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CHAPTER 5
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
5-1:
b
Capital balances before liquidation
Loan balances
Total interest
Possible loss (40,000+10,000)
Balances
Additional loss to RJ & SJ, 5:3
Cash distribution
5-2:
SJ
P30,000
______
30,000
( 15,000)
15,000
( 750)
P14,250
TJ
P 8,000
______
8,000
( 10,000)
( 2,000)
__2,000
P
AR
P 5,500
BR
P 5,150
CR
DR
P 6,850
_1,000
_____
_____
6,500
( 6,800)
5,150
( 5,100)
6,850
( 3,400)
( 300)
___300
50
( 150)
3,450
( 100)
_____
( 100)
___100
3,350
_( 67)
P 3,283
a
Capital balances
P 4,500
Loan balances
_____
Total interest
Possible loss (23,000-6,000)
( 1,700)
Balances
Additional loss to BR, CR, DR, 3:2:1
( 50)
Balances
Additional loss to CR & DR, 2:1
_( 33)
Payment to partners
P 2,717
Total liabilities
Total Capital
Total Assets
5-3:
RJ
P22,000
_10,000
32,000
( 25,000)
7,000
( 1,250)
P 5,750
P 1,000
_22,000
P23,000
Capital balances
P25,000
Loan balances
Advances
DD
P40,000
BALANCES
EE
FF
GG
P30,000
P15,000
5,000
_____
10,000
_____
( 4,500)
45,000
40,000
10,500
____50%
____30%
____10%
90,000
133,333
105,000
500)
Total interest
22,500
Divided by P/L Ratio
____10%
Loss Absorption balances
225,000
PI - TO GG
Balances
133,333
PII - TO EE & GG, 30:10
( 28,333)
Balances
10,500
PIII - TO EE, FF, GG, 3:1:1
( 15,000)
Balances
P90,000
PIV - P/L Ratio
_____
90,000
_____
133,333
( 91,667)
105,000
_____
( 28,333)
_____
90,000
105,000
105,000
_____
(15,000)
( 15,000)
P90,000
P90,000
P90,000
__ __
94
Chapter 5
5-3, continued:
DD
PI - To GG
P 9,167
PII - To EE (28,833 X 30%)
GG (28,833 X 10%)
PIII To EE (15,000 X 30%)
FF (15,000 X 10%)
GG (15,000 X 10%)
__1,500
_____
P 8,433
4,500
_____
1,500
_____
P12,933
P 1,500
EE
FF
Total
P13,500
PIV - P/L Ratio
DD
Distribution of P18,000
PI - TO GG
P 9,167
PII - TO EE & GG, 3:1, P8,833
__2,208
Cash distribution
P11,375
5-4:
GG
_____
_6,625
_____
P 6,625
a
Capital balances before liquidation
Loss on realization, P40,000
Capital balances before cash distribution
Possible loss, P90,000
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
5-5:
CASH PAYMENT
EE
FF
GG
TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P
LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000
WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000
5-6:
LIM
P49,000
( 18,600)
30,400
( 8,800)
P21,600
WAN
P40,000
( 18,600)
21,400
_( 4,400)
P17,000
CARPIO
P72,000
( 5,000)
67,000
( 55,000)
12,000
( 6,000)
P 6,000
LOBO
P54,000
( 5,000)
49,000
( 55,000)
( 6,000)
__6,000
P
JACOB
SANTOS
P40,000
P72,000
( 15,000)
( 9,000)
( 1,000)
( 600)
24,000
62,400
__8,000
_____
32,000
62,400
( 45,000)
27,000
( 13,000)
35,400
_13,000
( 7,800)
P27,600
A
P16,200
B
P12,000
C
P37,700
_____
___160
___240
d
Tan (14,000 X 40%)
Lim (14,000 X 40%)
Wan (14,000 X 20%)
5-7:
TAN
P24,000
( 37,200)
( 13,200)
_13,200
P
P5,600
P5,600
P2,800
5-8:
d
HERVAS
Capital balances before liquidation
P 7,000
Loss on realization (120,000-90,000)
( 6,000)
Liquidation expenses, P2,000
( 400)
Capital balances before cash distribution
63,600
Loan balances
_____
Total interest
63,600
Possible Loss (210,000-120,000)
( 18,000)
Balances
45,600
Additional loss to Santos & Hervas
( 5,200)
Cash distribution
P40,400
5-9:
d
Capital balances before liquidation
P17,700
Salary payable
_______
Balances
16,200
12,000
37,860
( 600)
( 600)
( 600)
15,600
11,400
37,260
( 150)
( 150)
( 150)
15,450
11,250
37,110
12,000
14,400
_____
27,450
25,650
37,110
( 27,000)
( 27,000)
( 27,000)
( 1,350)
10,110
( 780)
__1,350
( 780)
( 330)
___330
_____
9,330
( 330)
40)
Loss on realization (P2,400)
( 600)
Balances
17,340
Liquidation expenses (P600)
( 150)
Balances
17,190
Loan balances
__9,600
Total interest
26,790
Possible Loss (126,000-18,000)
( 27,000)
Balances
450
0)
Additional loss to A & C
____210
Balances
Additional loss to C
_____
Cash distribution
P 9,000
5-10:
Total interest
Profit and Loss ratio
Loan absorption balances
Priority I - to Sy
Balances
Priority II - to Sy & Less
Total
DY
P22,000
2/4
44,000
_____
44,000
_____
P44,000
DY
Priority I - to Sy (6,000 X 1/4)
Priority II - to Sy (12,000 X 1/4)
to Lee (12,000 X 1/4)
Total
_____
P
BALANCES
SY
P15,500
1/4
62,000
( 6,000)
56,000
( 12,000)
P44,000
CASH PAYMENTS
SY
LEE
1,500
3,000
_____
_3,000
P 4,500
P 3,000
96
Chapter 5
5-10, continued:
Further cash distribution, profit and loss ratio
Cash distribution to Dy
Divided by Dy's Profit and Loss ratio
Amount in excess of P7,500
Total payment under priority I & II
LEE
P14,000
1/4
56,000
_____
56,000
( 12,000)
P44,000
P 6,250
2/4
12,500
__7,500
5-11:
P20,000
d
Cash before liquidation
Cash realized
Total
Less:
Payment of liquidation expense
Payment of liability
Payment to partners (Q 5-10)
Cash withheld
5-12:
P12,000
_32,000
44,000
P 1,000
5,400
20,000
c
Loss absorption balances:
Cena (18,000/50%)
Batista (27,000/30%)
Excess of Batista
Multiply by Batista's Profit & Loss ratio
Priority I to Batista
5-13:
P36,000
90,000
54,000
____30%
P16,200
c
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to CC
Balances
Priority II to BB & CC, 2:1
Total interest
AA
P15,000
10,000
25,000
2/5
62,500
_____
62,500
_____
P62,500
AA
Priority I to CC (12,500 X 1/5)
Priority II to BB (25,000 X 2/5)
to CC (25,000 X 1/5)
Total
Priority III P/L Ratio
Cash distribution to CC:
Priority I
Priority II (12,000-2,500) X 1/3
Total cash paid to CC
Partnership Liquidation by Installment
5-14:
_26,400
P17,600
____
P
BALANCES
BB
CC
P30,000
P10,000
_5,000
10,000
35,000
20,000
2/5
1/5
87,520
100,000
_____
( 12,500)
87,520
100,000
( 25,000)
( 25,000)
P62,500
P62,500
CASH PAYMENTS
BB
CC
2,500
10,000
_____
_5,000
P10,000
P 7,500
P2,500
3,167
P5,667
Capital balances
P 30,000
JJ
P 60,000
BALANCES
KK
LL
MM
P 64,500
P 54,000
Loan balances
______
Total interest
_30,000
Divided by Profit and Loss Ratio
_____10%
Loss Absorption balances
300,000
Priority I to LL
______
Balances
300,000
Priority II to LL, MM, 15:10
( 30,000)
Balances
270,000
Priority II to KK, LL, MM, 35:15:10
( 75,000)
Total
P195,000
_18,000
_30,000
______
_78,000
_94,500
_54,000
____40%
_____35%
_____15%
195,000
270,000
360,000
______
______
( 60,000)
195,000
270,000
300,000
______
______
( 30,000)
195,000
270,000
270,000
______
( 75,000)
( 75,000)
P195,000
P195,000
P195,000
______
CASH PAYMENT
KK
LL
MM
9,000
4,500
1,750
11,250
______
______
P 1,750
LL
P 9,000
4,500
3,000
_____
__7,350
___3,150
__2,100
P 7,350
P 16,650
P 5,100
ARCE
P 20,000
_10,000
BALANCES
BELLO
P 24,900
______
CRUZ
P 15,000
______
JJ
Priority I to LL (30,000 X 15%)
Priority II to LL (30,000 X 15%)
to MM (30,000 X 10%)
Priority II to KK (75,000 X 35%)
to LL (75,000 X 15%)
to MM (75,000 X 10%)
___7,500
Total
P 10,500
P 24,750
Priority I to LL
P 9,000
Priority II to LL, MM, 15:10
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600
__12,600
Cash distribution
P 29,100
5-15:
JJ
KK
MM TOTAL
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to Bello
Balances
Priority II to Bello & cruz, 3:2
Total
_32,000
_____50%
64,000
______
64,000
______
P 64,000
_24,900
_____30%
83,000
( 8,000)
75,000
( 11,000)
P 64,000
_15,000
_____20%
75,000
______
75,000
( 11,000)
P 64,000
98
Chapter 5
5-15, continued:
ARCE
P - I to Bello (8,000 X 30%)
P - II to Bello (11,000 X 30%)
to Cruz (11,000 X 20%)
_____
Total
CASH PAYMENTS
BELLO
CRUZ
2,400
3,300
_____
_2,200
P 5,700
P2,200
5-16:
a
Cash paid to Arce
Divide by Profit & Loss ratio
Amount in excess of P7,900
Add: cash paid under PI and PII
Total cash distribution to partners
Cash paid to Creditor (30,000-10,000)
Total
Less cash before realization
Cash realized from sale of asset
5-17:
b
Cash distribution to Cruz
Divide by profit and loss ratio
Cash distribution under Priority II
Multiply by Bello's Profit and Loss ratio
Cash distribution to Bello under Priority II
Cash distribution to Bello under Priority I
Total cash distribution to Bello
5-18:
P2,000
_____5%
40,000
_7,900
47,900
20,000
67,900
_6,000
P61,900
P 6,200
2/5
15,500
3/5
9,300
__2,400
P11,700
b
BALANCES
MONZON
NIEVA
NIEVA
CASH PAYMENT
MONZON
Total Interest
Profit and Loss ratio
Loss absorption balances
Priority I - to Nieka
_2,500
Total
P2,500
P22,500
_____60%
37,500
______
P17,500
_____40%
43,750
( 6,250)
_____
P37,500
P37,500
5-19:
b
CASH MONZON
P12,500
( 500)
_12,000
__7,200
P
P 7,200
Cash distribution
PI to Nieva (2,500-2,000)
Balances, 6:40
Cash distribution
5-20:
a
Cash before liquidation
June: Cash realized
Payment to creditor
Payment to Partners
Cash balances, June 30
July: Cash realized
Payment of liquidation expense
Payment to Partners
Cash balances, July 31
Aug: Cash realized
Cash distribution for August,
Profit and Loss ratio
P 5,000
18,000
( 20,000)
__2,000
1,000
12,000
( 500)
( 12,500)
_22,500
P22,500
P13,500
NIEVA
500
_4,800
P5,300
P 9,000
b, Correction to the problem: Shortly thereafter, assets with a book value of P20,000 and a fair
value of P23,000 were distributed to Carla.
Capital and Loan Balances
Cash
NCA
Liabilities
Carla
Maria
Rita
P 8,000
P 96,000
P 63,000
P 47,000
P (9,000)
P 3,000
20,000
30,000
(6,000)
(2,000)
(2,000)
41,000
(11,000)
1,000
(20,000)
Balances
8,000
9,000
Balances
17,000
(20,000)
66,000
43,000
9,000
66,000
43,000
41,000
(2,000)
1,000
Distribution of assets
(20,000)
Balances
Sale of assets
Payment of liabilities
17,000
46,000
54,000
(40,000)
(43,000)
Balances
(28,000)
Balances
-0-
600
600
19,800
(1,400)
1,600
8,400
2,800
2,800
-0-
28,200
1,400
4,400
(24,600)
(200)
(3,200)
-0-
P 3,600
P 1,200
P 1,200
(43,000)
28,000
(21,200)
43,000
6,000
P
6,000
100
Chapter 5
5-21, continued:
Schedule 1:
Schedule of Safe Payments:
July distribution
5-22:
Carla
Maria
Rita
Total
P28,200
(3,600)
P1,400
(1,200)
P4,400
(1,200)
P34,000
(6,000)
Safe payments
P24,600
P200
P3,200
P28,000
1.
b
None of the cash would be distributed to Partner A, because the outside creditors claims must be
satisfied before any distributions to partners occur. Even after the sale, there is only P32,000 of
cash available to service the liabilities of P35,000.
2.
a
Partner A would receive P5,000 as computed below:
Balances
Sale of assets
Payment of liabilities
Balances
Cash
NCA
Liabilities
P12,000
P180,000
P35,000
P60,000
P70,000
P27,000
70,000
(60,000)
5,000
3,000
2,000
(35,000)
47,000
Possible loss
Balances
3.
(35,000)
120,000
(120,000)
65,000
73m000
29,000
(60,000)
(36,000)
(24,000)
P47,000
P0
P0
P5,000
P37,000
P5,000
Cash
NCA
Liabilities
P12,000
P180,000
P35,000
P60,000
P70,000
P27,000
50,000
(70,000)
(10,000)
(6,000)
(4,000)
Balances
Sale of assets
Payment of liabilities
(35,000)
Possible loss
Balances
(35,000)
(110,000)
27,000
(55,000)
-
Absorb deficit
P27,000
P0
P0
(22,000)
(5,000)
31,000
1,000
5,000
(3,000)
(2,000)
(1,000)
1,000
P27,000
P0
Absorb deficit
Balances
(33,000)
P0
If Partner B received P27,000 per above statement of liquidation, then he would be need
to receive additional P52,000 to reach the target of P79,000. If his capital balance after
the first sale of assets and the distribution of P27,000 is P37,000 (P64,000 P27,000),
then his share of a gain on the sale of the remaining assets would have to bring the capital
balance to the desired amount of P52,000. The necessary share of the gain is P15,000
(P52,000 P37,000), which represents 30% of a total gain of P50,000. Therefore, the
remaining assets would have to sell for P160,000 in order to produce a gain of P50,000.
102
Chapter 5
SOLUTIONS TO PROBLEMS
Problem 5 1
Suarez, Tulio and Umali
Statement of Liquidation
January 1 to april 31, 2011
Assets
Cash
Others Liabilities
Tulio,
Loan
Umali,
Loan
Partners' Capitals
Suarez (40%) tulio (35%)
Umali (25%)
Balances before liquidation. P 2,000.00 P46,000.00 P6,000.00 P5,000.00 P2,500.00 P14,450.00
P7,500.00
January Installment:
Realization of assets and
distribution of loss.... 10,500.00 ( 12,000.00) _______
_______
______
( 600.00)
( 375.00)
Balances......................... 12,500.00 34,000.00 6,000.00
5,000.00 2,500.00
13,850.00
7,125.00
Payment of expenses of
realization and distribution
to partners...................... ( 500.00) _______ _______ _______ _______
( 200.00)
( 125.00)
Balances......................... 12,000.00 34,000.00 6,000.00
5,000.00 2,500.00
13,650.00
7,000.00
Payment of liabilities..... ( 6,000.00) _______ ( 6,000.00) _______ _______
_______
_______
Balances......................... 6,000.00 34,000.00
5,000.00 2,500.00
13,650.00
7,000.00
Payments to partners
(Schedule 1).............. ( 4,000.00) _______ _______ ( 3,812.50) ( 187.50)
_______
_______
Balances......................... 2,000.00 34,000.00
1,187.50 2,312.50
13,650.00
7,000.00
February Installment:
Realization of assets and
distribution of loss.... 6,000.00 ( 7,000.00) _______
_______ _______ __(400.00)
( 250.00)
Balances......................... 8,000.00 27,000.00
1,187.50 2,312.50
13,250.00
6,750.00
P12,550.00
525.00)
12,025.00
175.00)
11,850.00
________
11,850.00
_______
11,850.00
350.00)
11,500.00
Payment of expenses of
realization and distribution
to partners...................... ( 750.00) _______ ______
( 187.50)
Balances......................... 7,250.00 27,000.00
6,562.50
Payments to partners
(Schedule 2).............. ( 6,000.00) _______ ______
_______
Balances......................... 1,250.00 27,000.00
6,562.50
March Installment:
Realization of assets and
distribution of loss.... 10,000.00 ( 15,000.00)______
( 1,250.00)
Balances......................... 11,250.00 12,000.00
5,312.50
Payment of expenses of
realization and distribution
to partners...................... ( 600.00) _______ ______
( 150.00)
Balances......................... 10,650.00 12,000.00
5,162.50
Payments to partners,
P & L ratio................( 10,150.00) ______
______
( 2,037.50)
Balances.........................
500.00 12,000.00
3,125.00
April Installment:
Realization of assets and
distribution of loss.... 4,000.00 ( 12,000.00)______
( 2,000.00)
Balances......................... 4,500.00
1,125.00
Payment of expenses of
realization and distribution
to partners...................... _(400.00) ______
______
( 100.00)
Balances......................... 4,100.00
1,025.00
Final Payments to partnersP(41,100.00)_____
_____
P(1,025.00)
_______
1,187.50
_______
2,312.50
12,950.00
( 1,187.50) ( 1,812.50)
500.00
______
______
500.00
______
_______
500.00
______
______
______
______
______
_____
_____
262.50)
11,237.50
( 1,650.00) ( 1,350.00)
11,300.00
9,887.50
( 2,000.00) ( 1,750.00)
9,300.00
( 500.00)
300.00) (
240.00) (
9,060.00
8,137.50
210.00)
7,927.50
( 4,060.00) ( 3,552.50)
5,000.00
4,375.00
( 3,200.00) ( 2,800.00)
1,800.00
___(160.00) (
1,640.00
1,575.00
140.00)
1,435.00
P( 1,640.00) P( 1,435.00)
Capital balances......................................
Loan balances.........................................
Total interests..........................................
Possible loss (P2,000 + P34,000)...........
Balances..................................................
Additional loss to Tulio and Umali 35:25
Payments to partners...............................
Suarez (40%)
P13,650.00
_____ _
13,650.00
( 14,400.00)
( 750.00)
___750.00
Apply to loan..........................................
__ __
P 3,812.50
P 187.50
Schedule 2
Capital balances......................................
Loan balances.........................................
Total........................................................
Possible loss (P1,250 + P27,000)...........
Payments to partners...............................
Apply to loan..........................................
Apply to capital......................................
Suarez (40%)
P12,950.00
12,950.00
( 11,300.00)
P 1,650.00
P 1,650.00
102
Chapter 5
Problem 5 2
Miller and Bell Partnership
Statement of Partnership Realization and Liquidation
Cash
Inventory
Accounts
Payable
Bell
Loan
Miller
80%
Capital
Bell
20%
Balances
25,000
Sale of inventory 40,000
Payment to
creditors
(10,000)
55,000
Payments to
partners
(Schedule 1)
(50,000)
5,000
Sale of inventory 30,000
Payment to
creditors
( 5,000)
30,000
Offset deficit
with loan
______
30,000
Payments to
partners:
Loan
( 6,000)
Capitals
(24,000)
Balances
0
120,000
( 60,000)
15,000
60,000
65,000
5,000
(16,000) (4,000)
______
60,000
(10,000)
5,000
______
60,000
______
49,000
______
60,000
( 60,000)
______
5,000
(49,000)
11,000
_(1,000)
______
48,000
1,000
(24,000) 6,000)
______
0
( 5,000)
0
______
11,000
______
______
24,000 (5,000)
______
0
______
0
( 5,000)
6,000
______ (5,000)
24,000
______
0
______
0
( 6,000)
______
0
______
1,000
(24,000)
0
______
0
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller
80%
49,000
(48,000)
1,000
Bell
20%
61,000
(12,000)
49,000
Cash
Other
Liabilities
SS
(1/3)
20,000
280,000
80,000
60,000
Partners Capital
TT
PP
(1/3) (1/3)
70,000
75,000
(105,000)
______
(10,000)
(10,000)
Balances
80,000
Payment to creditors
95,000
175,000
80,000
50,000
60,000
(80,000)
______
(80,000)
______
______
15,000
175,000
50,000
60,000
(15,000)
______
______
______
175,000
50,000
60,000
(12,000)
(12,000)
38,000
48,000
______
(10,000)
Balances
80,000
Payments to PP (Exhibit A)
(15,000)
Balances
65,000
June sale of assets at a loss of P36,000
(12,000)
Balances
53,000
Payment to partners (Exhibit A)
(15,000)
Balances
38,000
July sale of remaining assets at a loss of
P33,000
(11,000)
Balances
27,000
Payment to partners
(27,000)
______
25,000
(61,000)
25,000
114,000
(25,000)
______
114,000
38,000
38,000
(114,000)
(11,000)
(11,000)
81,000
27,000
27,000
(81,000)
(27,000)
(27,000)
SS
TT
60,000
70,000
1
60,000
1
70,000
______
______
60,000
70,000
______
(10,000)
60,000
60,000
81,000
______
______
______
PP
80,000
20,000
20,000
10,000
1/3
1/3
1/3
b. After the cash distribution in June, the partners capital accounts had balances corresponding to the income-sharing
ratio (38,000 each). From this point on any cash payments to partners may be made in the income-sharing ratio or
equally in this problem. In other words, after the creditors are paid and TT and PP receive 10,000 and 30,000,
respective, any additional cash that becomes available may be paid to the three partners equally.
104
Chapter 5
Problem 5 4
1. X, Y and Z
Cash Priority Program
January 1, 2011
X
Total
Balances
Y
Capital balances..................................
Loan balances.....................................
P60,000
22,5000
P45,000
15,000
P20,000
6,500
Total interests......................................
P82,500
P60,000
P26,500
P200,000
(35,000)
P132,500
Balances............................................. 165,000
Priority II to X and Y.......................
(32,500)
............................................................26,000
165,000
(32,500)
Total.................................................... P132,500
............................................................P36,500
P132,500
X (50%)
Cash Payments
Y (30%) Z (20%)
P10,500
132,500
________
P16,250
9,750
P132,500
P16,250
P20,250
50%
30%
20%
2. January
Available for distribution...............................
Priority I to Y..............................................
Cash
P 7,500
( 7,500)
Payment to partner.........................................
February.......................................................
Available for distribution...............................
Priority I to Y (P10,500 P7,500)..............
Priority II to X and Y; 5:3...........................
Y
P 7,500
P 7,500
Cash
P20,000
( 3,000)
( 17,000)P10,625
Payments to partners......................................
March............................................................
Available for distribution...............................
Priority II to X and Y; 5:3
(P26,000 P17,000).................................
Excess; 5:3:2..................................................
Y
P 3,000
6,375
P10,625 P 9,375
Cash
P45,000
( 9,000)
( 36,000)
P 5,625
18,000
P 3,375
10,800
P7,200
Payments to partners......................................
April..............................................................
Available for distribution...............................
Excess; 5:3:2..................................................
Cash
P15,000
( 15,000)
Payments to partners......................................
P23,625
P14,175
P7,200
P 7,500
P 4,500
P3,000
P 7,500
P 4,500
P3,000
Problem 5 5
AB, CD & EF Partnership
Statement of Partnership Realization and Liquidation
Cash
Able
Loan
20%
Balances before liquidation
18,000 30,000
74,000
January transactions:
1. Collection of accounts
receivable at loss
of 15,000
51,000
( 3,000)
2. Sale of inventory at
loss of 14,000
38,000
( 2,800)
3. Liquidation expenses paid ( 2,000)
( 400)
4. Share of credit memorandum
600
5. Payments to creditors
( 50,000) _____
______
55,000 30,000
68,400
Sale payments to partners
(Schedule 1
( 45,000) ______
(18,400)
10,000 30,000
50,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______
( 800)
6,000 30,000
49,200
Other
Assets
307,000
Accounts CD
Payable Loan
Capital
AB
CD EF
50%
30%
90,000
( 66,000)
( 7,500) ( 4,500)
( 52,000)
( 7,000) ( 4,200)
( 1,000) ( 600)
( 3,000)
1,500
900
______
_____
81,600
-0-
-0- 104,000
-0-
75,000
( 2,000) ( 1,200)
-0- 102,000
73,800
-0- _____
102,000
73,800
( 21,500) (12,900)
( 2,500) ( 1,500)
78,000
59,400
( 30,000)
( 48,000) (59,400)
0
106
Chapter 5
Problem 5-5, continued:
Schedules of Safe Payments to Partners
Schedule 1: January
Capital and loan balancesa
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000)
Balances
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
a = (104,000) capital less 30,000 loan receivable
= (81,600) capital plus 20,000 loan payable
= (68,400) capital
AB
50%
CD
30%
EF
20%
P74,000
P101,600
P68,400
( 99,500)
( 25,500)
25,500
( 59,700)
41,900
( 39,800)
28,600
( 15,300)
_______
P 26,600
( 10,200)
P 18,400
______
P
-0-
Schedule 2: February
Capital and loan balancesb
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000)
72,000
73,800
( 97,500)
( 25,500)
25,500
_______
0
49,200
( 58,500)
15,300
( 39,000)
10,200
( 15,300)
________
0
( 10,200)
0
Problem 5 6
1.
M, N, O and P
Cash Priority Program
January 1, 2011
M
Total
Capital balances. .P 70,000
Loan balances... 20,000
Total interests......P 90,000
Balances
N
O
P 70,000 P 30,000
5,000
25,000
P 75,000 P 55,000
P 20,000
15,000
P 35,000
Loss absorption
balances..........P240,000 P200,000 P440,000 P280,000
Priority I to O... _______ _______ ( 160,000) ________
P20,000
Balances.............. 240,000
200,000 280,000
280,000
Priority II to O
and P............... _______ _______ ( 40,000) ( 40,000)
Cash Payments
M (3/8) N (3/8) O (1/8)
P (1/8)
P20,000
5,000
P5,000
10,000
Balances.............. 240,000
200,000 240,000
240,000
Priority III to
M, O and P.....( 40,000) _______ ( 40,000) ( 40,000)P15,000
25,000
Total....................P200,000 P200,000 P200,000 P200,000P15,000
P55,000
Any amount in excess of P55,000
8/8
3/8
5,000
5,000
P30,000
P10,000
3/8
1/8
1/8
2.
Schedule 1
Cash
P25,000
( 20,000)
( 5,000)
________
_______
P20,000
2,500
P2,500
P22,500
( 22,500) ( 2,500)
Schedule 2
Cash
Available for distribution......................
P40,000
Priority II to O and P; 1:1..................
( 5,000
Priority III to M, O and P; 3:1:1........ ( 25,000)
Excess, 3:3:1:1.....................................
( 10,000)
..............................................................1,250
Payments to partners............................
Apply to loan........................................
Apply to capital
P15,000
3,750
P3,750
P 2,500
5,000
1,250
18,750
( 18,750)
P3,750
( 3,750)
P
P2,500
8,750
( 2,500) ( 8,750)
P 6,250
108
Chapter 5
Problem 5 7
Bronze, Gold & Silver
Cash Distribution Plan
June 30, 2011
Loss Absorption Balances
Bronze
Gold
Silver
50%
30%
P55,000
P45,000
P150,000
P120,000
( 30,000)
_______
______
( 9,000)
120,000
120,000
55,000
36,000
( 10,000)
________
( 10,000)
_______
( 3,000)
_______
P110,000
P110,000
P 55,000
P 33,000
Accounts
Payable
Bronze
50%
Cash available
First
Next
Next
0
Additional paid in P&L ratio
15,000
P106,000
( 17,000)
( 9,000)
( 5,000)
Gold Silver
30%
20%
P 17,000
P 9,000
3,000
( 75,000)
_______
P37,500
22,500
P 17,000
P37,500
P34,500
-0-
P17,000
Problem 5 8
Part A
North
Balances
South
East
West
Total Interest (capital and loan
balances
P120,000
P 88,000
Divided by P/L ratio
30%
10%
Loss absorption potential
P400,000 P880,000
Priority II To South
(335,000)
Balances
400,000
545,000
Priority II To South and East, 10:20
(145,000)
Balances
400,000
400,000
Priority III To North, South, and
east 30:10:20
(250,000) (250,000)
_____
Total
150,000
150,000
West
North
P109,000 P 60,000
20%
40%
P545,000 P150,000
________
545,000
150,000
(145,000)
400,000
150,000
Cash Payments
South
East
33,500
14,500 29,000
(250,000)
______
150,000
150,000
(3)
Cash
North capital (30% x P103,000)
South capital (10%)
East capital (20%)
West capital (40%)
Property and equipment
To record sale of property and equipment.
82,000
150,000
30,900
10,300
20,600
41,200
253,000
North capital
31,800
South capital
58,600
East capital
35,000
West capital
15,200
Cash
140,600
To record cash installment to partners of P230,600 based on the cash distribution plan in Part A.
First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)
(4)
110
Liabilities
Cash
To record payment of liabilities.
74,000
74,000
Chapter 5
(5)
Cash
North capital (30% of P30,000 loss)
South capital (10%)
East capital (20%)
West capital (40%)
Inventory
To record inventory sold.
71,000
9,000
3,000
6,000
12,000
101,000
(6)
North capital
35,500
South capital
11,833
East capital
23,667
Cash
71,000
To record distribution of cash according to cash distribution plan. Although P87,000 cash is
being held, P16,000 must be retained to pay liquidation expenses. The Remaining P71,000
is divided among North, South, and East on a 30:20 basis.
(7)
(8)
11,000
3,300
1,100
2,200
4,400
North capital
South capital
East capital
Cash
To record final cash distribution.
4,160
North
P120,000
(4,920)
(30,900)
(31,800)
( 3,300)
South
P88,000
( 1,640)
(10,300)
(58,600)
( 1,100)
East
P109,000
( 3,280)
(20,600)
(50,200)
( 2,200)
West
P60,000
( 6,560)
(41,200)
0
( 4,400)
4,580
( 2,090)
1,527
( 693)
3,053
( 1,666)
( 4,160)
4,160
P 2,500
P 834
P 1,666
2,500
834
1,666
5,000
P 0
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
Dan
(40%)
Red
(30%)
Ben
(30%)
(42,000)
9,600
4,800
(45,000)
7,200
3,600
(17,000)
7,200
3,600
(2,400)
(30,000)
(1,800)
(36,000)
(1,800)
(8,000)
19,200
1,600
(9,200)
14,400
1,200
(20,400)
14,400
1,200
7,600*
(7,600)
4,343
(4,857)
3,257
(17,143)
-0-
Of the P84,000 in cash at the end of August, P58,000 will be required to liquidate the debts to
outside creditors, and P4,000 must be held in reserve to pay possible liquidation costs. Thus, a
total of P22,000 in cash can be safely distributed to partners as of August 31, 2011.
Problem 5 10
(1)
40,000
60,000
100,000
60,000
10,000
180,000
50,000
200,000
112
Chapter 5
Jenny
P100,000
10,000
15,000
48,000
P173,000
Kenny
P200,000
20,000
20,000
72,000
P312,000
Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives
her respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed
thus far is P65,000. The remainder to be distributed is P120,000 (P185,000 30,000
35,000). Two-fifths of this remainder of P129,000 (48,000) is allocated to Jenny; 3/5 x
P120,000 (72,000) is allocated to Kenny. The total income allocated to Jenny and Kenny
is P73,000 and P112,000 respectively.
The admission of Lenny can now be recorded by the following entry:
Cash
175,000
Lenny, capital
Jenny, capital
Kenny, capital
110,000
26,000
39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lennys contribution, the value of the
partnership is P485,000 + P175,000 = P660,000. A one-sixth interest in the partnership is
P660,000 x 1/6 = P110,000. Using the bonus method, we compute a bonus of P175,000
P110,000 = P65,000. Using the 2:3 profit sharing ratio, the amount allocated to Jenny is
P26,000 (2/5 x P65,000) and the amount allocated to Kenny is P39,000 (3/5 x P65,000).
(3)
Jenny
P200,000
9,000
(156,000)
P 53,000
Kenny
P400,000
(50,000)
15,000
(260,000)
P105,000
Lenny
P200,000
6,000
(104,000)
P102,000
Explanation:
The sale of assets realized a gain of P30,000 (P210,000 P180,000) which is
distributed to the partners on the new profit sharing ratio: 30% to Jenny, 50% to Kenny,
and 20% to Lenny. Liabilities are paid. A possible loss on the unsold assets (P520,000) is
distributed to partners in their profit and loss ratio of 30:50:20 to Jenny, Kenny and
Lenny respectively.