to:
 a. Bo to receive P117,000 & By to receive P52,000

b. Bo to receive P126,750 & By to receive P42,250

c. Bo to receive P84,500 & By to receive P84,500

d. Bo to receive P110,500 & By to receive P58,500

(PhilCPA)

Answer: (d)

The non-cash assets are realized at book value therefore: There is no gain or loss,
in which case partners are entitled to received an amount equivalent to their capital
interest.

120. RR, SS and I decided to dissolve the partnership on November 30, 20x5. Their
capital balances and profit ratio on this date, follow:

Capital Balances Profit Ratio

RR P 50,000 40%
SS 60,000 30%
TT 20,000 30%

The net income from January 1 to November 30, 20x5 is P44,000. Also, on this
date, cash and liabilities are P40,000 and P90,000, respectively. For RR to
receive P55,200 in full settlement of his interest in the firm, how much must be
realized from the sale of the firm's non-cash assets?

a. P196,000 c. P193,000

b. 177,000 d. 187,000

(Adapted)

Answer: (c)

Total Capital ( P50,000 + P60,000 + P20,000 + P44,000) P174,000

Total Liabilities 90,000

Total Assets P264,000

Less: Cash 40,000
Non-cash assets P224,000

Less: Loss on realization: (P55,200 - P67,600*) / 40% 31,000

Proceeds from sale P 193,000

* [P50,000 + (P44,000 x 40%)]

(P50,00 + P17,600)
P67,600

121. Larry. Marsha, and Natalie are partners in a company that is being
liquidated. They share profits and losses 55 percent, 20 percent, and 25
percent, respectively. When the liquidation begins they have capital
account balances of P108,000, P62,000, and P56,000, respectively. The
partnership just sold equipment with a historical cost and accumulated
depreciation of P25,000 and P18,000, respectively for P10,000. What is the
balance in Larry's capital account after the transaction is completed?

a. P106,350 c. P109,650

b. P108,000 d. P110,000

Answer: (c)

P108,000 + [P10,000 - (25,000 - P18,000)] (.55)

P108,000 + (P3,000) (.55)
P108,000 + (P1,650)
P109,650

122. Donald, Marion, and Jeff are liquidating their partnership. At the date the
liquidation begins Donald, Marion, and Jeff have capital account balances
of P147,000, P260,000, and P285,000, respectively and the partners share
profits and losses 35%, 25%, and 40%, respectively. In addition, the
partnership has a P28,000 Notes Payable to Donald and a P15,000 Notes
Receivable from Jeff. When the liquidation begins, what is the loss
absorption power with respect to Donald?

a. P 80,000 c. P420,000
 b. P340,000 d. P500,000

Answer: (d)

(P147,000 + P28,000 ) / (.35)

(P175,000) / (.35)
P500,000

123. Silverio, Domingo, Reyes, and Pastor are partners, sharing earnings in the
ratio of 3/21, 4/21, 6/21 and 8/21, respectively. The balances of their capital
accounts on December 31, 20x5 are as follows:

Silverio P 1,000
Domingo 25,000
Reyes 25,000
Pastor 9,000
P 60,000

The partners decide to liquidate, and they accordingly convert the non-
cash assets into P23,200 of cash. After paying the liabilities amounting to
P3,000, they have P22,200 to divide. Assume that a debit balance in any
partner's capital is uncollectible. After the P22,200 was divided, the capital
balance of Domingo was

a. P3,200 c. P 4,500

b. 3,920 d. 17,800

(PhilCPA)

Answer: (b)

Silverio Domingo Reyes Pastor Total

Balances before liquidation P 1,000 P 25,000 P 25,000 P 9,000 P 60,000

Loss or realization:
(P22,200 - P60,000)
3/21: 4/21: 6/21: 8/21 (5,400) 7,200 (10.800) (14,400) (37,800)
 Balances P(4,400) P17,800 P14,200 P(5,400) P22,200
Loss for possible insolvency of
Silverio and Pastor: 4:6
P4,400 + P5,400) 4,400 (3,920) (5,880) 5,400 _

Cash received P13,880 P8,320 P22,200

Therefore, the capital balance of Domingo after cash settlement is:

Capital balance after loss on realization but before payment to patterns

P17,800
Less: cash received 13,880
P 3,920

124. As of December 31, 20x5, the books of Ton Partnership showed capital
balances of: T, P40,000: O, P25,000: N, P5,000. The partners' profit and loss
ratio was 3:2:1, respective. The partners decided to liquidate and they sold
all non-cash assets for P37,000. After settlement of all liabilities amounting
P12,000, they still have cash of P28,000 left for distribution. Assuming that any
capital debit balance is uncollectible, the share of T in the distribution of the
P28,000 cash would be:

a. P17,800 c. P19,000

b. 18,000 d. 17,000

(PhilCPA)

Answer: (a)

T O N TOTAL
Balances before Liquidation P40,000 P25,000 P5,000 P70,000
Loss on realization:
(P28,000 – P70,000) 3:2:1 (21,000) (14,000) (7,000) (42,000)

Balances P19,000 P11,000 P(2,000) P28,000

Loss on possible insolvency of N: (1,200)
3:2 (800) 2,000 0

Cash received P17,800 P10,200 P28,000

125. A local partnership was considering the possibility of liquidation since one of
the partners is solvent (Tillman) and the others are insolvent. Capital
balances at that time were as follows. Profits and losses were divided on a
4:2:2:2 basis, respectively.

Ding, capital P 60,000

Laurel, capital 67,000
Ezzard, capital 17,000
Tillman, capital 96,000

Ding's creditors filed a P25,000 claim against the partnership's assets. At that
time, the partnership held assets reported at P360,000 and liabilities of P
120,000. If the assets could be sold for P228,000, what is the minimum amount
that Ding's creditors would have received?

a. P 0 c. P36,000

b. P2,500 d. P38,720

Answer: (b)

Ding Laurel Ezzard Tillman Total

Balances before P60,000 P67,000 P17,000 P96,000 P240,000
liquidation
Loss on realization 4:2:2:2
(P228,000 –P360,000) (52,800) (26,400) (26,400) (13,200) (132,000)

Balances P7,200 P40,600 P(9,400) P69,600 P108,000

Loss on possible insolvency
(4:2:2) (4,700) (2,350) 9,400 (2,350) -0-

Balances P2,500 P38,250 -0- P67,250 P108,000

Cash P 10,000 Liabilities P 130,000

Non-cash assets 300,000 Keaton, capital 60,000
Lewis, capital 40,000
Meador,capital 80,000
 P 300,000 P 310,000

126. The Keaton. Lewis and Meador partnership had the following balance
sheet just before entering liquidation:

Keaton, Lewis and Meador share profits and losses in a ratio of 2:4:4. Non-
cash assets were sold for P180,000. Liquidation expenses were P10,000.
Assume that Keaton was personally insolvent with assets of P8,000 and
liabilities of P60,000. Lewis and Meador were both solvent and able to
cover deficits in their capital accounts, if any. What amount of cash could
Keaton's personal creditors have expected to receive from partnership
assets?

a. P0 c. P30,000

b. P26,000 d. P34,000

Answer: (d)

Keaton Lewis Meador Total

Balances before liquidation P60,000 P40,000 P80,000 P180,000
Liquidation expenses (2:4:4) (2,000) (4,000) (4,000) (10,000)

Loss on realization – 2:4:4

(P180,000 – P300,000) (24,000) (48,000) (48,000) (120,000)

Balances P34,000 P(12,000) P28,000 P50,000

Additional investment 12,000 12,000
Payment to partners P34,000 -0- P28,000 P62,000

127. The following account balances were available for the Perry, Quincy and

Renquist partnership just before it entered liquidations:

Cash P90, 000 Liabilities P170,000

Non-cash assets 300,000 Perry,capital 70,000
Quincy, capital 50,000
Renquist, capital 100,000
Total P390,000 P390,000
 Perry, Quincy and Renquist had shared profits and losses in a ratio of 2:4:4.
Liquidation expenses were expected to beP8,000 . All partners are solvent.
What would be the minimum amount for which the non-cash assets must
have been sold for, in order for Quincy to receive some cash from the
liquidations?

a. Any amount in excess of P175,000

b. Any amount in excess of P117,000
c. Any amount in excess of P183,000
d. Any amount in excess of P198,667

Answer: (c)

Quincy capital before liquidation P50,000

Less: share in liquidation expenses (P8,000x40%) 3, 200

Quincy capital before realization of non-cash assets P46,800

Less: cash received by Quincy(minimum) 0

Share in the loss of realization P46,800

Divided by: Profit and loss ratio 40%

Loss on realization P117,000

Less: non-cash assets 300,000

Proceeds from sale P183,000

128. AA, BB, and CC are partners in ABC and share profits and losses 50%, 30%,
and 20%, respectively. The partners have agreed to liquidate the
partnership and some liquidation expenses to be incurred. Prior to the
liquidation, the partnership balance sheet reflects the following back
values:

Cash P 25,200
Non-cash assets 297,600
Notes payable to CC 38,400
 Other liabilities 184,800
AA, capital 72,000
BB, capital deficit (12,000)
CC, capital 39,600

Assuming that the actual liquidation expenses are P16,800 and that the
non-cash assets with a book value of P240,000 are sold for P216,000. How
much cash should CC received?

a. P 46,457 c. P 74,571
b. 39, 600 d. -0-

(Adapted)

Answer: (b)
AA BB CC
Capital (deficit) balance P 72,000 (P 12,000) P 39,600
Notes payable 0 0 38, 400
Total Interest P 72,000 (P 12,000) P 78,000
Loss on realization: ( P216,000- P240,000)
50%, 30%, 20% ( 12,000) ( 2,200) (4,800)
Balances P 60,000 ( P 19,200) P 73,200
Payment of liquidation expenses (8,400) ( 5,040) ( 3,360)
Balances P 51,600 ( P 24,240) P 69,840
Loss on possible unrealization of non-
cash assets: (P297,600- P240,000) (28,800) (17,280) (11,520)
Balances P 22,800 ( P 41,520) P 58,320
Loss for possible insolvency of 58(5:2) (29,657) P 41,520 (11,862)
Balances ( 6,857) P 44,457
Loss for possible insolvency of AA P 6,857 ( 6,657)
Cash received P 39,600 (b)

or alternatively,

AA BB CC
Total Interest P 72,000 (P 12,000) P 39,600
Other deficit (5:2) ( 8,571) P12,000 ( 3, 429)
Balances P 63,429 P 74,571
Loss on realization: ( P216,000- P240,000) (17,143) (6,657)
Balances P 46,286 P 73,200
Payment of liquidation expenses (P 12,000) ( 4,800)
Balances P 34,286 P 62,914
Loss on possible unrealization of non-
cash assets: (P297,600- P240,000) (41,143) (16,457)
Balances ( 6,857) P 46,457
Loss for possible insolvency of AA P 6,857 ( 6,857)
Cash received P 39,600 (b)

129. After all non-cash assets have been converted into cash in the liquidation
of the AA and JJ partnership, the ledger contains the following account
balances:

Debit Credit
Cash P 34, 000
Accounts payable P 25, 000
Loan payable to AA 9, 000
AA, capital 8, 000
JJ, capital 8, 000

Available cash should be distributed P25, 000 to accounts payable and:

a. P9, ,000 loan payable to AA c. P1,000 to AA and P8,000 to JJ

b. P4,500 each to AA and JJ d. P8,000 to AA and P1,000 to JJ
 (Adapted)

Answer: (c)

Cash Accounts Payable AA JJ

Balances before
liquidation P34,000 P 25,000 P 1,000 8,000
Payment of accounts
payable (25, 000) (P 25,000)
Balances 9, 000 1,000 8, ,000
Payment to partners (9, 000) (1,000) (8,000) (c)
*Net of capital deficit

130. Arthur, Baker and Carter are partners in textile distribution business sharing
profit and losses equally. On December 31, 20x5 the partnership capital and
partners drawings were as follows:

Arthur Baker Carter Total

Capital P100, 000 P 80, 000 P 300, 000 P 480, 000
Drawing 60, 000 40, 000 20, 000 120, 000

The partnership was unable to collect on trade receivables and was forced
to liquidate. Operating profit in 20x5 amounted to P72, 000 which was all
exhausted, including the partnership assets. Unsettled creditor’s claims of
December 31, 20x5 totalled P84, 000. Baker and Carter have substantial
private resources but Arthur has no personal assets. The final cash
distribution to Carter was?

a. P78, 000 c. P108, 000

b. 84, 000 d. 162, 000 ( PhilCPA)

Answer: (a)

Arthur Baker Carter Total

Balances before net
income:
Capital P100, 000 P 80, 000 P 300, 000 P 480, 000
Drawings 60, 000 40, 000 20, 000 120, 000
Totals P 40, 000 P 40, 000 P280, 000 P360, 000
Add: Net
income(equally) 24, 000 24, 000 24, 000 72, 000
Total interests P 64, 000 P 64, 000 P304, 000 P 432, 000
Loss on liquidation (172, 000) (172, 000) (172, 000) (516, 000)
Balances P108, 000 P108, 000 P132, 000 (P 84, 000)
Loss for insolvency of
Arthur: (equally) P108, 000 P 54, 000 P 54, 000 -
P162, 000 P 78, 000(a) (P 84, 000)
*Loss on liquidation
amounted to:
Liabilities P84, 000
Capital (P64, 000+
64, 000+ P304, 000) 432, 000
Total assets P516, 000

The P516, 000 assets are exhausted with no proceeds arising from it, therefore
the P516, 000 represents loss on realization.

**The P162, 000 capital deficiency of Baker will ultimately be considered as

additional investment since he has substantial resources to cover it. The P162,
000 investment will be applied first to unpaid liabilities of P84, 000,then the
balance will be given to Carter, P 78, 000.

131. Jar, Ram and Millo, who divide profits and losses, 50% 30% and 20%
respectively, have the following October 31, 20x5 account balances:
 Jar, drawing Dr. P 12, 000
Milo, drawing Cr. 4,800
Accounts receivable-Jar 7,200
Loans payable-Ram 14, 000
Jar, capital 59, 400
Ram, capital 44, 400
Millo, capital 39, 000

The partnership assets are P21, 200 (including cash of P64, 200), the
partnership is liquidated and Millo receives P33, 000 in final settlement .How
much is the total loss on realization?

a. P 10,500 c. P 54,000
b. 30,200 d. 64,200

(Adapted)

Answer: (c)

Total interests of Millo

Capital P 39, 000
Drawings 4,800 P 43,800
Less: Cash received in Final settlement
33,000
Share in loss on realization P 10, 800
Divide by: Profit and loss ratio of Millo 20%
Loss on realization P 54, 000 (c)

132. When Mikki and Mylene, 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 P100,
000; Liabilities, P 20, 000; Mikki, capital, P71, 000 and Mylene, capital, P54,
000. Because of highly specialized nature of the non-cash assets, the
liquidator anticipated that considerable time would be required to dispose
them. The expenses of liquidating the business (advertising, rent, travel, etc.)
 are estimated as P 10, 000.How much cash can be distributed safely to
each partner at this point?

a. 5, 000 to Mikki: and P 0 to Mylene

b. 5, 000 to Mikki: and P500 to Mylene
c. 3, 000 to Mikki: and P 0 to Mylene
d. 5, 000 to Mikki: and P 1,000 to Mylene

(Adapted)

Answer: (a)

Mikki Mylene Total

Balances before liquidation P 71, 000 P 54, 000 P125, 000
Loss on possible unrealization at
non-cash assets (equally) (55, 000) (55, 000) (110, 000)
Balances P 16, 000 ( P 1, 000) P 15, 000
Liquidation expenses (equally) ( 5, 000) (5, 000) 10, 000
Balances P 11, 000 ( 6, 000) 5, 000
Loss for possible insolvency of
Mylene 6, 000 6, 000 -
Cash received P 5, 000 P5, 000 (a)

133. A balance sheet for the partnership KK, LL and MM, who share profits 2:1:1
respectively, shows the following balances just before liquidation;

Cash Other Assets Liab. KK. Cap. LL. Cap. MM. Cap.
P48,000 P238,000 P80,000 P88,000 P62,000 P56,000

In the first month of liquidation, P125,000 was received on the sale of certain
assets. Liquidation expenses of P4,000 were paid and additional liquidation
expenses of P3,200 are anticipated before liquidation is completed.
Creditors were paid P22,400. The available cash was distributed to the
partners. The cash to be received by each partner based on the above
data:
 KK LL MM KK LL MM
a. P56,600 P28,300 P28,300 c. P29,400 P32,700 P26,700
b. 86,000 61,000 55,000 D. 88,000 62,000 56,000

(Adapted)

Answer: (c)

KK LL MM Total
Balances before liquidation..... P88,000 P62,000 P56,000 P206,000
Loss on realization (P128,000-
P238,000): 2:1:1................... (55,000) (27,500) (27,500) (110,000)
Balances.................................... P33,000 P34,500 P28,500 P96,000
Payment of liquidation expenses. (2,000) (1,000) (1,000) (4,000)
Balances...................................... P31,000 P33,500 P27,500 P92,000
Anticipated liquidation
Expenses............................ (P1,600) (P8,00) (P8,00) (P3,200)
P29,400 P32,700 P26,700 P88,880 (c)

134. NN, OO, PP and GG, partners to a law firm, shares profits at the ratio of
5:3:1:1. On June 30 relevant partners accounts follow;

Advances Loans Capital

Dr. Cr. Cr.
NN............................ - P20,000 P160,000
OO........................... 40,000 120,000
PP............................. P18,000 - 60,000
GG........................... 10,000 - 100,000

a. PP and GG c. All equally

a. OO and GG d. NN and OO

On this day, cash of P72,000 is declared as available for distribution to

partners as profits. Who among the partners will benefit from the P72,000
cash distribution?
 (Adapted)

Answer: (b)

NN OO PP GG Total
Balances before liquidation.....
Advances................. (P18,000 (P10,000) (P28,,000)
)
Loans......................... 20,000 40,000 - - 60,000
Capital....................... 160,000 120,000 60,000 100,000 440,000
Total Interest................................ P180,000 P160,000 P42,000 P90,000 P472,000
Loss on realization (5:3:1:1)........ (200,000) (120,000) (40,000) (40,000) (400,000)*
Balances..................................... (P20,000) P40,00 P2,000 P50,000 P72,000
Loss of possible insolvency 2,0000 (12,000 ) (4,000) (4,000) -
3:1:1............................
Balances....................................... P28,000 (P2,000) 46,000 P72,000
Anticipated liquidation
Expenses............................. (P1,500) P2,000 (500) -
P26,500 P45,500 P72,000 (b)
Cash received..........................

*P72,000-P472

135. The partnership of AA, BB and CC was dissolved on June 30, 20x5 and
account balances after non-cash assets were converted into cash on
September 1 20x5 are:

Assets Liabilities and Equity

Accounts Payable.......... P120,000
Cash............................ P50,000 AA, Capital (30%)............ 90,000
BB, Capital (30%)............. (60,000)
CC, Capital (40%)........... (100,000)

Personal assets and liabilities of the partners at September 1, 20x5 are:

 Personal Personal
Asset Liabiliities
AA............................................ P80,000 P90,000
BB............................................. 100,000 61,000
CC............................................ 192,000 80,000

If CC contributes P70,000 to the partnership to provide cash to pay the

creditors, what amount of AA’s P90,000 partnership equity would appear
to be recoverable?

b. P90,000 b. P79,000
b. 81,000 c. None

Answer: (b) AA BB CC Total

Balances before liquidation..... P90,000 (P60,000) (P100,000) (P70,000)

Additional Investment.............. 70,000 70,000
P90,000 (P60,000) (P30,000) P -
Additional Investment.............. 39,000 39,000

Additional loss for insolvency

Of BB (3:4)................... (9,000) 21,000 (12,000) -
P81,000 (P42,000) P39,000
Additional investment
(P192,000-P80,000-
P70,000).................... P42,000 42,000
P81,000 P81,000 (b)

136. Aaron, Ben and Chris are partners who share income in a 1:3:1 ratio,
respectively. On January 1, 20x5, they decide to terminate operations. The
partnership’s final balance on that date is as follows:
 Debit Credit
Cash P 20,000
Accounts Receivable 200,000
Loan Receivable-Ben 15,000
Inventory 400,000
Equipment 600,000
Accounts Payable P80,000
Bank Loan Payable 240,000
Loan Payable 25,000
Capital-Aaron 3 10,000
Capital-Ben 250,000
Capital-Chris 330,000
P 1,235,000 P 1,235,000

Liquidation of assets will take place over the next few months. At the end
of each month, available cash, less an amount retained to cover
estimated future liquidation cost is distributed to each partner.

During January 20x5, the following events occur

1. P90,000 of the accounts receivable are collected

2. The inventory was sold for P300,000
3. Liquidation costs of P10,000 were paid.
4. The bank loan and the accounts payable were paid.
5. P18,000 of cash is to be retained to cover future costs.

The capital balance (deficiency) of the partners on January 31 before the

distribution of possible losses and anticipated expenses (if any) for Aaron,
Ben and Chris re4spectively:

a. P203,400; (P159,800); P198,400

b. P225,400; (P93,800); P220,400
c. P229,000; (P159,800); P198,400
d. P123,500; P0; P242,000
 Answer: (a)

Aaron Ben Chris Total

(20%) (60%) (20%)
Capital P310,000 P250,000 P330,000 P890,000
Loans 25,000 (15,000) 10,000
Combined capital/Total Interest P335,000 P235,000 P330,000 P900,000
Loss on inventory sale (44,000) (132,000) (44,000) (220,000)
Loss on equipment sale (60,000) (180,000) (60,000) (300,000)
Liquidation costs (2,000) (6,000) (2,000) (10,000)
January 31, capital P229,000 (P83,000) P224,000 370,000
Less:
Cash withheld (3,600) (10,800) (3,600) (18,000)
Potential loss on receivables (22,000) (66,000) (22,000) (110,000)
Balance P203,400 (P159,800) P198,400 P242,000
Distribute deficiency (29,900) 159,800 (P29,900) -
Sale payments P123,500 P0 P118,500 P242,000

137. How much should each partner receive for the month of February?

a. P203,400; (P159,800); P198,400

b. P225,400; (P93,800); P220,400
c. P229,000; (P159,800); P198,400
d. P123,500; P0; P118,500

Answer: (d)

Refer for No. 136 for computation

Items 138 to 140 are based on the following information:

In 20x3, four friends form a partnership to invest in real estate. All are equal
partners. At January 1, 20x5, the books of the partnership show cash of
P23,000 and real estate with a cast of P400,000 and fair market value of
P650,000. The partnership has no liabilities. The partnership books are
maintained on a cost basis, and neither goodwill nor bonus is recorded when
a new partner is admitted.
 On January 1, 20x5 a new partner joins the partnership making a cash
investment equal to one fourth of the fair market value of partnership assets.
During 20x5 each partner invested P10,000 in new funds and the partnership
invested P370,000 in real estate. Also during 20x5, real state costing P100,000
was sold for P150,000. The January 1, 20x5 fair market value of the real estate
sold was P125,000. Interest earned on the partnership savings account for
20x5 was P500.

138. How much must the new partner invest in the partnership at January 1,

20x5?

a. P168,250 c. P100,000
b. P105,750 d. Zero

Answer: (d)

[(P23,000+P65,000)/4= P168,250]

139. The share in the partnership's 20x5 income to the four original partners (as a
group).

a. P 0 c. P25,000

b. P20,000 d. P45,400

Answer: (d)

Original New TOTAL

Partners Partners
Gain on real state sold:
Prior to 1/1/x5 P25,000 P25,000
After 1/1/x5 20,000 P5,000 25,000
Interest income 400 100 500
Total income allocation P45,400 P5,100 P50,500
140. In January 20x6, the partners sell all an partnership real estate for P925,000
and dissolve the partnership. How much will the new partner (NP), and the
original partners as a group (OP, each cover?

a. NP, P183,350; OP, P757,400

b. NP, P189,350; OP, P508,400

c. NP, P183,350; OP, P508,400

d. NP, P189,350; OP, P757,400

Answer: (d)

Total gain on sale of real estate:

Selling price P925,000
Cost (P400,000 + P370,000 – P100,000) 670,000
Total gain P255,000

Gain prior to 1/1/x5

Remaining fair value (P650,000 – p125,000) P525,000
Remaining cost (P400,000 – P100,000) 300,000
Pre- 1/1/x5 gain P225,000

Gain after 1/1/x5:

Total gain P255,000
Less pre- 1/1/x5 (225,000)
Post- 1/1/x5 P30,000

Cash balance of dissolution

Balance 1/1/x5 P23,000
New partner investment 168,250
All partners investment 50,000
Proceeds from sale of real estate 150,000
Interest 500
Investment in real estate (370,000)
Balance 12/31/x5 P21,750
Proceeds from sale of real estate 25,000
Total cash at dissolution P246,750

Original partners New TOTAL

partner
Capital, 1/1/x5 P423,000 P423,000
New partner investment - P168, 250 168,250
All partners investment 40,000 10,000 50,000
20x5 income allocation 45,400 5,100 50,500
 Capital, 12/31/x5 P508,400 P183,350 P691,750
Allocation of pre- 1/1/x5 gain 225,000 - 225,000
Allocation of post- 1/1/x5 gain 24,000 6,000 30,000
Total distribution to partners P757,400 P189,350 P946,750

141. After all partnership assets were converted into cash and all available cash
was distributed to creditors, the ledger of the Daniela, Erika, and Fredline
partnership showed the following balances:

Debit Credit
Accounts payable P 20,000
Daniela, capital(40%) 10,000
Erika, capital(30%) 60,000
Fredline, capital(30%) P 90,000
P 90,000 P 90,000

Percentages indicated are residual profit and loss sharing ratios. Personal
assets and liabilities of the partners are as follows:

Daniela Erika Fredline

Personal assets P 50,000 P 50,000 P 100,000
Personal liabilities 45,000 40,000 40,000

The partnership creditors proceed against Fredline for recovery of their

claims, and the partners settle their claims against each other. How much
would Erika receive?

a. P -0 c. P47,143

b. 45,000 d. Cannot be determined

(Adapted)

Answer: (b)

Daniela Erika Fredline TOTAL

Total interest P10,000 P60,000 P(90,000) (20,000)
Payment of liabilities by Fredline 20,000 20,000
Balances 10,000 60,000 P(70,000) 0
Additional investment (P100,000 – 40,00 –
20,000 = P40,000) 40,000 40,000
Balances 10,000 60,000 (30,000) 40,000
Additional loss for possible insolvency (4:3)
(17,143) (12,857) 30,000 -0-
Balances (7,143) 47, 143 40,000
Investment 5,000 - 5,000
Balances (2,143) 47, 143 45,000
Additional loss for possible insolvency 2,143 (2,143) -0-
P45,000 P45,000
142. The August. Albert and Gerry partnership became insolvent on January 1,
20x5, and the partnership is being liquidated as soon as practicable. In this
respect the following information for the partners has been marshaled:

Capital Personal Assets Personal Liabilities

Balances
August P 70,000 P 80,000 P 40,000
Albert (60,000) 30,000 50,000
Gerry (30,000) 70,000 30,000
Total P(20,000)

Assume that residual profits and losses are shared equally among the three
partners. Based on this information, calculate the maximum amount that
August can expect to receive from the partnership liquidation is:

a. P20,000 c. P70,000

b. 40,000 d. 110,000

(Adapted)

Answer: (a)

August Albert Gerry

Balances before realization P70,000 P(60,000) P(30,000)
Additional investment - - 30,000
Balances P70,000 P(60,000) -
Additional loss (1:1) (30,000) 60,000 (30,000)
Balances P40,000 P(30,000)
Additional investment (P70,000 – P30,000 – - 10,000
P30,000)
Balances P40,000 P(20,000)
Additional loss (20,000) 20,000
Balances P20,000
 143. Gardo and Gordo formed a partnership on July 1, 20x5 to operate two
stores to be managed by each of them. They invested P30,000 and P20,000
and agreed to share earnings 80% and 40%, respectively. All their
transactions were tor Cam and all their subsequent transactions were
handled through the respective bank accounts as summarized below:

Gardo Gordo
Cash receipts P 79,100 P 65,245
Cash disbursements 62,275 70,695

On October 31, 20x5, all remaining noncash assets in the two stores were
sold for cash of P50,000. The partnership was dissolved, and cash settlement
was effected. In the distribution of the P60,000 cash, Gardo received:

a. P24,000 c. P34,000

b. 26,000 d. 36,000

(PhilCPA)

Answer: (b)

Gardo 60% Gordo 40% TOTAL

Initial investment P 30,000 P 20,000 P(50,000)
Investment (personal disbursements*) 62,275 70,695 132,970
Investment (personal receipt (79,100) (5,240) (144,345)
Balances before liquidation P 13,175 P 25, 450 P38,625
Gain on realization (P60,000 – P38,625) 12,825 8,550 21,375
Balances before payment to partners P 26,000 P 34,000 60,000
Payment to partner P(P26,000) P (34,000) P(60,000)

144. PP, QQ, and RR partners to a firm have capital balances of P11,200,
P13,000, and P5,800, respectively, and share profits in the ratio of 4:2:1.
Prepare a schedule showing how available cash will be given to the
partners as it becomes available. Who among the partners shall be paid
first with an available cash of P1,400?

a. QQ c. RR

b. No one d. PP

(Adapted)
 Answer: (b)

INTEREST PAYMENTS
PP QQ RR PP QQ RR TOTAL
Balances before P 11,200 P13,000 P5,800
realization
Divided by: P&L 4/7 2/7 1/7
ratio
Loss absorption P 19,600 P 45,500 P 40,600
ability
Priority I - (4,900) - P 1,400 P 1,400

P 19,600 P 40,600 P 40,600

Priority II - (21,000) (21,000) - 6,000 3,000 9,000

P 19,600 P 19,600 P 19,600 P- P7,400 P3,000 P10,400

Cash Distribution: Available PP QQ RR

Cash payment to partner P 1,400

Less: Priority I (P 1,400) P 1,400

145. The PQR Partnership is being dissolved. All liabilities have been paid and the
remaining assets are being realized gradually. The equity of the partners is
as follows:

Partners’ Loans to Profit and Loss

Accounts (from Partnership) Ratio
P P 24,000 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4

The second cash payment to any Partner(s) under a program of priorities

shall be made thus:

a. To R, P2,000 c. To R, P8,000

b. To Q, P6,000 d. To Q, P6,000 & R, P8,000

(PhilCPA)
 Answer: (d)

INTEREST PAYMENTS
P Q R P Q R TOTAL
Balances before
realization
Loans P6,000 P(10,000)

Capital 24,000 P36,000 60,000

Total interest P30,000 P36,000 P50,000

Divided by: P&L 3/10 3/10 4/10

ratio
Loss absorption P100,000 P120,000 P125,000
ability
Priority I - - (5,000) P 2,000 P2,000

P100,000 P120,000 P120,000

Priority II - (20,000) (20,000) - 6,000 8,000 14, 000

P100,000 P100,000 P100,000 P - P6,000 P10,000 P16,000

146. A cash distribution plan (payment priority program) for the Matthew, Norell,
and Reams partnership appears below:

Priority Matthew Norell Reams

Creditor
First P 300,000 100%
Next P 80,000 70% 30%
Next P 70,000 3/7 4/7
Remainder 22% 34% 44%

If P550,000 of cash is to be distributed, how much will be received by the

priority creditors, Matthew, Norell and Reams?

Priority Creditor Matthew Norell Reams

a. P 0 P 0 P 0 P 0
b. 0 121,000 187,000 242,000
c. 300,000 55,000 85,000 110,000
 d. 300,000 108,000 58,000 84,000

(Adapted)

Answer: (d)

Priority creditors Matthews Norell Reams TOTAL

First P300,000 P300,000 P300,000

Next P80,000 (7:3) P56,000 P24,000 80,000

Next P70,000 (3:4) 30,000 P40,000 70,000

Remainder - 22,000 34,000 44,000 100,000

P300,000 P108,000 P58,000 P84,000 P550,000

147. Scott, Joe, and Ed ore liquidating their partnership. At the date the
liquidation begins Scott, Joe, and Ed have capital account balances of
P162,000, P192,500, and P215,000, respectively and the partners share
profits and losses 40%, 35%, and 25%, respectively, in addition, the
partnership has a P36,000 Notes Payable to Scott and a P20,000 Notes
Receivable from Ed. When the liquidation begins, what is the loss
absorption power with respect to Joe?

a. P192,500 c. P550,000

b. P 67,375 d. P770,000

Answer: (d)

(P192,500/.35)

Assets: Liabilities and Equity:

Cash P 15,000 Liabilities P 170,000
Receivables – net 20,000 Loan from Stac 70,000
Inventory 40,000 Queen, capital – 30% 50,000
Plant assets – net 70,000 Reed, capital – 50% 100,000
Loan to Reed 5,000 Stac, capital – 20% 15,000
Total assets P 390,000 Total Liabilities and Equity P 390,000

148. The assets and equities of the Queen, Reed, and Stac Partnership at the
end of its fiscal year on October 31, 20x5 are as follows:

The partners decide to liquidate the partnership. They estimate that the
noncash assets, other than the loan to Reed, can be converted into
P100,000 cash over the two-months period ending December 31, 20x5.
Cash is to be distributed to the appropriate parties as it becomes available
during the liquidation process. The partner most vulnerable to partnership
losses on liquidation is:

a. Queen c. Reed and Queen equally

b. Reed d. Stac

(Adapted)

Answer: (b)

Quen Reed Stac

Balances before liquidation
Loan (to) from P(5,000) P10,000
Capital balances P45,000 30,000 15,000
Total interest P45,000 P25,000 P25,000
Divided by: P&L ratio 30% 50% 20%
Loss absorption abilities/potential P150,000 P50,000 P125,000
Vulnerability ranking (1 most vulnerable) 3 1 2

The most vulnerable is the partner with the lowest absorption ability. In order to
determine their vulnerability to possible losses, the equity of each partner is
divided by his or her profit sharing ratio to identify the maximum loss that a partner
could absorb without reducing his or her equity below zero. The vulnerability ranks
indicate that Reed is most vulnerable to losses because his equity would be
reduced to zero with a total partnership loss on liquidation of P50,000.
149. Using the same information in No. 148, and P65,000 is available for first
distribution, it should be paid to:

Priority Creditor Queen Reed Stac

a. P 60,000 P 5,000 P 0 P 0
b. 60,000 1,500 2,500 1,000
c. 50,000 5,000 0 10,000
d. 50,000 12,000 0 3,000

(Adapted)

Answer: (d)

Quen Reed Stac TOTAL

Balances before liquidation
Loan (to) from P(5,000) P10,000
Capital balances P45,000 30,000 15,000 -
Total interest P45,000 P25,000 P25,000 P95,000
Reduce in equity (24,000) (40,000) (16,000) (80,000)
Payment to partners* P21,000 P(15,000) P9,000 P15,000
Additional loss (3:2) (9,000) 15,000 (6,000) -
Payment to partners P12,000 P3,000 P15,000

*cash available for first distribution P65,000

Less: priority creditors 50,000
Payment to partners P15,000