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
Balances before liquidation Realization and distribution of gain Balances after realization Payment of liabilities Balances after payment of liabilities Payment to partners loan Balances after payment of partners’ loans Payment to partners capital
Cash
NonCash Assets
24,000
84,000
Liabilitie s
Q, Loan
Q, Capital 30%)
R, Capital (50%)
S, Capital (20%)
12,000
2,400
9,600
48,000
36,000
_____ 12,000 (12,000 )
______ 2,400
3,600 13,200
6,000 54,000
2,400 38,400
108,000
2,400
13,200
54,000
38,400
(2,400)
(2,400)
______
______
96,000 120,000
(84,000 )
(12,000)
105,600 (105,600 )
13,200 (13,200 )
54,000 (54,000 )
_______ 38,400 (38,40 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 Cash Balances before liquidation Realization and distribution of loss Balances after realization
24,000 48,000 72,000
NonCash Assets
Liabilitie s
84,000
12,000
(84,000 )
____ _ 12,000 (12,000 )
Q, Loan
Q, capital (30%)
R, Capital (50%)
S, Capital (20%)
2,400
9,600
48,000
36,000
______ 2,400
(10,800 ) (1,200)
(18,000 ) 30,000
(7,200) 28,800
Payment of liabilities Balances after payment of liabilities
(12,000) 60,000
2,400
(1,200)
30,000
28,800
Offset deficit versus loans
_______
1,200
_______
_______
Balances after offsetting Payment to partners – loan Balances after payment of partners’ loans Payment to partners capital
60,000
(1,200) 1,20 0 (1,20 0)
30,000
28,800
_______
______
30,000 (30,000 )
28,800 (28,80 0)
(1,200) 58,800 (58,800)
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
Cas
NonCash Assets
Liabilitie s
24,000
84,000
12,000
2,400
36,000
(84,000 )
_____ ___
________
h Balances before liquidation Realization and distribution of loss
Q, Loan
R, Capital (50%)
S, Capital (20%)
9,600
48,000
36,000
(24,000 )
(9,600)
2,400
(14,400 ) ( 4,800 )
24,000
26,400
________
_______
_______
_______
( 4,800) 2,40 0
24,000
26,400
_______
_______
48,000
(2,400)
24,000
26,400
__2,400
2,400
_______
_______
24,000 (24,000 )
26,40 0 (26,40 0)
Balances after realization
60,000
Payment of liabilities Balances after payment of liabilities
(12,000) 48,000
2,400
Offset loan versus deficit – Balances after offsetting partner’s loan Additional investment by Q
_______
(2,400)
Balances after additional Investment Payment to partners capital
Q, capital (30%)
12,000 (12,000 )
50,400 (50,400)
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
Balances before liquidation Realization and distribution of gain
Cash
NonCash Assets
24,000
84,000
12,000
2,400
42,000
(84,000 )
_______
________
12,000 (12,000 )
Balances after realization
66,000
Payment of liabilities Balances after payment of liabilities Offset loan versus deficit Balances after offsetting Additional loss due to insolvency of Q Balances after additional , Loss Payment to partners capital
(12,000)
Liabilitie s
54,000 _______ 54,000
Q, Loan
Q, capital (30%)
R, Capital (50%)
S, Capital (20%)
9,600
48,000
36,000
(21,000 )
(8,400)
2,400
(12,600 ) ( 3,000 )
27,000
27,600
_______
_______
_______
_______
2,400 (2,400)
(3,000) 2,400 ( 600)
27,000 ______ 27,000
27,600 ______ 27,600
600
( 429)
( 171)
26,571 (26,571 )
27,429 (27,42 9)
_______ 54,000 (54,000)
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 Assets Balances before liquidation Realization and distribution of gain
capital (30%)
s
24,000
84,000
12,000
2,400
24,000
(84,000 )
_______
_______
12,000 (12,000 )
Balances after realization
48,000
Payment of liabilities Balances after payment of liabilities
(12,000) 36,000
Offset loan versus deficit
______
Balances after offsetting Additional investment by Q Balances after additional investment Additional loss due to insolvency of Q Balances after additional Loss Payment to partners capital
36,000
Capital (50%)
Capital (20%)
9,600
48,000
36,000
(30,00 0)
(12,00 0)
2,400
(18,000 ) ( 8,400 )
18,000
24,000
_______
_______
_______
2,400 (2,400 )
( 8,400)
18,000
24,000
2,400 (6,000) ,
______
_______
18,000
24,000
_3,600
_______
______
_______
39,600
_ 3,600 (2,400 )
18,000
24,000
______
2,400
(1,714)
( 686)
16,286 (16,286 )
23,314 (23,31 4)
39,600 (39,600)
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
Balances before liquidation Payment of liquidation expenses Balances after payment of liquidation expenses Write-off goodwill and prepaid expenses Balances after write-offs Realization and distribution of loss Balances after realization Payment of liabilities Balances after payment of Liabilities
Cash
NonCash Assets
24,000
84,000
12,000
(14,400)
______
________
________
(4,320)
(7,200)
(2,880)
12,000
2,400
_______
84,000 (72,000 )
5,280 (21,600 )
40,800 (36,000 )
33,120 (14,40 0)
9,60 0
12,000
12,000
(16,320 )
4,80 0
18,720
1,200
(12,000 )
( 3,240 ) ( 19,560 )
( 5,400 ) ( 600 )
( 2,160 )
________
_______
________
_______
2,400
(19,560 )
(2,400)
9,60 0
10,800 (10,800) -0-
Offset loan versus deficit
______
Balances after offsetting Additional investment by Q and R
-017,76 0
Liabilitie s
Q, Loan
Q, capital (30%)
2,400
9,600
48,000
36,000
_______
________ 2,400
_______
________
12,000 (10,800 )
2,400
1,200 _______ 1,200 _______
R, Capital (50%)
(
S, Capital (20%)
16,560
600)
16,560
2,400
_______
_______
(17,160 )
( 600)
16,560
17,160
600
______
Balances after additional Investment Payment of liabilities Balances after payment of Liabilities Payment to partners Capital
17,76 0 (1,200) 16,56 0
1,200
16,560
(1,200)
_______ 16,560 (16,56 0)
(16,560)
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
Balances before liquidation Increase in equipment Decrease in furniture Balances after revaluation Refund of prepaid expenses Balances after refunds
NonCash Assets
Cash 24,000 ______ 24,000 _6,960 30,960
Liabilitie s
Q, Loan
84,000 1,200 (600) 84,600
12,000
2,400
_______ 12,000
Received noncash assets
______
(8,400) 76,200 (10,200 )
Balances after receipt of noncash assets Realization and distribution of loss
30,96 0
66,000
32,400
(66,000 )
Balances after realization
63,360
Payment of liabilities Balances after payment of liabilities
(12,000)
Q, capital (30%)
R, Capital (50%)
S, Capital (20%)
______ 2,400
9,600 360 _(180) 9,780
48,000 600 (300) 48,300
36,000 240 (120) 36,120
_______ 12,000
______ 2,400
_(432) 9,348
(720) 47,580
(288) 35,832
_______
______
_____
(7,200)
(3,000)
9,34 8
40,380
32,832
( 10,08 0) ( 732 )
( 16,800 )
( 8,064 )
23,580
26,112
_______
12,000
2,400
_______
______
12,000 (12,000 )
2,400
51,360
2,400
_______ ( 732 )
Offset loan versus deficit
_______
( 732)
732
Balances after offsetting
51,360
1,668
Payment to partners loan
(1,668)
Balances after payment of loans
49,692
23,580
26,112
(49,692)
(23,580 )
(26,11 2)
Payment to partnerscapitals
Problem II
_______
(1,668)
23,580
_______ 26,112
______
______
23,580
26,112
______
_______
DISCOUNT PARTNERSHIP Schedule of Partnership Liquidation January 14, 20x4 Capital Balances
Explanation Balances before realization
Cash
Other Liabilities Assets P120,000 P(40,000
P25,000
Dawso n P(31,000
Feeney
Hardin P(9,000)
P(65,000 Sales of noncash assets Balances Payment of liabilities Balances Allocation of Hardin's debit balance Balances
Distribution of cash to partners Balances
60,000
_____ (120,000) 0
85,000
______ __________ 45,000 0 __________ P 0
18,000
40,000 ________ ________ 0 (13,000) (41,000)
________ 9,000
(40,000)
(40,000) __________ 45,000 0
(45,000) P 0
24,000 18,000 (13,000) (41,000)
9,000
______ 3,857 5,143(9,000) 0 (9,143) (35,857) 0
P
______ 0
P
9,143 0
P
35,857 0
________ P 0
Problem III 1.
CDG Partnership Statement of Realization and Liquidation Lump-sum Liquidation on December 10, 20X6
Preliquidation balances Sale of assets and distribution of P215,000 loss
Cash
Noncash Assets
25,000
475,000
260,000 285,000
Cash contributed by Gail to extent of positive net worth
(475,000 ) -0-
Liabilitie s (270,00 0)
(270,00 0)
(120,00 0)
43,000 (77,000)
Capital Balances Dan Gail 40% 40% (50,000)
(60,000)
86,000
86,000
36,000
25,000 310,000
26,000 (25,000)
-0-
(270,00 0)
Distribution of deficit of insolvent partner: 20/60(P1,000) 40/60(P1,000)
(77,000)
36,000
1,000 (1,000)
333 667 310,000
Contribution by Dan to remedy deficit
Carlos 20%
-0-
(270,00 0)
(76,667)
36,667 346,667
36,667
-0-
(36,667) -0-
(270,00 0)
(76,667)
-0-
-0-
Payment to creditors
(270,000 ) 76,667
Payment to partner
270,000 -0-
-0-
(76,667)
-0-
-0-
(76,667 )
Post-liquidation balances
76,667 -0-
-0-
-
-0-
-0-
-0-
02. CDG Partnership Net Worth of Partners December 10, 20X6 Personal assets, excluding partnership capital interests Personal liabilities Personal net worth, excluding partnership capital interests, Dec. 1, 20X6 Contribution to partnership Liquidating distribution from partnership Net worth, December 10, 20X6
Carlos
Dan
250,000 (230,000)
300,000 (240,000)
350,000 (325,000)
20,000
60,000 (36,667) -023,333
25,000 (25,000) -0-0-
76,667 96,667
Gail
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 Cash Beginning balances Liquidation expense Sale of non-cash assets Payment of liabilities Contribution by Flowers Allocation of Flower's deficit Distribution to partners Ending balances Problem V
P 25,000 (20,000) 160,000 (165,00 0) 10,00 0 (10,000) 0
Noncash Assets Liabilitie P200,00 0 (200,00 0)
0
P165,00 0 (165,00 0)
0
Capital and Loan Balances Merz Dechter Flowers P P30,000 40,000 (8,000) (8,000) (16,000 (16,000 ) ) (6,000) (10,000 0)
(6,000) 0 0
P(10,00 0) (4,000) (8,000) 10,000 12,000 0 0
Cash
Liabilities
Able
Bower
Cramer
Beginning: Payment of liabilities Cramer/Bower pay in from personal worth to cover deficit balances: Payment of liabilities Allocation of deficit balances: Able paid:
P20,000 (20,000) P 0
P(30,000) 20,000 P(10,000)
P(10,000)
P5,000
P15,000
P(10,000)
P5,000
P15,000
12,000 P12,000 (10,000) P 2,000
________ P(10,000) 10,000 P 0
________ P(10,000)
(2,000) P3,000
(10,000) P 5,000
P(10,000)
P3,000
P 5,000
________ 0
8,000 P (2,000) 2,000 P 0
(3,000) P 0
P
P
P
______ P 2,000 (2,000) P 0
P P
0
Problem VI Answer: Cash 70,000 Arthur, Capital 6,000 Baker, Capital 15,000 Casey, Capital 9,000 Other Assets 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 Cash To record payment of liabilities.
65,000
Arthur, Capital Loan Receivable from Arthur To offset Arthur's loan account against Arthur's capital account.
20,000
Arthur, Capital Loan Payable to Baker Casey, Capital Cash To record payments to partners, computed as follows:
14,000 20,000 1,000
Capital account balances Add: Loan payable to Baker Less: Loan receivable from Arthur Loss on realization of assets, P30,000 Balances Maximum potential additional loss of P150,000 (P250,000 – P100,000 = P150,000) divided in 2:5:3 ratio Cash payments Multiple Choice Problems
Arthur P70,000
Baker P80,000 30,000
0
(5,000) 0
100,000
65,000
20,000
35,000
Casey P55,000
(20,000) (6,000) P44,000
(15,000) (9,000) P95,000 P46,000
(30,000) P14,000
(75,000) (45,000) P20,000 P 1,000
0
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: Equities Loss to eliminate Lang
25% Lang 30,000
25% Maas P 130,000
P
( 30,000 0
) ( 30,000 P 100,000
) ( P
( 45,000 P 55,000
) ( P
P
Loss to eliminate Neal
14 .
c
JJ
a
P
Total 310,000
60,000 90,000
) ( P
120,000 190,000
)
90,000 0
) ( P
135,000 55,000
)
CC
TT
Total
Profit ratio
40%
50%
10%
100%
Prior capital
(160,000)
(45,000)
(55,000)
(260,000)
24,000 (136,000)
30,000 (15,000)
6,000 (49,000)
60,000 (200,000)
Loss on sale of inventory
15.
50% Neal 150,000
Prior capital Loss on sale of inventory Allocate Charles' capital deficit: JJ = .40/.50 TT = .10/.50
(160,000)
(45,000)
(55,000)
(260,000)
72,000 (88,000)
90,000 45,000
18,000 (37,000)
180,000 (80,000)
36,000 (52,000)
(45,000)
-0-
9,000 (28,000)
(80,000)
16. c – (P234,000 – P434,000) x 20% = P40,000 17. b T
Capital before realization
40,000
Loss on sale (85,000 – 33,000)
(26,000)
Additional loss (5:2)
D
14,000
H
10,000
15,000
(15,600) ( 5,600)
(10,400) 4,600
(4,000) 10,000
5,600
( 1,600) 3,000
18. a T
Capital before realization
40,000
Loss on sale (85,000 – 21,100)
(31,950)
Additional loss (5:2)
8,050
D
10,000
15,000
(19,170) ( 9,170)
(12,780) 2,220
(6,550) 1,500 ( 400) 1,100
Additional loss
H
9,170 (2,620) ( 400) 400
19. b K
L
M
Capital before realization Liquidation expenses
60,000
40,000
80,000
(2,000)
( 4,000)
Loss on sale (300 - 180)
(24,000)
( 4,000 )
(48,000)
( 48,000 ) 28,000
Additional loss (2:4) 20. d
Capital before realization Loss on sale (2:4:4)
Additional loss (2:4)
34,000
( 4,000) 30,000 H
80,000
(61,000)
19,000
( 4,000) 15,000
21. d – [(P240,000 – P96,000) /30% = P480,000]
(12,000)
12,000
I
( 8,000) 20,000 J
110,000
140,000
(122,000)
(122,00 0)
(12,000)
18,000
12,000
( 8,000) 10,000
Total
330,00 0 (305,00 0) 25,000
22. a
Capital before realization – C
130,000
Liquidation expenses (12,000 x 50%)
(6,000) (132,00 0) ( 8,00 0)
Share on loss on realization Capital balance after realization Total loss on realization: P132,000/50% Non-cash assets Proceeds
(264,000) 434,000 170,000
23. b Ding
Total
Capital before realization Loss on sale (4:2:2:2)
-0-
Laurel
67,000
60,000 (52,800) 7,200
Possible insolvency loss (4:2:2)
Safe payments 108,000
( 26,400) 40,600
( 4,700)
Ezzard
17,000
96,000
(26,400)
(26,400 )
( 9,400)
69,600
( 2,350)
2,500
( 9,400)
38,250
0
Tillman
240,00 0 (132,00 0) 108,00 0
( 2,350) 67,250
24. e – refer to No. 23 25. b
Capital before realization Loss on sale (30:45:25); [200 – 150]
26. c
Gonda
60,000 (15,000) 45,000
Loan Total interests Loss on sale (5:3:2) - [90,000 – 26,000]
( 22,500) 47,500
S
Total
Capital
Herron
70,000
40,000 ________ 40,000 (32,000)
Morse
40,000 (12,500) 27,500
D
15,000 _______ 15,000 ( 19,200)
5,000
Total
170,00 0 (50,000 ) 120,00 0 F
60,000
5,000
5,000
10,000
65,000 (64,000 )
(12,800)
8,000 Possible insolvency (5:3)
(1,750)
6,250 _______ 6,250
Additional investment
( 4,200)
( 2,800) 2,800
( 1,050)
( 5,250) 5,250
1,000 0
1,000 5,250 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
50,000
Loss on sale (30:20:50); [350 – 150]
(60,000)
Possible insolvency (2:5)
(10,000) 10,000
Safe payments 150,000
100,000
200,000
( 40,000) 60,000 (2,857)
57,143
(100,00 0) 100,000 (7,143)
92,857
350,00 0 (200,00 0) 150,00 0 0
29. b - (P13,000 – P1,000 share of gain = P12,000, refer to entries below) Revaluation entry: Accumulated depreciation Gym, capital Hob, capital Ing, capital
3,000 1,000 1,000 1,000
Withdrawal of equipment: Accumulated depreciation (8,000 – 3,000) Hob, capital Equipment
30. b –
5,000 13,000 18,000
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
Capital before realization Loss on sale (35%:35%:30%)
90,000
X
(42,000) 48,000
*balancing figure – total reduction in capital
Y
Z
Total
60,000
30,000
180,000
(42,000)
(36,000)
18,000)
( 6,000)
*(120,0 00) 60,000
Quiz - IV 1. Zero/nil
Capital before realization Loss on sale (3:2:1:4))
B
P
L
110,000
65,000
(15,000)
(60,000 ) 5,000
25,000 (45,000) ( 30,000) (20,000)
Additional loss (2:1:4) (11,429)
80,000 (20,000)
85,000 ( 5,714)
74,286 ( 4,286) 70,000
Additional loss (2:1) 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.
S
100,000
( 2,857)
82,143 ( 2,143) 80,000
Zero/nil – refer to No. 1 Page, P70,000 and Larry, P80,000 – refer to No. 1 P39,525 = P42,000 - (P15,000 - P9,500)(.45) P56,750 = P56,000 + [P10,000 - (P25,000 - P18,000)](.25) P(1,000) = P20,000 - [P30,000 + (P50,000 - P90,000)](.30) P(1,500) = P30,000 - [P30,000 + (P50,000 - P90,000)](.45) P(2,500) = P15,000 - [P30,000 + (P50,000 - P90,000)](.25) P340,000 = (P147,000 + P28,000)/.35 P1,040,000 = (P260,000 / .25) Abrams and Creighton
Capital before realization Liquidation expenses Loss on sale (134 - 434)
A 80,000 (3,600) (90,000) (13,600)
90,000 (2,400) (60,000) 27,600
12. Tom, P30,000; Dick, P4,000 and harry, P11,000 T
Capital before realization
40,000
Loss on sale (85,000 – 65,000)
(10,000) 30,000
D
B C 130,000 (6,000) (300,000 ) (176,00 0) H
10,000 (6,000)
15,000 (4,000)
4,000
11,000
13. P34,000
Capital before realization Liquidation expenses Loss on sale (300 - 180)
K
L
M
60,000
40,000
80,000
(2,000)
( 4,000)
( 4,000 )
(48,000)
( 48,000 )
(24,000)
( 6,429) 6,429
28,000 34,000
(12,000)
Additional investment
_____
12,000 ______ 28,000
34,000 14. P25,000 Cash, beginning Payment of liquidation expenses Payment of liabilities Payment to partners 15. P15,000
Capital before realization Loss on sale (4:2:1:3)
Additional loss (2:1:3) (17,500)
P90,000 ( 5,000) ( 60,000) P25,000 B
P
25,000 (60,000) (35,000)
L
S
110,000
100,000
65,000
( 30,000)
(15,000)
(45,000 )
85,000
20,000
80,000
(35,000)
(11,667)
( 5,833)
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 Balance, May 1 Plant sold Inventory sold Balances before distribution Offset loans Pay creditors Partner equity Possible loss: Plant assets Distribution
Assets 250,000 10,000 6,000)
(
254,000 26,000) 88,000) ( 140,000
( (
(
60,000) 80,000
(
30% Jody 32,000 3,000 1,800 )
(
33,200 10,000 )
Debts 88,000
88,000
(
(
25% Lark 40,000 2,500 1,500 )
(
41,000 16,000 )
91,800
88,000 ) 23,200 (
18,000 ) 5,200
(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
45% Kane 90,000 4,500 2,700 )
91,800 (
27,000 ) 64,800
25,000 (
15,000 ) 10,000
Cash Jan 1 Balance
3,000
NonCash Assets 33,000
First Rank Debt 9,00 0
30% Oak Equity 2,000
20% Nebe Equity 4,000
50% Pang Equity 21,000
Sale of assets Subtotal
17,000 20,000
( 15,000 ) 18,000
600 2,600
9,00 0
400 4,400
1,000 22,000
Safe Payments Schedule Oak Equity 2,600 ( 5,400 ( 2,800 2,800 0
Partners’ pre-distribution balances Possible losses on non-cash assets Write off Oak 2/7 and 5/7 Cash distribution to partners
Nebe Equity 4,400 ) ( 3,600 ) 800 ( 800 0
Pang Equity 22,000 ) ( 9,000 13,000 ) ( 2,000 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 Balance, Aug. 1 Ide’s personal contribution
Ide Capital ( 60,000
Cash 50,000 40,000 90,000 90,000 2,000 92,000
(
92,000 ( 92,000 0
4,000 7,500 3,500
Jen Capital 106,000
Total 50,000
106,000 ) ( 12,500 ) ) 93,500
2,000
Write-off Hanly Distribute cash
)
40,000 ( 20,000 ) 20,000 ( 0 (
Write-off Ide Hanly’s personal contribution
Hanly Capital 4,000
1,500 1,500 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
40,000 90,000 90,000 2,000
) ( (
93,500 1,500 92,000
)
92,000
92,000 0
) ( 92,000 ) 0
92,000
True or False
8.
True
9.
False
10 . 11 . 12 .
False False True
13 . 14 . 15 . 16 . 17 .
True False False True True
18 . 19 . 20 . 21 . 22 .
False True True False True
23 . 24 . 25 . 26 . 27 .
False True False True True
28 . 29 . 30 . 31 . 32 .
True False False
33 . 34 . 35 .
True True False
False 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 . 37 . 38 . 39 . 40 .
A A C D C
41 . 42 . 43 . 44 . 45 .
b d b d b
4 6. 4 7. 4 8. 4 9. 5 0.
c a c d b
51 . 52 .
b a
