Chapter 4

Problem I
1: Gain on Realization Fully Allocated to Partner’s Capital Balances.
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4
Non- Q, R, S,
Cash Liabilitie Capital Capital Capital
Cash Assets s Q, Loan 30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Realization and
distribution (84,000
of gain 96,000 ) _____ ______ 3,600 6,000 2,400
Balances after realization 120,000 12,000 2,400 13,200 54,000 38,400
(12,000
Payment of liabilities (12,000) )
Balances after payment of
liabilities 108,000 2,400 13,200 54,000 38,400
Payment to partners -
loan (2,400) (2,400) ______ ______ _______
Balances after payment
of
partners’ loans 105,600 13,200 54,000 38,400
Payment to partners - (105,600 (13,200 (54,000 (38,40
capital ) ) ) 0)

2: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account

Requiring Transfer from Partner’s Loan Account (Right of Offset Exercised).
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4
Non- Q, R, S,
Cash Liabilitie capital Capital Capital
Cash Assets s Q, Loan (30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Realization and
distribution (84,000 ____ (10,800 (18,000
of loss 48,000 ) _ ______ ) ) (7,200)
Balances after realization 72,000 12,000 2,400 (1,200) 30,000 28,800
(12,000
Payment of liabilities (12,000) )
Balances after payment of
liabilities 60,000 2,400 (1,200) 30,000 28,800

Offset deficit versus loans _______ (1,200) 1,200 _______ _______

1,20
Balances after offsetting 60,000 0 30,000 28,800
Payment to partners – (1,20
loan (1,200) 0) _______ ______
Balances after payment of
partners’ loans 58,800 30,000 28,800
Payment to partners - (30,000 (28,80
capital (58,800) ) 0)

3: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account

Requiring Transfer from Partner’s Loan Account (Right of Offset Exercised and
Additional Capital Investment is Required and Made).
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4
 Non- Q, R, S,
Cas Cash Liabilitie capital Capital Capital
h Assets s Q, Loan (30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Realization and
distribution (84,000 _____ (14,400 (24,000
of loss 36,000 ) ___ ________ ) ) (9,600)
( 4,800
Balances after realization 60,000 12,000 2,400 ) 24,000 26,400
(12,000
Payment of liabilities (12,000) ) ________ _______ _______ _______
Balances after payment of
liabilities 48,000 2,400 ( 4,800) 24,000 26,400
2,40
Offset loan versus deficit – _______ (2,400) 0 _______ _______
Balances after offsetting
partner’s loan 48,000 (2,400) 24,000 26,400
Additional investment by
Q __2,400 2,400 _______ _______

Balances after additional 26,40

Investment 50,400 24,000 0
Payment to partners - (24,000 (26,40
capital (50,400) ) 0)

4: Loss on Realization Creates a Deficit Balance in One Partner’s Capital Account

Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) and
Additional Investment is Required but not Made (Personally Insolvent).
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4

Non- Q, R, S,
Cash Liabilitie capital Capital Capital
Cash Assets s Q, Loan (30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Realization and
distribution (84,000 (12,600 (21,000
of gain 42,000 ) _______ ________ ) ) (8,400)
( 3,000
Balances after realization 66,000 12,000 2,400 ) 27,000 27,600
(12,000
Payment of liabilities (12,000) ) _______ _______ _______ _______
Balances after payment of
liabilities 54,000 2,400 (3,000) 27,000 27,600
Offset loan versus deficit _______ (2,400) 2,400 ______ ______
Balances after offsetting 54,000 ( 600) 27,000 27,600
Additional loss due to
insolvency of Q _______ 600 ( 429) ( 171)
Balances after additional ,
Loss 54,000 26,571 27,429
Payment to partners - (26,571 (27,42
capital (54,000) ) 9)

5: Loss on Realization Creates a Deficit Balance in One Partner’s Capital Account

Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) and
Additional Investment is Required but not Made (Personally Insolvent).
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4

Cash Non- Liabilitie Q, Loan Q, R, S,

 Cash capital Capital Capital
Assets s (30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Realization and
distribution (84,000 (18,000 (30,00 (12,00
of gain 24,000 ) _______ _______ ) 0) 0)
( 8,400
Balances after realization 48,000 12,000 2,400 ) 18,000 24,000
(12,000
Payment of liabilities (12,000) ) _______ _______ _______ _______
Balances after payment of
liabilities 36,000 2,400 ( 8,400) 18,000 24,000
(2,400
Offset loan versus deficit ______ ) 2,400 ______ _______
(6,000)
Balances after offsetting 36,000 , 18,000 24,000
Additional investment by
Q _3,600 _ 3,600 ______ _______
Balances after additional (2,400
investment 39,600 ) 18,000 24,000
Additional loss due to
insolvency of Q ______ 2,400 (1,714) ( 686)
Balances after additional
Loss 39,600 16,286 23,314
Payment to partners - (16,286 (23,31
capital (39,600) ) 4)

6: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account

Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) and All
Partners are Personally Solvent.
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4

Non- Q, R, S,
Cash Liabilitie capital Capital Capital
Cash Assets s Q, Loan (30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Payment of liquidation
expenses (14,400) ______ ________ ________ (4,320) (7,200) (2,880)

Balances after payment of 9,60

liquidation expenses 0 84,000 12,000 2,400 5,280 40,800 33,120
Write-off goodwill and (72,000 (21,600 (36,000 (14,40
prepaid expenses _______ ) _______ ________ ) ) 0)
9,60 (16,320 4,80
Balances after write-offs 0 12,000 12,000 2,400 ) 0 18,720
Realization and
distribution (12,000 ( 3,240 ( 5,400 ( 2,160
of loss 1,200 ) _______ ________ ) ) )
( 19,560 ( 600
Balances after realization 10,800 12,000 2,400 ) ) 16,560
(10,800
Payment of liabilities (10,800) ) ________ _______ ________ _______
Balances after payment of (19,560
Liabilities -0- 1,200 2,400 ) ( 600) 16,560

Offset loan versus deficit ______ _______ (2,400) 2,400 _______ _______
(17,160
Balances after offsetting -0- 1,200 ) ( 600) 16,560
Additional investment by
Q 17,76
and R 0 _______ 17,160 600 ______
Balances after additional 17,76
Investment 0 1,200 16,560

Payment of liabilities (1,200) (1,200) _______

Balances after payment of 16,56
Liabilities 0 16,560
Payment to partners - (16,56
Capital (16,560) 0)

7: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account

Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) with
Revaluation of Assets.
QRS Partnership
Statement of Realization and Liquidation
November 1 – 30, 20x4

Non- Q, R, S,
Cash Liabilitie capital Capital Capital
Cash Assets s Q, Loan (30%) (50%) (20%)
Balances before
liquidation 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Increase in equipment 1,200 360 600 240
Decrease in furniture ______ (600) _______ ______ _(180) (300) (120)
Balances after revaluation 24,000 84,600 12,000 2,400 9,780 48,300 36,120
Refund of prepaid
expenses _6,960 (8,400) _______ ______ _(432) (720) (288)
Balances after refunds 30,960 76,200 12,000 2,400 9,348 47,580 35,832
(10,200
Received noncash assets ______ ) _______ ______ _____ (7,200) (3,000)

Balances after receipt 30,96 9,34

of noncash assets 0 66,000 12,000 2,400 8 40,380 32,832
Realization and
distribution (66,000 ( 10,08 ( 16,800 ( 8,064
of loss 32,400 ) _______ ______ 0) ) )
( 732
Balances after realization 63,360 12,000 2,400 ) 23,580 26,112
(12,000
Payment of liabilities (12,000) ) _______ _______ _______ _______
Balances after payment of ( 732
liabilities 51,360 2,400 ) 23,580 26,112

Offset loan versus deficit _______ ( 732) 732 ______ ______

Balances after offsetting 51,360 1,668 23,580 26,112

Payment to partners -
loan (1,668) (1,668) ______ _______

Balances after payment

of loans 49,692 23,580 26,112

Payment to partners- (23,580 (26,11

capitals (49,692) ) 2)

Problem II
DISCOUNT PARTNERSHIP
Schedule of Partnership Liquidation
January 14, 20x4

Capital Balances
Explanation Cash Other Liabilities Dawso Feeney Hardin
Assets n
Balances before realization P25,000 P120,000 P(40,000 P(31,000 P(9,000)
P(65,000

Sales of noncash assets 60,000 _____ 24,000 18,000

(120,000) 18,000
Balances 85,000 0 (40,000) (13,000) (41,000) 9,000

Payment of liabilities (40,000) __________ 40,000 ________ ________ ________

Balances 45,000 0 0 (13,000) (41,000) 9,000
Allocation of Hardin's debit
balance
______ __________ ______ 3,857 5,143(9,000)
Balances 45,000 0 (9,143) (35,857) 0
0

Distribution of cash to partners (45,000) __________ ______ 9,143 35,857 ________

Balances P 0 P P 0 P 0 P 0 P 0
0

Problem III
1.
CDG Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on December 10, 20X6
Capital Balances
Noncash Carlos Dan Gail
Cash Assets Liabilitie 20% 40% 40%
s

Preliquidation balances 25,000 475,000 (270,00 (120,00 (50,000) (60,000)

0) 0)

Sale of assets and

distribution
of P215,000 loss 260,000 (475,000 86,000 86,000
) 43,000
285,000 -0- (270,00 (77,000) 36,000 26,000
0)
Cash contributed by Gail to
extent of positive net 25,000 (25,000)
worth
310,000 -0- (270,00 (77,000) 36,000 1,000
0)
Distribution of deficit of
insolvent partner: (1,000)
20/60(P1,000) 333
40/60(P1,000) 667

310,000 -0- (270,00 (76,667) 36,667 -0-

0)

Contribution by Dan to 36,667 (36,667)

remedy deficit
346,667 -0- (270,00 (76,667) -0- -0-
0)
 Payment to creditors (270,000
) 270,000
76,667 -0- -0- (76,667) -0- -0-

Payment to partner (76,667

) 76,667

Post-liquidation balances -0- -0- - -0- -0- -0-

0-

2.
CDG Partnership
Net Worth of Partners
December 10, 20X6
Carlos Dan Gail
Personal assets, excluding
partnership capital interests 250,000 300,000 350,000
Personal liabilities (230,000) (240,000) (325,000)
Personal net worth, excluding
partnership capital interests, Dec. 1, 20X6 20,000 60,000 25,000
Contribution to partnership (36,667) (25,000)
Liquidating distribution from partnership 76,667 -0- -0-
Net worth, December 10, 20X6 96,667 23,333 -0-

This computation assumes that no other events occurred in the 10-day period that changed
any of the partners’ personal assets and personal liabilities. In practice, the accountant
must be sure that a computation of net worth is current and timely.

The table shows the effects of the transactions between the partnership and each partner. A
presumption of this table is that the personal creditors of Dan or Gail would not seek court
action to block the settlement transactions with the partnership. Upon winding up and
liquidation, the partnership does not have any priority to the partner’s personal assets.
Thus, the personal creditors may seek to block the transactions with the partnership in order
to provide more resources from which they can be paid. A partner who fails to remedy his or
her deficit can be sued by the other partners who had to make additional contributions or
even by a partnership creditor if the failed partner is liable to the partnership creditor. But
those claims are not superior to the other claims to the partner’s individual assets.

When accountants provide professional services to partnerships and to its partners, the
accountant should expect, at some time, legal suits involving the partnership and/or
individual partners. A strong and thorough understanding of the legal and accounting
foundations of partnerships will be very important to that accountant.

Problem IV
Noncash Capital and Loan Balances
Cash Assets Liabilitie Merz Dechter Flowers

Beginning balances P P200,00 P165,00 P P30,000 P(10,00

Liquidation expense 25,000
(20,000) 0 0 40,000
(8,000) (8,000) 0)
(4,000)
Sale of non-cash assets 160,000 (200,00 (16,000 (16,000 (8,000)
Payment of liabilities (165,00 0) (165,00 ) )
Contribution by Flowers 0)
10,00 0) 10,000
Allocation of Flower's 0 (6,000) (6,000) 12,000
deficit
Distribution to partners (10,000) (10,000 0 0
Ending balances 0 0 0 0) 0 0

Problem V
Cash Liabilities Able Bower Cramer
Beginning: P20,000 P(30,000) P(10,000) P5,000 P15,000
Payment of liabilities (20,000) 20,000
P 0 P(10,000) P(10,000) P5,000 P15,000
Cramer/Bower pay in
from personal worth
to cover
deficit balances: 12,000 ________ ________ (2,000) (10,000)
P12,000 P(10,000) P(10,000) P3,000 P 5,000
Payment of liabilities (10,000) 10,000
P 2,000 P 0 P(10,000) P3,000 P 5,000
Allocation of
deficit balances: ______ ________ 8,000 (3,000) (5,000)
P 2,000 P 0 P (2,000) P 0 P 0
Able paid: (2,000) 2,000
P 0 P 0 P 0 P 0 P 0

Problem VI
Answer:
Cash 70,000
Arthur, Capital 6,000
Baker, Capital 15,000
Casey, Capital 9,000
Other Assets 100,000
To record realization of assets at a loss of $30,000, divided
among Arthur, Baker, and Casey in 2:5:3 ratio, respectively.

Trade Accounts Payable 65,000

Cash 65,000
To record payment of liabilities.

Arthur, Capital 20,000

Loan Receivable from Arthur 20,000
To offset Arthur's loan account against Arthur's capital
account.

Arthur, Capital 14,000

Loan Payable to Baker 20,000
Casey, Capital 1,000
Cash 35,000
To record payments to partners, computed as follows:

Arthur Baker Casey

Capital account balances P70,000 P80,000 P55,000
Add: Loan payable to Baker 30,000
Less: Loan receivable from Arthur (20,000)
Loss on realization of assets,
P30,000 (6,000) (15,000) (9,000)
Balances P44,000 P95,000 P46,000
Maximum potential additional loss
of P150,000 (P250,000 – P100,000 =
P150,000) divided in 2:5:3 ratio (30,000) (75,000) (45,000)
Cash payments P14,000 P20,000 P 1,000

Multiple Choice Problems

1. b - (P40,000 + P10,000 – P2,000 – P4,000 = P44,000)
2. d – P80,000 – (P150,000 – P50,00) x 50% = P30,000
3. c
4. a - Phil (P35,000 + P10,000); Harry P28,000; Bill (P27,000 - P5,000)
5. c - Rick P46,000; Mary (P39,000 - P15,000); Fran (P29,000 + P10,000)
6. d - P50,000 - (P15,000 - P9,500)(.25)
7. b - P45,000 - (P15,000 - P9,500)(.30)
8. a - P108,000 + [P10,000 - (P25,000 - P18,000)](.55)
9. c - P62,000 + [P10,000 - (P25,000 - P18,000)](.20)
10. b
11. c
12. d
13. c
Vulnerability ranks:
Lang equity (P70,000 - P40,000)/.25 = P120,000 = 1
Maas equity (P80,000 + P50,0000/.25 = P520,000 = 3
Neal equity (P150,000/.5) = P300,000 = 2

Assumed loss absorption:

25% 25% 50%
Lang Maas Neal Total
Equities P 30,000 P 130,000 P 150,000 P 310,000
Loss to eliminate
Lang ( 30,000 ) ( 30,000 ) ( 60,000 ) ( 120,000 )
0 P 100,000 P 90,000 P 190,000
Loss to eliminate
Neal ( 45,000 ) ( 90,000 ) ( 135,000 )
P 55,000 P 0 P 55,000

14 c JJ CC TT Total
.

Profit ratio 40% 50% 10% 100%

Prior capital (160,000) (45,000) (55,000) (260,000)

Loss on sale
of inventory 24,000 30,000 6,000 60,000
(136,000) (15,000) (49,000) (200,000)

15. a Prior capital (160,000) (45,000) (55,000) (260,000)

Loss on sale
of inventory 72,000 90,000 18,000 180,000
(88,000) 45,000 (37,000) (80,000)
Allocate Charles'
capital deficit: (45,000)
JJ = .40/.50 36,000
TT = .10/.50
9,000
(52,000) -0- (28,000) (80,000)
16. c – (P234,000 – P434,000) x 20% = P40,000
17. b
T D H
Capital before realization 40,000
10,000 15,000
Loss on sale (85,000 – (26,000)
33,000) (15,600) (10,400)
( 5,600) 4,600
14,000
Additional loss (5:2) (4,000) 5,600 ( 1,600)
10,000 3,000

18. a
T D H
Capital before realization 40,000
10,000 15,000
Loss on sale (85,000 – (31,950)
21,100) (19,170) (12,780)
( 9,170) 2,220
8,050
Additional loss (5:2) (6,550) 9,170 (2,620)
1,500 ( 400)
Additional loss ( 400) 400
1,100

19. b
K L M
Capital before 60,000 40,000 80,000
realization
Liquidation expenses
(2,000) ( 4,000) ( 4,000
)
Loss on sale (300 - 180) (24,000)
(48,000) ( 48,000
)
28,000
34,000 (12,000)
Additional loss (2:4) ( 4,000) 12,000 ( 8,000)
30,000 20,000

20. d
H I J Total
Capital before 80,000 110,000 140,000 330,00
realization 0
Loss on sale (2:4:4) (61,000) (305,00
(122,000) (122,00 0)
0)
25,000
19,000 (12,000) 18,000
Additional loss (2:4) ( 4,000) 12,000 ( 8,000)
15,000 10,000

21. d – [(P240,000 – P96,000) /30% = P480,000]

22. a
Capital before realization – C 130,000

Liquidation expenses (12,000 x 50%)

(6,000)
Share on loss on realization (132,00
0)
Capital balance after realization ( 8,00
0)

Total loss on realization: P132,000/50% (264,000)

Non-cash assets 434,000
Proceeds 170,000

23. b
Ding Laurel Ezzard Tillman
Total
Capital before 67,000
realization 60,000 17,000 96,000 240,00
0
Loss on sale (4:2:2:2) (26,400 (132,00
(52,800) ( 26,400) (26,400) ) 0)
7,200 40,600
( 9,400) 69,600 108,00
0
Possible insolvency loss (4:2:2) ( 4,700) ( 2,350) ( 9,400) ( 2,350)
-0-
Safe payments 2,500 38,250 0 67,250
108,000

24. e – refer to No. 23

25. b
Gonda Herron Morse Total
Capital before realization 70,000
60,000 40,000 170,00
0
Loss on sale (30:45:25); [200 – (50,000
150] (15,000) ( 22,500) (12,500) )
45,000 47,500
27,500 120,00
0

26. c
S D F
Total
Capital 15,000 5,000
40,000 60,000
Loan _______
________ 5,000 5,000
Total interests
40,000 15,000 10,000 65,000
Loss on sale (5:3:2) - [90,000 – (64,000
26,000] (32,000) ( 19,200) (12,800) )
 8,000 1,000
( 4,200) ( 2,800)
Possible insolvency (5:3) 2,800
(1,750) ( 1,050) 0
6,250 ( 5,250) 1,000
Additional investment _______ 5,250 5,250
6,250 6,250

27. b
28. a –
Since the partnership currently has total capital of P350,000, the P150,000 that is
available would indicate maximum potential losses of P200,000 that is hypothetically
split among the partners.
White Sands Luke
Total
Capital before realization 100,000
50,000 200,000 350,00
0
Loss on sale (30:20:50); [350 – (200,00
150] (60,000) ( 40,000) (100,00 0)
0)
60,000 100,000 150,00
(10,000) 0
Possible insolvency (2:5) 10,000
(2,857) (7,143) 0
Safe payments 57,143 92,857
150,000

29. b - (P13,000 – P1,000 share of gain = P12,000, refer to entries below)

Revaluation entry:
Accumulated depreciation 3,000
Gym, capital 1,000
Hob, capital 1,000
Ing, capital 1,000

Withdrawal of equipment:
Accumulated depreciation (8,000 – 3,000) 5,000
Hob, capital 13,000
Equipment 18,000

30. b –
Accumulated depreciation 70,000
K, capital (P150,000 + P10,000 + P10,000 – P70,000) 100,000
Machinery, at cost 150,000
Rice [P110,000 – (P150,000 – P70,000)] x 1/3 10,000
Long [P110,000 – (P150,000 – P70,000)] x 1/3 10,000

31. c
X Y Z Total
Capital before 90,000 60,000 30,000 180,000
realization
Loss on sale (42,000) *(120,0
(35%:35%:30%) (42,000) (36,000) 00)
60,000
48,000 18,000) ( 6,000)
*balancing figure – total reduction in capital
Quiz - IV
1. Zero/nil
B P L S
Capital before 110,000 100,000 65,000
realization 25,000
Loss on sale (3:2:1:4)) (45,000) (60,000
( 30,000) (15,000) )
5,000
(20,000) 80,000 85,000
Additional loss (2:1:4) (20,000) ( 5,714) ( 2,857)
(11,429)
74,286 82,143 ( 6,429)
Additional loss (2:1) ( 4,286) ( 2,143) 6,429
70,000 80,000
2. Zero/nil – refer to No. 1
3. Page, P70,000 and Larry, P80,000 – refer to No. 1
4. P39,525 = P42,000 - (P15,000 - P9,500)(.45)
5. P56,750 = P56,000 + [P10,000 - (P25,000 - P18,000)](.25)
6. P(1,000) = P20,000 - [P30,000 + (P50,000 - P90,000)](.30)
7. P(1,500) = P30,000 - [P30,000 + (P50,000 - P90,000)](.45)
8. P(2,500) = P15,000 - [P30,000 + (P50,000 - P90,000)](.25)
9. P340,000 = (P147,000 + P28,000)/.35
10. P1,040,000 = (P260,000 / .25)
11. Abrams and Creighton
A B C
Capital before 80,000 90,000 130,000
realization
Liquidation expenses
(3,600) (2,400) (6,000)
Loss on sale (134 - 434) (90,000) (300,000
(60,000) )
(13,600) (176,00
27,600 0)
12. Tom, P30,000; Dick, P4,000 and harry, P11,000
T D H
Capital before realization 40,000
10,000 15,000
Loss on sale (85,000 – (10,000) (6,000) (4,000)
65,000)
30,000 4,000 11,000

13. P34,000
K L M
Capital before 60,000 40,000 80,000
realization
Liquidation expenses
(2,000) ( 4,000) ( 4,000
)
Loss on sale (300 - 180) (24,000)
(48,000) ( 48,000
)
 28,000
34,000 (12,000)
Additional investment _____ 12,000 ______
34,000 28,000

14. P25,000
Cash, beginning P90,000
Payment of liquidation expenses ( 5,000)
Payment of liabilities ( 60,000)
Payment to partners P25,000

15. P15,000
B P L S
Capital before 110,000 100,000 65,000
realization 25,000
Loss on sale (4:2:1:3) (60,000) (45,000
( 30,000) (15,000) )

(35,000) 80,000 85,000 20,000

Additional loss (2:1:3) (35,000) (11,667) ( 5,833)
(17,500)
15,000 68,333 79,167 2,500
16. P2,500 - refer to No. 15
17. Page, P68,3333 and Larry, P79,167 – refer to No.15
18. Bond: P225,000; Hamm: P115,000; Zell: P –0–
Bond’s capital balance................................................... P300,000
Less: Bond’s share of P140,000 loss in liquidation
(P140,000 × 50%) .......................................................... (70,000)
_____ P230,000
Less: Bond’s share of Zell’s capital deficiency of
P8,000 (5/8 of P8,000).................................................... ( 5,000)
P225,000
19. Alexa: P25,000; Bell: P75,000; Graham: P–0–

20. Jody, P5,200; Kane, P64,800; Lark, P10,000

30% 45% 25%
Assets Debts Jody Kane Lark
Balance, May 1 250,000 88,000 32,000 90,000 40,000
Plant sold 10,000 3,000 4,500 2,500
Inventory sold ( 6,000) ( 1,800 ) ( 2,700 ) ( 1,500 )
Balances before
distribution 254,000 88,000 33,200 91,800 41,000
Offset loans ( 26,000) ( 10,000 ) ( 16,000 )
Pay creditors ( 88,000) ( 88,000 )
Partner equity 140,000 23,200 91,800 25,000
Possible loss:
Plant assets ( 60,000) ( 18,000 ) ( 27,000 ) ( 15,000 )
Distribution 80,000 5,200 64,800 10,000

(Cash Distribution: P54,000 + P54,000 + P60,000 - P88,000 = P80,000)

May 1 Inventory Plant Creditors May 30

21. Oak, P0; Nebe, P0; and Pang, P11,000

 Non- First 30% 20% 50%
Cash Cash Rank Oak Nebe Pang
Assets Debt Equity Equity Equity
Jan 1 Balance 3,000 33,000 9,00 2,000 4,000 21,000
0
 Sale of assets 17,000 ( 15,000 ) 600 400 1,000
Subtotal 20,000 18,000 9,00 2,600 4,400 22,000
0

Safe Payments Schedule

Oak Nebe Pang
Equity Equity Equity
Partners’ pre-distribution balances 2,600 4,400 22,000
Possible losses on non-cash assets ( 5,400 ) ( 3,600 ) ( 9,000 )
( 2,800 ) 800 13,000
Write off Oak 2/7 and 5/7 2,800 ( 800 ) ( 2,000 )
Cash distribution to partners 0 0 11,000

Cash distribution plan on October 31:

First P9,000 goes to priority creditors, and then Pang receives P11,000.

22. Ide, P0; Hanly, P0; Jen, P92,000

Ide Hanly Jen
Cash Capital Capital Capital Total
Balance, Aug. 1 50,000 ( 60,000 ) 4,000 106,000 50,000
Ide’s personal
contribution 40,000 40,000 40,000
90,000 ( 20,000 ) 4,000 106,000 90,000
Write-off Ide 20,000 ( 7,500 ) ( 12,500 )
90,000 0 ( 3,500 ) 93,500 90,000
Hanly’s personal
contribution 2,000 2,000 2,000

92,000 ( 1,500 ) 93,500 92,000

Write-off Hanly 1,500 ( 1,500 )
92,000 0 92,000 92,000
Distribute cash ( 92,000 ) ( 92,000 ) ( 92,000 )
0 0 0

Theories

Completion Statements
1. a. partnership creditors other than partners
b. partners’ loans—if subordinated
c. partners’ capital
2. statement of realization and liquidation
3. schedule of safe payments
4. marshalling of assets
5. rule of setoff
6. legal recourse against
7. bringing the capital balances into the profit and loss ratio
True or False
8. True 13 True 18 False 23 False 28 True 33 True
. . . . .
9. False 14 False 19 True 24 True 29 False 34 True
. . . . .
10 False 15 False 20 True 25 False 30 False 35 False
. . . . . .
11 False 16 True 21 False 26 True 31 False
. . . . .
12 True 17 True 22 True 27 True 32 False
. . . . .
Note for the following numbers:
9. The accountant is liable if he/she fails to meet the fiduciary responsibility of
protecting the creditors’ interest during the liquidation process.
10. The amount of cash distributed to each partner is a function of the capital balances
and the profit and loss ratios. It is unlikely that partners will receive the same
amount of cash.
11. Partnership creditors have priority claims against partnership assets and partner
creditors have priority claims against partner assets.
14. Partner creditors have claims first against partner assets. They can also have a
claim against partnership assets to the extent of the partner’s equity in the
partnership.
15. The accountant has a fiduciary responsibility to the partnership’s creditors to
ensure that sufficient assets exist to pay the creditors. It does not mean that
creditors must be fully paid before any partner distributions occur.
18. Gains and losses realized during the liquidation process are generally allocated
using the residual profit and loss ratio. Other profit and loss allocation components
are not considered because these items are generally relevant to the partnership’s
operation and the current issue is the partnership’s liquidation.
21. This is called an installment liquidation
23. This document is called a Statement of Realization and Liquidation.
25. The Statement of Realization and Liquidation does not include income statement
accounts. All income statement amounts are allocated directly to partnership
equity.

Multiple Choice Theories

36 A 41 b 4 c 51 b
. . 6. .
37 A 42 d 4 a 52 a
. . 7. .
38 C 43 b 4 c
. . 8.
39 D 44 d 4 d
. . 9.
40 C 45 b 5 b
. . 0.