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Chapter 4

Problem I
1: Gain on Realization Fully Allocated to Partners 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 Partners Capital Account


Requiring Transfer from Partners 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 Partners Capital Account


Requiring Transfer from Partners 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
partners 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 Partners Capital Account


Requiring Transfer Partners 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 Partners Capital Account


Requiring Transfer Partners 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%)

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 Partners Capital Account


Requiring Transfer Partners 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 Partners Capital Account


Requiring Transfer Partners 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

______
0

9,143
0

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 partners 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 partners 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)

P165,00
0
(165,00
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 2,000
(2,000)
P
0

P
P

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

(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

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

( 30,000
0

) ( 30,000
P 100,000

) (
P

( 45,000
P 55,000

) (
P

Loss to eliminate
Neal

14
.

JJ

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)

14,000

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

10,000

15,000

(19,170)
( 9,170)

(12,780)
2,220

(6,550)
1,500
( 400)
1,100

Additional loss

9,170
(2,620)
( 400)
400

19. b
K

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

( 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

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

Total

Capital

Herron

70,000

40,000
________
40,000
(32,000)

Morse

40,000
(12,500)
27,500

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

(42,000)
48,000

*balancing figure total reduction in capital

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))

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.

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

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)

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

25,000
(60,000)
(35,000)

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
Bonds capital balance...................................................
P300,000
Less: Bonds share of P140,000 loss in liquidation
(P140,000 50%) ..........................................................
(70,000)
_____
P230,000
Less: Bonds share of Zells capital deficiency of
P8,000 (5/8 of P8,000)....................................................
( 5,000)
P225,000
19. Alexa: P25,000; Bell: P75,000; Graham: P0
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
Ides 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
Hanlys personal
contribution

Hanly
Capital
4,000

1,500
1,500
0

Theories
Completion Statements
1. a. partnership creditors other than partners
b. partners loansif 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 partners equity in the
partnership.
15.
The accountant has a fiduciary responsibility to the partnerships 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 partnerships
operation and the current issue is the partnerships 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

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