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
2
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%
T
U
V
W
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
4
BB
CC
Schedule 1: January 31, 20x4 Capital balances Possible loss: Other assets (P189,000) and possible liquidatio n costs (P10,000) Absorption of AA’s 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 AA’s 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
6
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 TT’s 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:
8
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)
V
D
S
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
D
50%
(100,000)
(60,000)
S
V
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
V
91,667 (200,000)
1. 2. 3. 4. 5.
S
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.
a
a
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 partnership’s 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.
a
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
0
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
0
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
0
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
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
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
0
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
0
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
D
E
F
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
0
1/3 120,00 0
Loss to reduce E to D: (45,000 x 1/3 = 15,000) Balances
90,00
0
1/3 165,00 0
30,00
0
______ 30,00
0
1/3 90,000
(45,000) 120,00 0
120,00 0
____0 90,000
16. c S
Capital
0
Loan Total interests Loss on sale (5:3:2) - [90,000 26,000]
_ –
40,00
D
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)
F
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
A
0
37,00 (16,000)
B
65,000
C
( 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
0
17,000
20. b A
Capital before realization
0
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
C
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
B
37,00
150,000
0
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
0
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
0
P 27,00 30%
0 %
B 34,00 10 340,00 0
J 0 %
170,000 170,000
0
H 43,00 20
34,00 20
170,00 0 ____0 170,00 0
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
0
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)
A
0
70,00 20,000 90,000 (15,000) 75,000
B
30,000
C
______ 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
0
Loan Total interests Loss on sale (240,000 – 195,000)
B
70,00
20,000 90,000 (15,000)
______ 30,000 ( 15,000 ) 15,000 ______
75,000 (20,000)
Payment of loans to partner
C
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
K
INTERESTS R
P 10,000 170,000 P180,000 30% P600,000 (200,000) P400,000 (60,000) P340,000
D
P(20,000) 100,000 P 80,000 20% P400,000 0 P400,000 (60,000) P340,000
PAYMENTS R Total
K
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
T
N
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
P
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
P
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
b
6. d
11. e
16.
b
b
7. d
12. a
17. a
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 .
a
9. d
14. c
19. c
a
10 b ,
15, d
20. d
