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CHAPTER 3
Partnership Liquidation
EXERCISES
Exercise 3 - 1
Exercise 3 - 2
Exercise 3 - 3
Exercise 3 - 4
1. Ibarra Javier Katindig
Original investment P 60,000 P 54,000 P 16,000
AA1 - Chapter 3 (2016 edition) page 42
Exercise 3 – 5
1. Book value of other assets (P459,000 – P3,000) P456,000
Cash realized:
Accounts receivable [P180,000 – (P60,000 x 20%)] P168,000
Merchandise inventory 75,000
Prepaid advertising 2,400
Machinery and equipment (P120,000 x 60%) 72,000 317,400
Loss on realization P138,600
Exercise 3 – 6
Exercise 3 - 8
Rama, Sison and Toledo
Cash Priority Program
PAYMENTS
Rama Sison Toledo Rama Sison Toledo
Capital balances P30,000 P70,000 P40,000
Add Loan balances 20,000 20,000 30,000
Total partners’ interest P50,000 P90,000 P70,000
Profit and loss ratio 40% 40% 20%
Loss absorption balance P125,000 P225,000 P350,000
Allocation I – Cash to Toledo
reducing LAB to an amount
reported for Sison
(P125,000 x 20%) (125,000) P25,000
Balances P125,000 P225,000 P225,000
Allocation II - Cash to Sison &
Toledo reducing LAB to an amount
reported for Rama
P100,000 x 40% (100,000) P40,000
P100,000 x 20% (100,000) 20,000
Balances P125,000 P125,000 P125,000 P40,000 P45,000
Allocation III - Further cash
distribution may be made in the
P & L ratio
Exercise 3-9
1. Julian, Lagman and Magno
Cash Priority Program
January 1, 2016
PAYMENTS
Julian Lagman Magno Julian Lagman Magno
Capital balances before liquidation P 36,000 P 54,000 P18,000
Add Note payable to Magno 14,000
Total partners’ interest P 36,000 P 54,000 P 32,000
Profit and loss ratio 3/10 3/10 4/10
Loss absorption balances P120,000 P180,000 P80,000
Allocation I – Cash to Lagman reducing
LAB to an amount reported for Julian
(P60,000 x 3/10) (60,000) P18,000
Balances P120,000 P120,000 P80,000
Allocation II – Cash to Julian & Lagman
reducing LAB to an amount reported
for Magno (P40,000 x 3/10) ( 40,000) (40,000) P12,000 12,000
Balances P80,000 P80,000 P80,000 P12,000 P20,000 -
Allocation III – Further cash distributions
may be made in the P & L ratio
Statement of Liquidation
January to March, 2016
Other NP to CAPITAL
Cash Assets Liabilities Magno Julian Lagman Magno
Balances before liquidation P12,000 P146,000 P36,000 P14,000 P36,000 P54,000 P18,000
January:
Sale of assets and
distribution of loss 30,000 ( 38,000) ( 2,400) ( 2,400) ( 3,200)
Payment of liquidation
expenses ( 3,600) ( 1,080) (1,080 (1,440)
Payment of liabilities ( 36,000) (36,000)
Distribution of cash to
partners (sch. 1) ( 2,400) (2,400)
Balances P108,000 P14,000 P32,520 P48,120 P13,360
February:
Sale of assets and
distribution of gain 44,000 (35,000) 2,700 2,700 3,600
Payment of liquidation
expenses (8,400) (2,520) (2,520) (3,360)
Distribution of cash to
partners (sch. 2) (35,600) (10,000) (25,600)
Balances P73,000 P14,000 P22,700 P22,700 P13,600
March:
Sale of assets and
distribution of loss 36,000 (73,000) (11,100) (11,100) (14,800)
Balances P36,000 P14,000 P11,600 P11,600 P(1,200)
Offset of loan against
deficiency ( 1,200) 1,200
Final payment to partners (P36,000) (P12,800) (P11,600 (P11,600
Schedule 1
Installment Liquidation
January 31, 2016
Schedule 2
Installment Liquidation
February 28, 2016
3. Journal entries
Liabilities 36,000
Cash 36,000
Exercise 3 - 10
U, V and W Co.
Cash Priority Program
PAYMENTS
Urbe Villa Waldo Urbe Villa Waldo
Capital balances P 11,200 P13,000 P 5,800
AA1 - Chapter 3 (2016 edition) page 48
Exercise 3 – 11
Partnership Books
1. Inventories 90,000
Capital Adjustment Account 90,000
3. Goodwill 56,000
Capital Adjustment Account 56,000
P980,000 – P924,000 = P56,000
4. Capital Adjustment Account 226,000
Belen, Capital (3/4) 169,500
Bgnes, Capital (1/4) 56,500
Inventories 296,000
Equipment 520,000
Goodwill 156,000
1. Authorized to issue 50,000 shares of P50 par value Ordinary Share Capital.
2. Cash 700,000
Ordinary Share Capital 500,000
PIC in Excess of Par 200,000
Problem 3 - 3
1. a. Cash 48,000
Accumulated Depreciation 25,000
Fuentes, Capital (P72,000 x 5/15) 24,000
Goco, Capital (P72,000 x 5/15) 24,000
Herrera, Capital (P72,000 x 3/15) 14,400
Isla, Capital (P72,000 x 2/15) 9,600
Merchandise Inventory 55,000
Accounts Receivable 60,000
Store Fixtures 30,000
f. Cash 6,000
Fuentes, Capital 1,000
Herrera, Capital 5,000
L O A N C A P I T A L
Fuentes Isla Fuentes Goco Herrera Isla
Balances before liquidation P 2,000 P 5,000 P27,000 P15,000 P10,000 P 9,000
Distribution of loss ( 24,000) ( 24,000) ( 14,400) ( 9,600)
Balances P 2,000 P 5,000 P 3,000 P( 9,000) P( 4,400) P( 600)
Additional loss for the
deficiency of Goco ( 4,500) 9,000 ( 2,700) ( 1,800)
Balances P 2,000 P 5,000 P( 1,500) - P( 7,100) P( 2,400)
Additional loss for the
deficiency of Herrera ( 1,500) 2,100 ( 600)
Balances P 2,000 P 5,000 P( 3,000) - P( 5,000) P( 3,000)
Offset against debit balance
in capital account ( 2,000) ( 3,000) 2,000 - 3,000
Balances - P 2,000 P( 1,000) P( 5,000) -
Additional investment by
Partners 1,000 5,000
Payment to Isla - P 2,000 - - - -
AA1 - Chapter 3 (2016 edition) page 62
Problem 3 -5
Payment to apply on
Loan P 7,980
Capital P 49,770 P 62,310 -
Total cash distribution P 7,980 P 49,770 P 62,310 -
Problem 3 – 6
QRS Partnership
AA1 - Chapter 3 (2016 edition) page 64
QRS Partnership
Schedule to Accompany Statement of Liquidation
Amounts to be Paid to Partners
August 31, 2016
Problem 3 - 7
Requirement 1
Tabora, Ureta and Veloso
Cash Priority Program
January 1, 2016
PAY M E N T S
Tabora Ureta Veloso Tabora Ureta Veloso
Capital balances P120,000 P 90,000 P 40,000
Loan balances 45,000 30,000 13,000
Total partners’ interest P165,000 P120,000 P 53,000
Profit and loss ratio 50% 30% 20%
Loss absorption balance P330,000 P400,000 P265,000
Allocation I - Cash to Ureta to
reduce LAB to amount
reported for Tabora ( 70,000) P21,000
Balances P330,000 P330,000 P265,000
Allocation II - Cash to Tabora
and Ureta to reduce LAB to
amount reported for Veloso ( 65,000) ( 65,000) P32,500 19,500
Balances P265,000 P265,000 P265,000 P32,500 P40,500
Allocation III - Further cash
distribution may be made
based on P & L ratio
Requirement 2
Amount Tabora Ureta Veloso
January:
Cash available P15,000
Allocation I - payable to Ureta 15,000 P15,000
February:
Cash available P40,000
Allocation I - Bal. payable to Ureta 6,000 P 6,000
Allocation II - Payable to Tabora and
Ureta in the ratio of 50:30 P34,000 P21,250 12,750
P21,250 P18,750
March:
Cash available P90,000
Allocation II – Balance 18,000 P11,250 P 6,750
Allocation III - Based on P & L ratio P72,000 36,000 21,600 P14,400
P47,250 P28,350 P14,400
April:
Cash available P30,000
Allocation III - Based on P & L ratio 30,000 P15,000 P 9,000 P 6,000
Problem 3 – 8 (cont.)
Requirement 3
AA1 - Chapter 3 (2016 edition) page 69
Problem 3 - 9
Problem 3 – 9 Requirement No 2
Wilson, Yase and Zapata
AA1 - Chapter 3 (2016 edition) page 71
Problem 3 - 9 - Requirement 3
Amount Wilson Yase Zapata
Cash available in September P76,500
Allocation I – Balance 1,500 P 1,500
Allocation II 32,000 P 20,000 12,000
Balance - Allocation III P43,000 21,500 12,900 P 8,600
P 41.500 P 26,400 P 8,600
Problem 3 -10
Arceo, Basco and Cervo
Statement of Changes in Partners’ Capital
For the Period January 1, 2014 to May 31, 2016
Problem 3-11
Partnership Books
1. Inventories 60,000
Prepaid Expenses 3,000
Goodwill 243,000
Accrued Expenses 6,000
Leony, Capital 200,000
Espie, Capital 100,000
Corporation’s Books
1. Cash 450,000
Accounts Receivable 660,000
Inventories 1,350,000
Prepaid Expense 3,000
Furniture and Equipment 2,520,000
Goodwill 243,000
Allowance for Uncollectible Accounts 120,000
Accounts Payable 600,000
Accrued Expenses 6,000
Ordinary Share Capital 4,500,000
2. Land 3,600,000
Cash 1,500,000
Pre-Operating Expenses 450,000
Ordinary Share Capital 4,800,000
PIC in Excess of Par 750,000
Rover Corporation
Statement of Financial Position
July 1, 2016
MULTIPLE CHOICE
1. D
2. D
3. C
4. C Share on loss on realization
(P39,000 + P4,800 – P33,000) P10,800
Percentage ownership of Imperial ÷ 20%
Total loss on realization P54,000
10 C Doria Elma
Capital balances before liquidation P 24,500 P 15,500
Loan balances 4,000 3,500
Total partners’ interest P 28,500 P 19,000
Loss on realization ( 23,100) ( 15,400)
Balances – cash to be paid to partners P 5,400 P 3,600
15 A
16 A
17 B Esper Ester Ethel Elmer
Capital and loan balances P 50,000 P50,000 P50,000 P 75,000
Loss on realization (112,000) ( 56,000) ( 56,000) ( 56,000)
P(62,000) P(6,000) P(6,000) P19,000
Additional loss (3,000) 6,000 ( 1,500) (1,500)
Amt to be rec.from the part. P 17,500
Personal assets 200,000
P217,500
18 B Urbe Viray
Initial investment P 137,500,000 P 137,500,000
Purchases ( 1,237,500,000) ( 495,000,000)
Sales 1,339,250,000 462,000,000
Interest ( 2,200,000) ( 1.375,000)
Dividends 1,100,000 2,750,000
Cash held P 238,150,000 P 105,875,000
Equal share 172,012,500 172,012,500
Cash received (paid) (P 66,137,500) P 66,137,500
26 C The remaining cash will be distributed according to profit and loss ratio. Thus
the P14,000 will be distributed as follows:
Estrada - P14,000 x 40% = P5,600
Fortun - P14,000 x 40% = P5,600
Gener - P14,000 x 20% = P2,800
PAYMEN
TS
29 D Aguila Baldres Corpuz Aguila Baldres Corpuz
Capital balances P 25,000 P 50,000 P 60,000
Drawing (10,000)
Net loss ( 12,000) ( 5,000) ( 3,000)
Total partners’ interest P 13,000 P 45,000 P 47,000
Profit and loss ratio ÷ 60% ÷ 25% ÷ 15%
Loss absorption bal. P 21,667 P180,000 P313,333
Alloc. I - Cash to Corpuz (133,333) P 20,000
Balances P 21,667 P180,000 P180,000
Alloc. II -Cash to Baldres
and Corpuz (158,333) (158,333) P 39,583 23,750
Balances P 21,667 P 21,667 P 21,667 - P 39,583 P43,750
Alloc. III - Based on
P & L ratio
PAYMENTS
30 B Nera Ochoa Perez Nera Ochoa Perez
Capitals and loans P450,000 P250,000 P250,000
P & L Ratio 30% 50% 20%
Loss Absorption Balance 1,500,000 P500,000 1,250,000
Alloc. I- Cash to Nera
P250,000 x 30% 250,000 P75,000
1,250,000 P500,000 1,250,000
Alloc. II- Cash to Nera & 225,000
Perez P750,000 x 30%
P750,000 x 20% P750,000 P750,000 P150,000
P 500,000 P500,000 P500,000 P300,000 - P150,000
Alloc. III – P & L Ratio
Creditor
Cash Available P650,000
Priority creditor 500,000 P500,000
P150,000
Alloc. I 75,000 P75,000
Alloc. II P 75,000 45,000 P30,000
P500,000 P120,000 - P30,000
32 D
34 D
PAYMENTS
35 C Roger Sergio Tito Roger Sergio Tito
P108,000 P120,000 P129,000
Capital balances
Add Loan 30,000
Total partners’ interest P108,000 P150,000 P129,000
Divided by P & L ratio 30% 50% 20%
Loss absorption capacity P360,000 P300,000 P645,000
Allocation 1 ( 285,000) P57,000
Balances P360,000 P300,000 P360,000
Allocation II ( 60,000) ( 60,000) P18,000 12,000
P300,000 P300,000 P300,000 P18,000 - P69,000
Allocation III – P & L ratio
41 B Roldan Moises
Capital balances before incorporation P94,800 P214,200
Adjustment in assets ( 11,800) ( 23,600)
Adjusted capital P83,000 P190,600
Ordinary Share Capital (720 @P10) 7,200 7,200
Preference Share Capital P75,800 P183,400