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Chapter 5

Problem I
1.
A, B, C and D Partnership
Statement of Liquidation
January 1, 20x4 to May 31, 20x4
Cash
Balances before
Liquidation
January
- Realization
- Payment of
expenses
- Payment
of liabilities
Balances after Jan
February
- Realization
- Payment of
expenses
- Payment
of liabilities
Balances before
payment to
partners
Payment to
Partners (Sch. 1)
Balances after
February
March
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Sch. 2)
Balances after
March
April
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Note 1)
Balances after
April
May
- Realization
- Payment of
expenses
Balances before
Offsetting
Offset deficit vs.
Loan
Balances before
payment
Payment to
Partners (Note 2)

NonCash
Assets
181,800

72,000

Liabilities

A, loan

84,000

6,000

D, loan
3,000

(90,000)

(1,200)
(66,000)
4,800

______
91,800

(66,000)
18,000

_____
6,000

_____
3,000

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

26,400

25,800

20,400

16,200

(7,200)

(3,600)

(3,600)

(3,600)

( 480)

( 240)

( 240)

( 240)

______
18,720

______
21,960

______
16,560

______
12,360

(1,680)

(1,680)

(1,680)

( 264)
______

( 264)
______

(30,000)
21,600

(3,360)

(1,320)

( 528)

( 264)
(18,000)

______
_

7,080

61,800

( 5,280)

(18,000)

_____
_

______

______

______
_

3,000

14,832

20,016

14,616

10,416

______

6,000
_____
_

_____

______

(5,280)

______

_____

1,800

61,800

6,000

3,000

14,832

14,736

14,616

10,416

19,200

(24,000)

(1,920)

( 960)

( 960)

( 960)

( 1,440)

______

_____
_

19,560

31,500

6,000

3,000

(18,360)

______

(2,736)

(3,000)

1,200

37,800

3,264

6,000

(19,800)

(5,520)

(2, 760)

(2,760)

(2,760)

(4,800)

______

(1,920)

( 960)

( 960)

( 960)

2,000

15,000

3,264

4,896

4,080

4,080

4,080

(1,500)

______

( 720)

( 360)

( 360)

( 360)

500

18,000

2,554

4,896

3,720

3,720

3,720

2,400

(18,000)

(6,240)

(3,120)

(3,120)

(3,120)

_____

( 576)

( 288)

( 288)

( 288)

12,336

13,488

13,368

9,168

(5,688)

(5,568)

(1,368)

12,336

7,800

7,800

7,800

( 960)

_____

( 384)

( 192)

( 192)

( 192)

1,440

2,554

( 1,728)

408

408

408

______

(1,728)

1,728

_____

______

_____

2,040

816

408

408

408

(2,040)

(816)

(408)

(408)

(408)

2.
A, B, C and D Partnership
Schedule of Safe Payments
Schedule 1 February 28, 20x4
Computation of Distribution of Cash on February 28, 20x4

Balances before payment to partners:


Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
Cash withheld

P 61,800
1,800
P 63,600

Restricted for possible insolvency of A (2:2:2)

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

6,000
14,832
20,832

20,016
20,016

14,616
14,616

3,000
10,416
13,416

(12,720)
7,296
(1,536)
5,760
( 420)
5,340
( 60)
5,280

(12,720)
1,896
(1,536)
360
( 420)
( 60)
60

(12,720)
696
(1,536)
( 840)
840

(25,440)
( 4,608)
4,608

Restricted for possible insolvency of D (2:2)


Restricted for possible insolvency of C
Payment to partner (s)
Applied to:
Loans
Capital

-05,280
5,280

Schedule 2 March 31, 20x4


Computation of Distribution of Cash on March 31, 20x4

Balances before payment to partners:


Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
Cash withheld

P 37,800
1,200
P 39,000

Applied to:
Loans
Capital

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

6,000
12,336
18,336

13,488
13,488

13,488
13,488

3,000
9,168
12,168

(15,600)
2,736

( 7,800)
5,688

( 7,800)
5,568

( 7,800)
4,368

2,736
___-02,736

-05,688
5,688

-05,568
5,568

3,000
1,368
4,368

3.
T, U, V and W Partnership
Cash Payment Priority Program*
January 31, 20x4
Interests

Balances
before
liquidat
ion:
Loans
Capital
Total

T, capital
(40%)

U, capital
(20%)

6,000
26,400
32,400

25,800
25,800

V, capital
(20%)

20,400
20,400

W, capital
(20%)

3,000
16,200
19,200

T, capital
(40%)

U, capital
(20%)

Payments
V, capital
(20%)

W, capital
(20%)
Total

Interests
Divided
by: P & L
%
Loss
Absorptio
n
Abilitie
s
Priority I

__40%

___20%

__20%

__20%

81,000
129,000
102,000
96,000
______
(27,000)
_______
_______
81,000
102,000
102,000
96,000
Priority II
______
( 6,000)
( 6,000)
_______
81,000
96,000
96,000
96,000
Priority III
______
(15,000)
(15,000)
(15,000)
_______
81,000
81,000
81,000
81,000
____-0*also known as Schedule of Cash Distribution Plan / Pre-distribution Plan.

5,400

5,400

1,200

1,200

3,000
9,600

3,000
4,200

2,400
3,000
3,000

9,000
16,800

4.
Total Interests
Divided by: P & L %
Loss Absorption
Abilities
Order of Cash Distribution
Vulnerability Rankings (1
Is most vulnerable)

T, capital
(40%)
P 32,400
____40%

U, capital
(20%)
P 25,800
____20%

V, capital
(20%)
P 20,400
____20%

W, capital
(20%)
P 19,200
____20%

P 81,000
(4)

P129,000
(1)

P 102,000
(2)

P 96,000
(3)

(1)

(4)

(3)

(2)

The vulnerability ranks indicate that partner T is most vulnerable to losses because his equity were
reduced to zero with a partnership liquidation loss of P81,000. Partner U is least vulnerable because
his equity is sufficient to absorb his share of liquidation losses up to P129,000. This interpretation
helps explain why partner U received all the cash distributed to partner on the first installment
distribution (August 20x4).
Incidentally, the cash priority program developed will yield the same cash payment as the process of
computing safe payments each time cash is available. The cash distribution under the cash priority
program is as follows:
Order of Cash Distribution
1. First P70,000
2. Next P 4,500
3. Next P2,000
4. Next P7,500
5. Remainder

Creditors
100%

40%

100%
50%
33 1/3%
20%

50%
33 1/3%
20%

33 1/3%
20%

The first P84,000 available is, of course paid to the creditors. Cash may be held back from
distribution if it is anticipated that additional expenses will be incurred and unrecorded liabilities will
be discovered. The distribution of cash in excess of the reserve amount proceeds as determined.
Partner U will receive all of an additional ash up to P5,400. Additional cash in excess of P5,400 and
up to P7,800 is distributed 50:50 to partners U and V. Any amount in excess of P7,800up to P16,800
is distributed 1: 1: 1 to partners U, V, and W, respectively. After P16,800 (P5,400 + P2,400 + P9,000)
has been distributed to the partners, the capital accounts are in the desired profit and loss ratio of
4:2:2:2. Any further distributions to the partners are made in accordance with the profit and loss ratio.
Even though both methods produce the same results, the cash payment priority program is more
informative to both personal and partnership creditors, and to the partners. Interested parties now

know the order in which the individual partners will receive cash and the amounts that each may
receive at each period of the distribution process.
One requirement that must be satisfied in the development of the advance plan is that the partners
must share income in the same ratio that they share losses. If this were not the case the potential
amount of a new loss would need to be computed after every allocation to the partners capital
accounts. This occurs because the allocation of liquidation gain alters the order of cash distribution
computed in the priority program.
Problem II
ABC Partnership
Statement of Partnership Realization and Liquidation
For the period from January 1, 20x4, through March 31, 20x4
Capital Balances
Other
Accounts
AA
BB
Cash
Assets
Payable
50%
30%
Balances before Liquidation,
18,000
307,000
(53,000)
(88,000)
(110,000)
January 1,20x4
January transactions:
1 Collection of accounts
.
receivable at a loss
of P15,000
51,000
(66,000)
7,500
4,500
2 Sale of inventory at a loss
38,000
(52,000)
7,000
4,200
.
of P14,000
3 Liquidation expenses paid
(2,000)
1,000
600
.
4 Share of credit memorandum
3,000
(1,500)
(900)
.
5 Payments to creditors
(50,000)
50,000
.
55,000
189,000
-0(74,000)
(101,600)
Safe payments to partners
(Schedule 1)
(45,000)
__
26,600
10,000
189,000
-0(74,000)
(75,000)
February transactions:
6 Liquidation expenses paid
.
(4,000)
__
2,000
1,200
6,000
189,000
-0(72,000)
(73,800)
Safe payments to partners
(Schedule 2)
-0__
___ -0-06,000
189,000
-0(72,000)
(73,800)
March transactions:
8 Sale of M&Eq. at a loss of
146,000
(189,000)
21,500
12,900
.
P43,000
9 Liquidation expenses paid
.
(5,000)
2,500
1,500
147,000
-0-0(48,000)
(59,400)
10. Payments to partners
(147,000)
48,000
59,400
Balances at end of liquidation,
March 31, 20x4

-0-

-0-

-0-

-0-

-0-

CC
20%
(74,000)

3,000
2,800
400
(600)

(68,400)
18,400
(50,000)
800
(49,200)
-0(49,200)
8,600
1,000
(39,600)
39,600
-0-

ABC Partnership
Schedules of Safe Payments to Partners
AA

BB

CC

Schedule 1:
January 31,
20x4
Capital
balances
Possible
loss:
Other
assets
(P189,000)
and
possible
liquidatio
n
costs
(P10,000)
Absorption
of
AAs
potential
deficit
balance
BB:
(P25,500 x
3/5
=
P15,300)
CC:
(P25,500 x
2/5
=
P10,200)
Safe
payment,
January 31,
20x4
Schedule 2:
February
27, 20x4
Capital
balances
Possible
loss:
Other
assets
(P189,000)
and
possible
liquidatio
n
costs
(P6,000)
Absorption
of
AAs
potential
deficit

50%

30%

20%

(74,000)

(101,600)

(68,400)

99,500

59,700

39,800

25,500
(25,500)

(41,900)

(28,600)

15,300

10,200

-0-

(26,600)

(18,400)

(72,000)

(73,800)

(49,200)

97,500

58,500

39,000

25,500
(25,500)

(15,300)

(10,200)

balance:
BB:
(P25,500 x
3/5
=
P15,300)
CC:
(P25,500 x
2/5
=
P10,200)
Safe
payment,
February
27, 20x4

15,300

10,200

-0-

-0-

-0-

Note that the computation of safe payments on February 27, 20x4, resulted in no payments to partners. This is
due to the large book value of Other Assets still unrealized and the reservation of the $6,000 cash on hand for
possible future liquidation expenses.

Problem III: Cash Distribution Plan

PET Partnership
Cash Distribution Plan
June 30, 20x4

Loss Absorption Power


PP

EE

Capital Accounts
TT

PP

Profit and loss


percentages

50%

Preliquidation
capital balances
Loss absorption
Power (Capital
balances /
Loss percent)

(110,000)

(150,000)

(120,000)

(110,000)

30,000
(120,000)

(120,000)

Decrease highest LAP


to next highest:
EE
(P30,000 x .30)

Decrease LAPs
to next highest:
EE
(P10,000 x .30)
TT
(P10,000 x .20)

(110,000)

30%

20%

(45,000)

(24,000)

(55,000)

9,000
(36,000)

(24,000)

3,000
10,000
(110,000)

(55,000)

Summary of Cash Distribution


(If Offer of P100,000 is Accepted)
Accounts
PP

TT

(55,000)

10,000

(110,000)

EE

2,000
(22,000)

(33,000)

EE

TT

Payable
Cash available
First
Next
Next
Additional paid
in P&L ratio

P106,000
(17,000)
(9,000)
(5,000)
(75,000)
P
-0-

50%

30%

20%

P 9,000
3,000

P 2,000

22,500
P34,500

15,000
P17,000

P17,000

______
P17,000

P37,500
P37,500

Problem IV

PET Partnership
Statement of Partnership Liquidation and Realization
From July 1, 20x4, through September 30, 20x4

Preliquidation balances
July:
Assets Realized
Paid liquidation costs
Paid creditors
Safe Payments (Sch. 1)

Cash

Noncash
Assets

Accounts
Payable

6,000

135,000

(17,000)

26,500
(1,000)
(17,000)
14,500
(6,500)

(36,000)

8,000
August:
Equipment withdrawn
(allocate P6,000 gain)
Paid liquidation costs
Safe Payments (Sch. 2)
September:
Assets Realized
Paid liquidation costs
Payments to partners
Postliquidation balances

99,000
99,000

75,000
(1,000)
76,500
(76,500)
-0-

Capital
EE
30%

TT
20%

50%
(55,000)

(45,000)

(24,000)

4,750
500

2,850
300

1,900
200

17,000
-0-

(49,750)

(41,850)
6,500

(21,900)

-0-

(49,750)

(35,350)

(21,900)

(3,000)

(1,800)

8,800
300
(12,800)

4,000
200
(8.600)
8,600
-0-

(4,000)
(1,500)
6,500
(4,000)
2,500

PP

95,000

-0-

750
(52,000)

95,000

-0-

(52,000)

450
(36,700)
4,000
(32,700)

-0-

-0-

-0-

-0-

10,000
500
(41,500)
41,500
-0-

6,000
300
(26,400)
26,400
-0-

(95.000)

PET Partnership
Schedules of Safe Payments to Partners
PP
Schedule 1: July 31, 20x4
50%
Capital balances
(49,750)
Possible loss on noncash assets (P99,000)
49,500
Cash retained (P8,000)
4,000
3,750
Absorption of Pen's potential deficit
(3,750)
EE: P3,750 x .30/.50
TT: P3,750 x .20/.50
-0-

EE
30%
(41,850)
29,700
2,400
(9,750)

(12,800)

TT
20%
(21,900)
19,800
1,600
(500)

2,250
(7,500)

1,500
1,000

Absorption of TTs potential deficit


EE P1,000 x .30/.30
Safe payment

(1,000)

Schedule 2: August 31, 20x4


Capital balances
Possible loss on noncash assets (P95,000)
Cash retained (P2,500)

-0-

1,000
(6,500)

(52,000)
47,500
1,250
(3,250)

(36,700)
28,500
750
(7,450)

Absorption of TTs potential deficit


PP: P6,700 x .50/.80
EE: P6,700 x .30/.80

-0-

(12,800)
19,000
500
6,700
(6,700)

4,188
938
(938)

Absorption of PPs potential deficit


EE: P938 x .30/.30
Safe payment

-0-

2,512
(4,938)

-0-

938
(4,000)

-0-

Problem V
DSV Partnership
Statement of Partnership Realization and Liquidation Installment Liquidation
From July 1, 20x4, through September 30, 20x4
Capital Balances
Noncash
D
S
V
Cash
Assets
Liabilities
50%
30%
20%
Preliquidation balances, 6/30
50,000
670,000
(405,000)
(100,000)
(140,000)
(75,000)
July, 20x4: Sale of assets and
distribution of P120,000 loss
Liquidation expenses
Payment to creditors
Payments to partners (Sch. 1)
August, 20x4: Sale of assets &
distribution of P13,000 loss
Liquidation expenses
Payments to partners (Sch. 2)
September, 20x4: Sale of assets
distribution of P70,000 loss

(510,000)
390,000
440,000
(2,500)
437,500
(405,000)
32,500
(22,500)
10,000

Payments to partners
Postliquidation balances

Schedule 1,
July 31, 20x4:

D
50%

36,000

24,000

(40,000)
1,250
(38,750)

(104,000)
750
(103,250)

(51,000)
500
(50,500)

(38,750)

(103,250)
22,500
(80,750)

(50,500)

3,900
(76,850)
750
(76,100)
13,700
(62,400)

2,600
(47,900)
500
(47,400)
5,800
(41,600)

21,000
(41,400)
2,400
(39,000)
1,500
(37,500)
37,500
-0-

14,000
(27,600)
1,600
(26,000)
1,000
(25,000)
25,000
-0-

160,000

(405,000)

160,000
160,000

(405,000)
405,000
-0-

160,000

-0-

22,000
32,000
(2,500)
29,500
(19,500)
10,000

(35,000)
125,000

-0-

125,000

-0-

6,500
(32,250)
1,250
(31,000)

125,000

-0-

(31,000)

55,000
65,000

(125,000)
-0-

-0-

65,000
(2,500)
62,500
(62,500)
-0-

-0-

-0-

-0-

-0-

-0-

-0-

Allocate D's deficit to S and V


Liquidation expenses

60,000

DSV Partnership
Schedule of Safe Payments to Partners
S
30%

(38,750)

35,000
4,000
(4,000)
-0-0-0-0-

(50,500)

V
20%

Capital
balances, July
31,
Before cash
distribution
Assume
full
loss
of
P160,000 on
remaining
noncash
assets and
P10,000 in
possible
future
liquidation
expenses
Assume D's
potential
deficit
must be
absorbed by S
and V:
30/50 x
P46,250
20/50 x
P46,250

(38,750)

(103,250)

(50,500)

85,000

51,000

34,000

46,250

(52,250)

(16,500)

(46,250)
27,750
18,500
-0-

Assume
V's
potential
deficit
must be
absorbed by S
completely
Safe
payments to
partners
on July 31,
20x4
Schedule 2,
August
31,
20x4:
Capital
balances,
August 31,
before cash
distribution
Assume
full
loss
of
P125,000 on
remaining
noncash
assets and
P10,000 in
possible
liquidation
expenses
Assume
potential
deficit

D's

(24,500)

2,000

2,000

(2,000)

-0-

(22,500)

-0-

(31,000)

(76,100)

(47,400)

67,500
36,500

40,500
(35,600)

27,000
(20,400)

must be
absorbed by S
and V:
30/50 x
P36,500
20/50 x
P36,500
Safe
payments to
partners

(36,500)
21,900
14,600
-0-

(13,700)

(5,800)

Problem VI: Cash Distribution Plan (or better use the format presented in the discussion)
DSV Partnership
Cash Distribution Plan
June 30, 20x4
Loss Absorption Power
D
Profit and loss sharing ratio
Preliquidation capital balances
Loss absorption power (LAP)
capital accounts /
loss sharing percentage

(200,000)

Decrease highest LAP to next


highest LAP:
Decrease S by P91,667
(Cash distribution: P91,667 x .30)

(466,667)

Decrease LAP to next highest level:


Decrease S by P175,000
Cash distribution: P175,000 x .30)
Decrease V by P175,000
Cash distribution: P175,000 x .20)
Decrease LAPs by distributing
cash in the P/L sharing ratio

50%
(100,000)

30%
(140,000)

20%
(75,000)

(100,000)

27,500
(112,500)

(75,000)

(375,000)

(375,000)

(375,000)

175,000
52,500
175,000
35,000
(200,000)

(200,000)

(200,000)

50%

30%

20%

Summary of Cash Distribution Plan


(Estimated on June 30, 20x4)
Liquidation
Creditors
Expenses
100%
100%

First P405,000
Next P10,000
Next P27,500
Next P87,500
Any additional distributions
in the partners' profit
and loss ratio

50%

(100,000)

(60,000)

100%
60%

40%

30%

20%

b. Confirmation of cash distribution plan


DSV Partnership
Capital Account Balances
June 30, 20x4, through September 30, 20x4
D
Profit and loss ratio
50%
Preliquidation balances, June 30
(100,000)

10

91,667
(200,000)

1.
2.
3.
4.
5.

Capital Accounts

S
30%
(140,000)

V
20%
(75,000)

(40,000)

July loss of P120,000 on disposal of assets


and P2,500 paid in liquidation costs

61,250
(38,750)

36,750
(103,250)

24,500
(50,500)

(38,750)

22,500
(80,750)

(50,500)

7,750
(31,000)

4,650
(76,100)

3,100
(47,400)

July 31 distribution of P22,500 of


available cash to partners (Sch. 1)
First P22,500 of P27,500 layer:
100% to S
August loss of P13,000 on disposal of
assets and P2,500 paid in
liquidation costs
August 31 distribution of P19,500 of
available cash to partners (Sch. 2)
Remaining P5,000 of P27,500 layer
of which P22,500 paid on July 31:
100% to S
Next $14,500 of P87,500 layer:
60% to S
40% to V
September loss of P70,000 on disposal of
assets and P2,500 paid in liquidation
costs
Distribution of D's deficit
September 30 distribution of P62,500 of
available cash to partners (Sch. 3)
Next P62,500 of P87,500 layer of which
P14,500 paid on August 31:
60% to S
40% to V
Postliquidation balances

5,000
8,700
(31,000)

(62,400)

5,800
(41,600)

36,250
5,250
(5,250)
-0-

21,750
(40,650)
3,150
(37,500)

14,500
(27,100)
2,100
(25,000)

37,500
-0-

-0-

25,000
-0-

Schedule 1, July 31, 20x4: Computation of P22,500 of cash available to be distributed to partners on July
31, 20x4:
Cash balance, July 1, 20x4
P 50,000
Cash from sale of noncash assets
390,000
Less: Payment of actual liquidation expenses
(2,500)
Less: Payments to creditors
(405,000)
Less: Amount held for possible
future liquidation expenses
(10,000)
Cash available to partners, July 31, 20x4
P 22,500
Schedule 2, August 31, 20x4: Computation of P19,500 of cash available to be distributed to partners on
August 31, 20x4:
Cash balance, August 1, 20x4
Cash from sale of noncash assets
Less: Payment of actual liquidation expenses
Less: Amount held for possible
future liquidation expenses
Cash available to partners, August 31, 20x4

P10,000
22,000
(2,500)
(10,000)
P 19,500

Schedule 3, September 30, 20x4: Computation of P62,500 of cash available to be distributed to partners on
September 30, 20x4:
Cash balance, September 1, 20x4
Cash received from sale of noncash assets
Less: Payment of actual liquidation expenses

P10,000
55,000
(2,500)

Cash available to partners, September 30, 20x4

P62,500

Problem VII

Cash distribution program:


Creditors Ames
Beard
Craig
First P 50,000100%
Next 34,000
100%
Next
48,000
33 1/3%
66 2/3%
All over
P132,000 40% 20% 40%
Working paper for cash distributions to partners during liquidation (not required):
Ames Beard
Craig
Capital balances before liquidation
P60,000
P80,000P92,000
Income-sharing ratio
4
4
2
Capital per unit of income sharing
P15,000
P40,000P23,000
Reduce Beard's capital to next highest capital for Craig ______(17,000)
______
Capital per unit of income sharing
P15,000
P23,000P23,000
Reduce Beard's and Craig's capital to Ames's capital
______ (8,000)
(8,000)
Capital per unit of income sharing
P15,000
P15,000P15,000
Problem VIII
Cash 60,000
Quanto, Capital 5,000
Rollo, Capital
3,000
Simms, Capital 2,000
Assets 70,000
To record realization of assets at a loss of $10,000, divided
amount Quanto, Rollo, and Simms in 5:3:2 ratio, respectively.
Liabilities 30,000
Cash 30,000
To record payment to creditors.
Loan Payable to Quanto
9,500
Rollo, Capital
10,500
Simms, Capital 5,000
Cash
25,000
To record payment to partners, computed as follows:
Quanto Rollo
Simms
Capital (including Quanto's
loan of P10,000)
before liquidation
P42,000
P30,000P18,000
Loss on realization of assets
(5,000)
(3,000) (2,000)
Balances P37,000 P27,000
P16,000
Maximum potential
additional
loss (P5,000 +
P50,000 = P55,000)
divided in 5:3:2 ratio (27,500)
(16,500)(11,000)
Cash payments P 9,500
P10,500
P 5,000
Multiple Choice Problems

1. d

12

JJ

CC

TT

Total

Prior capital
Loss on sale
of inventory
Possible loss
of remaining
inventory
Allocate Charles'
potential
capital deficit:
2. a

Capital balances
Loss on sale of assets
(475,000 600,000) 4:4:2
Possible loss for unrealized
assets
P1,000,000 P600,000 =
400,000

3.

4.

Profit and loss ratio


Beginning capital
Actual loss on assets (5:3:2)

Safe payments

6.

(45,000)

(55,000)

(260,000)

24,000
(136,000)

30,000
(15,000)

6,000
(49,000)

60,000
(200,000)

64,000
(72,000)

80,000
65,000

16,000
(33,000)

160,000
(40,000)

52,000
(20,000)

(65,000)

13,000
(20,000)

(40,000)

Peter
300,000

Paul
350,000

Mary
400,000

Total
1,050,000

(50,000)

(25,000)

(125,000)

300,000

375,000

925,000

160,000

160,000

80,000

400,000

(90,000

140,000

295,000

525,000

( 50,000)
250,000

-0-

The loan payable to AA has the same legal status as the


partnerships other liabilities. After payment of the loan, then any
available cash can be distributed to the partners using the safe
payments computations.

Possible loss unrealized NCA

5.

(160,000)

CC
5/10
80,000
(15,000)

DD
3/10
90,000
(9,000)

EE
2/10
70,000
(6,000)

65,000
( 50,000
)
15,000

81,000
(30,000)

64,000
(20,000)

51,000

44,000

Total
10/10
240,000
( 30,000
)
210,000
( 20,000
)
190,000

b
d

Capital balances
Divided by: Profit and loss ratio

AA
37,000
40%

BB
65,000
40%

Loss absorption power

92,500

162,500

Loss to reduce CC to BB:


(77,500 x .20 = 15,500)
Balances

92,500

162,500

0
%

CC
48,00
20
240,00
0
77,500
162,500

Loss to reduce BB & CC to AA:


(B:70,000 x .40 = 28,000)
(C:70,000 x .20 = 14,000)
Balances

70,000
92,500

70,000
92,500

92,500

Cash of P20,000 after settlement of liabilities: CC receives first P15,500;


remaining P4,500 split 2/3 to BB and 1/3 to CC
7.

d Cash of P17,000: CC receives first P15,500; remaining P1,500 split 2/3 to BB


and 1/3 to CC.

8.

a If all partners received cash after the second sale, then the remaining 12,000 is
distributed in the loss ratio.

9.

AE
40%
(40,000)
40,000
-0-

Profit and loss ratio


Capital balances
Loss of P100,000
Remaining equities

BT
30%
(180,000)
30,000
(150,000)

KT
30%
(30,000)
30,000
-0-

AE will receive nothing; the entire P150,000 will be paid to BT.


10. b
Ding

Laurel

Capital before realization


Loss on sale (4:2:2:2)

Ezzard

60,00

Tillman

(52,800)
7,200

67,000

Total

( 26,400
)
40,600

17,000

96,000

240,000

(26,400
)
( 9,400
)

(26,400)

(132,000
)
108,000

69,600

Possible insolvency loss (4:2:2)


( 4,700) ( 2,350)
( 9,400)
( 2,350)
Safe payments
2,500
38,250
295,000
67,250
108,000
11. a

Capital balances
Divided by: Profit and loss ratio
Loss absorption power

Loss to reduce CC to BB:


(80,000 x .20 = 16,000)
Balances

D
72,00
0
40

Potential loss from Sandy deficit

)
Loss to reduce H and J:

14

20%

180,00
0

160,00
0

180,00
0

160,00
0

12. No answer available Harding, P6,107; Jones, P12,275

Capital balances

R
32,00

H
20,00
0
(5,882

14,118

J
22,00
(4,118)
17,882

0
%

N
52,00
20
260,00
0

-0-

J
0
%

80,000
180,000

S
(10,000
10,000
0

24,00
20

120,00
0
____0
120,00
0

Total
32,00
0
32,000

(50:35)
Balances

(8,011)
6,107

(5,607)
12,275

(13,618)
13,382

Note:
1. Regardless there is a forthcoming contribution to be made by Sandy, it is assumed that the P10,000 deficit may
not be recovered for purposes of distribution of cash.
2. The P13,382 cannot be distributed in accordance with profit and loss ratio for reason that the capital balances of Harding
and Jones is not the same with the P&L ratio (H: 20/42 =48%; J: 22/42 = 52%)

or, alternatively: Using Cash Payment Priority Program

Capital balances
Additional contribution
Capital balances
Divided by: Profit and loss ratio
Loss absorption power
Loss to reduce JJ to HH:
(19,428 x 35/85 = 8,000)
Balances

34,00
0

Cash available
Less: Priority I to Jones (P19,428 x 35/85)
P10,382
Less: P& L (50:35)
(10,382) P 6,107

H
20,00
0
0
20,000
50/85
34,00
0

J
22,00
0
22,000
35/85
53,429

S
(10,000

10,000

19,428
34,000
P18,382
P 8,000

8,000

4,275
P6,107

P 12,275

13. b

Capital before realization

Gonda

Loss on sale (30:45:25); [200 150]

Herron

60,00

Morse

70,000

(15,000)

( 22,500
)
47,500

45,000

Total

40,000

(12,500)

170,00
0
(50,000)

27,500

120,000

14. 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

Loss on sale (30:20:50); [350 150]


Possible insolvency (2:5)
Safe payments
57,143
92,857
15. a

50,00

100,000

(60,000)

( 40,000
)
60,000
(2,857)

(10,000)
10,000

200,000

(100,000
)
100,000
(7,143)

150,000

350,00
0
(200,000
)
150,000
0

Capital balances

40,000

Less: Machine, at fair value


Capital balances

______
40,000

Divided by: Profit and loss ratio


Loss absorption power

(35,000)
55,00

1/3
120,00
0

Loss to reduce E to D:
(45,000 x 1/3 = 15,000)
Balances

90,00

1/3
165,00
0

30,00

______
30,00

1/3
90,000

(45,000)
120,00
0

120,00
0

____0
90,000

16. c
S

Capital

Loan
Total interests
Loss on sale (5:3:2) - [90,000
26,000]

40,00

Total

5,000

60,000

_______

_______

5,000

5,000

40,000
(32,000)

15,000
( 19,200
)
( 4,200)
( 1,050)

10,000
(12,800
)
( 2,800)
2,800

65,000
(64,000)

8,000
(1,750)

Possible insolvency (5:3)

15,000

6,250
( 5,250)
Additional investment
5,250

1,000
0

1,000
_______
5,250

6,250
6,250
17. d [(P240,000 P96,000) /30% = P480,000]
18. 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

19. b

Capital before realization


Loss on sale (2:2:1); [90 50]

16

37,00
(16,000)

65,000

( 16,000

Total

48,00
0
( 8,000)

150,000
(40,000)

21,000
(36,000)

Possible loss P90,000, unrealized


NCA
(15,000)
13,000
22,000
Possible insolvency loss (2:1)
3,000

20,000
15,000

)
49,000
(36,000
)

40,000
(18,000)

(10,000)

( 5,000)

110,000
90,000

17,000

20. b
A

Capital before realization

Loss on sale (2:2:1); [90 50]

(16,000)

(37,200)

(16,200)
11,800
21,400
Possible insolvency loss (2:1)

17,000
16,200

16,000

65,000

Total

48,00
0
( 8,000)

(40,000)

40,000

110,000

(37,200
)

(18,600)

93,000

(10,800)

( 5,400)

( 16,000
)
49,000

21,000

Possible loss P90,000, unrealized


NCA
plus P3,000 = P93,000

1,000

37,00

150,000

17,000

21. d - Since the partnership currently has total capital of P400,000, the P30,000 that is available would
indicate maximum potential losses of P370,000.
Reported balances
Anticipated loss (P370,000) split on
a 2:3:5 basis
Potential balances
Potential loss from C's deficit (split 2:3)
Current cash distribution
22. c

Capital balances
Divided by: Profit and loss ratio
Loss absorption power
Loss to reduce CC to BB:
(170,000 x .10 = 17,000)
Balances
23. c

Capital balances
Divided by: Profit and loss ratio

K
59,00
0
40

A
P100,000

B
P120,000

C
P180,000

(74,000)
P 26,000
( 2,000)
P 24,000

(111,000)
P 9,000
(3,000)
P 6,000

(185,000)
P (5,000)
5,000
P
-0-

M
39,00
30%

147,50
0

130,00
0

147,50
0

130,00
0

C
60,00
0
40

P
27,00
30%

0
%

B
34,00
10
340,00
0

J
0
%

170,000
170,000

H
43,00
20

34,00
20

170,00
0
____0
170,00
0

M
20,00
10

Loss absorption power


Loss to reduce CC to BB:
(15,000 x .20 = 3,000)
Balances

150,00
0

90,000

150,00
0

90,000

215,00
0

15,000
200,000

200,00
0
____0
200,00
0

24. c - the P16,000 available cash can be distributed but should be done under the assumption that all
deficit balances will be total losses. After offsetting JJ loan, the two deficits total P4,000. FF and RR, the
two partners with positive capital balances, share profits in a 30:20 relationship (the equivalent of a
60%:40% ratio). FF would absorb P2,400 of the potential loss with RR being allocated P1,600. The
remaining capital balances (P10,600 and P5,400) are safe capital balances and those amounts can be
immediately distributed.
or, alternatively:

W
(2,000
)
______

Capital balances
Loan
Total interests
Potential insolvency loss (3:2)

J
(5,000

3,000

(2,000)
2,000

25. b

(2,000)
2,000

A
(5,000
)
5,000

Capital balances
Potential loss from A deficit (5:3)

Loss to reduce H and J:


(5:3)
Possible insolvency loss

0
_
)

F
13,00

R
7,000

______

__

13,000
( 2,400

7,000
(1,600)

10,600

5,400

B
18,000

C
6,000

(3,125)
14,875

(1,875)
4,125

(8,750)
6,125

(5,250)
(1,125)

(1,125)

1,125

Total
19,00
0
19,000
(14,000)
5,000
0

5,000
26. c

Capital before realization


Loan
Total interests
Loss on sale (240,000 195,000)

70,00
20,000
90,000
(15,000)
75,000

30,000

______
30,000
( 15,000
)
15,000

Total

50,00
0
______
50,000
(15,000)

150,000
20,000
170,000
(45,000)

35,000

125,000

27. b liabilities should be paid first, then the balance of P30,000 should be given to Able since he is the
one entitled to the first priority.
INTERESTS
PAYMENTS______
A
B
C
A
B
C
Total
Balances before realization

18

Loans.. P 20,000
Capital...
70,000 P 30,000 P 50,000
Total interests... P 90,000 P 30,000 P 50,000
Divided by: P&L ratio
1/3
1/3
1/3
Loss absorption ability.. P270,000 P 90,000 P150,000
Priority I. 120,000
_______ P40,000
P150,000 P90,000 P150,000
Priority II
60,000
0
60,000 20,000
P 90,000 P90,000 P 90,000 P60,000 P

P40,000
0 P20,000 40,000
0 P20,000 P80,000

28. d
A

Capital before realization

Loan
Total interests
Loss on sale (240,000 195,000)

70,00

20,000
90,000
(15,000)

______
30,000
( 15,000
)
15,000
______

75,000
(20,000)

Payment of loans to partner

30,000

50,00
0
______
50,000
(15,000)
35,000
_____

Total

150,000

20,000
170,000
(45,000)
125,000
(20,000)

55,000
15,000
35,000
105,000
Asset received
______
______
(30,000)
(30,000)
Payment to partners after payment of loan 55,000
15,000
5,000
75,000
Note: The requirement is payment to partners after outside creditors and loans to partners had been paid, therefore, the payment
to partners is in so far as capital is concerned.

29. d
D
Balances before realization
Loans.. P
0
Capital... 170,000
Total interests... P170,000
Divided by: P&L ratio
50%
Loss absorption abilities.. P340,000
Priority I.
P340,000
Priority II
P340,000

INTERESTS
R

P 10,000
170,000
P180,000
30%
P600,000
(200,000)
P400,000
(60,000)
P340,000

P(20,000)
100,000
P 80,000
20%
P400,000
0
P400,000
(60,000)
P340,000

PAYMENTS
R
Total

P60,000

___

P60,000

18,000
18,000 36,000
P P 78,000 P18,000 P 96,000

Cash received by the partner Kemp


Add (deduct):
Liabilities paid
Expenses paid
Contingency
Cash, beginning
Proceeds from sale of other assets

P 60,000
250,000
5,000
10,000
(120,000)
P205,000

30. b
T
Balances before realization
Loans.. P
0
Capital...
22,000
Total interests... P 22,000
Divided by: P&L ratio
2/4
Loss absorption abilities.. P 44,000
Priority I.
-

INTERESTS
N
D
P
0 P
0
15,500
14,000
P15,500 P 14,000
1/4
1/4
P62,000 P 56,000
( 6,000)
0

PAYMENTS
D
Total

P 1,500

___

P1,500

Priority II

P 44,000 P56,000 P56,000


(12,000) (12,000)
P 44,000 P44,000 P44,000

__
P

3,000 P 3,000 6,000


P 4,500 P 3,000 P 7,500

Cash received by Tree


Divided by: P & L ratio
Amount in excess of P7,500
Total cash payments refer to program
Payment to partners

6,250
2/4
P 12,500
7,500
P 20,000

31. d
Cash, beginning
Add (deduct):
Proceeds from sale of certain assets
Liquidation expenses paid
Payment of liabilities
Payment to partners (refer to No. 30)
Cash withheld

P 12,000
32,000
( 1,000)
( 5,400)
( 20,000)
P 17,600

32. b - (P40,000 + P10,000 P2,000 P4,000 = P44,000)


33. d
P

INTERESTS
Q
R

Balances before realization


Loans.. P 6,000
P(10,000)
Capital... 24,000 P36,000
60,000
Total interests... P30,000 P36,000
P50,000
Divided by: P&L ratio
3/10
3/10
4/10
Loss absorption abilities.. P100,000 P120,000 P125,000
Priority I.
(5,000)
P100,000 P120,000 P120,000
Priority II
(20,000) (20,000)
P100,000 P100,000 P100,000

PAYMENTS______
Q
R
Total

P 2,000 P 2,000
P6,000
P P6,000

8,000 14,000 (d)


P10,000 P16,000

34. d
Priority
Creditors
First P300,000. P300,000
Next P80,000 (7:3)
Next P70,000 (3:4)
Remainder*..
P300,000

Mattews

Norell

P56,000
30,000
22,000
P108,000

P24,000
34,000
P58,000

*P550,000 P300,000 P80,000 P70,000 = P100,000


Theories

1
.
2
.
3
.

20

Reams

6. d

11. e

16.

7. d

12. a

17. a

8. a

13. a

18. b

P40,000
44,000
P84,000

Total
P300,000
80,000
70,000
100,000
P550,000 (d)

4
.
5
.

9. d

14. c

19. c

10 b
,

15, d

20. d

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