Chapter 5

Partnership Liquidation by Installment
93
CHAPTER 5
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
5-1:
b
RJ
P22,000
_10,000
32,000
( 25,000)
7,000
( 1,250)
P 5,750
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
Capital balances
Loan balances
Total interest
Possible loss (23,000-6,000)
Balances
Additional loss to BR, CR, DR, 3:2:1
Balances
Additional loss to CR & DR, 2:1
Payment to partners
AR
P 5,500
_1,000
6,500
( 6,800)
( 300)
___300
_____
P
BR
P 5,150
_____
5,150
( 5,100)
50
( 150)
( 100)
___100
P
CR
P 6,850
_____
6,850
( 3,400)
3,450
( 100)
3,350
_( 67)
P 3,283
Total liabilities
Total Capital
Total Assets
P 1,000
_22,000
P23,000
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:
5-3:
a
DR
P 4,500
_____
4,500
( 1,700)
2,800
( 50)
2,750
_( 33)
P 2,717
Capital balances
Loan balances
Advances
Total interest
Divided by P/L Ratio
Loss Absorption balances
PI - TO GG
Balances
PII - TO EE & GG, 30:10
Balances
PIII - TO EE, FF, GG, 3:1:1
Balances
PIV - P/L Ratio
DD
P40,000
5,000
_____
45,000
____50%
90,000
_____
90,000
_____
90,000
_____
P90,000
BALANCES
EE
FF
P30,000
P15,000
10,000
_____
( 4,500)
40,000
10,500
____30%
____10%
133,333
105,000
_____
( 91,667)
133,333
105,000
( 28,333)
_____
105,000
105,000
(15,000)
( 15,000)
P90,000
P90,000
94
GG
P25,000
( 2,500)
22,500
____10%
225,000
__ __
133,333
( 28,333)
10,500
( 15,000)
P90,000
Chapter 5
5-3, continued:
DD
PI - To GG
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%)
_____
Total
PIV - P/L Ratio
DD
Distribution of P18,000
PI - TO GG
PII - TO EE & GG, 3:1, P8,833
Cash distribution
CASH PAYMENT
EE
FF
P 8,433
4,500
1,500
_____
_____
GG
P 9,167
2,833
__1,500
P12,933
P 1,500
P13,500
EE
FF
GG
_____
_6,625
_____
P 9,167
__2,208
P 6,625
P11,375
5-4:
a
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:
WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000
TAN
P24,000
( 37,200)
( 13,200)
_13,200
P
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
d
Tan (14,000 X 40%)
Lim (14,000 X 40%)
Wan (14,000 X 20%)
5-7:
LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000
b
Possible loss (90,000+3,000)
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
5-6:
TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P
P5,600
P5,600
P2,800

Goodwill written-off
Cash balance
Possible loss (100,000+10,000), 110,000
Additional loss to Carpio
Cash distribution
5-8:
95
d
Loss on realization (120,000-90,000)
Liquidation expenses, P2,000
Loan balances
Total interest
Possible Loss (210,000-120,000)
Balances
Additional loss to Santos & Hervas
Cash distribution
5-9:
JACOB
P40,000
( 15,000)
( 1,000)
24,000
__8,000
32,000
( 45,000)
( 13,000)
_13,000
P
SANTOS
P72,000
( 9,000)
( 600)
62,400
_____
62,400
27,000
35,400
( 7,800)
P27,600
HERVAS
P 7,000
( 6,000)
( 400)
63,600
_____
63,600
( 18,000)
45,600
( 5,200)
P40,400
B
P12,000
___160
12,000
( 600)
11,400
( 150)
11,250
14,400
25,650
( 27,000)
( 1,350)
__1,350
_____
P
C
P37,700
___240
37,860
( 600)
37,260
( 150)
37,110
_____
37,110
( 27,000)
10,110
( 780)
9,330
( 330)
P 9,000
D
P17,700
_______
( 17,940)
( 600)
17,340
( 150)
17,190
__9,600
26,790
( 27,000)
( 210)
____210
_____
P
d
Salary payable
Balances
Loss on realization (P2,400)
Balances
Liquidation expenses (P600)
Balances
Loan balances
Total interest
Possible Loss (126,000-18,000)
Balances
Additional loss to A & C
Balances
Additional loss to C
Cash distribution
A
P16,200
_____
16,200
( 600)
15,600
( 150)
15,450
12,000
27,450
( 27,000)
450
( 780)
( 330)
___330
P
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
LEE
P14,000
1/4
56,000
_____
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
Total cash distribution to partner
5-11:
P 6,250
2/4
12,500
__7,500
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:
_26,400
P17,600
P36,000
90,000
54,000
____30%
P16,200
c
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
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
____
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
5-14:
97
c
JJ
P 60,000
_18,000
_78,000
____40%
195,000
______
195,000
______
195,000
______
P195,000
Capital balances
Loan balances
Total interest
Priority I to LL
Balances
Priority II to LL, MM, 15:10
Balances
Priority II to KK, LL, MM, 35:15:10
Total
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%)
Total
______
P
BALANCES
KK
LL
MM
P 64,500
P 54,000
P 30,000
_30,000
______
______
_94,500
_54,000
_30,000
_____35%
_____15% _____10%
270,000
360,000
300,000
______
( 60,000)
______
270,000
300,000
300,000
______
( 30,000) ( 30,000)
270,000
270,000
270,000
( 75,000)
( 75,000) ( 75,000)
P195,000
P195,000
P195,000
CASH PAYMENT
KK
LL
9,000
4,500
1,750
11,250
______
______
P 1,750
P 24,750
MM
3,000
___7,500
P 10,500
Further cash distribution, Profit and Loss ratio

Cash distribution to Partners (P38,100-9,000), P29,100
Priority I to LL
Priority II to LL, MM, 15:10
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600
Cash distribution
5-15:
JJ
_____
P
KK
LL
P 9,000
4,500
MM
3,000
TOTAL
P 9,000
7,500
__7,350
P 7,350
___3,150
P 16,650
__2,100
P 5,100
__12,600
P 29,100
ARCE
P 20,000
_10,000
_32,000
_____50%
64,000
______
64,000
______
P 64,000
BALANCES
BELLO
P 24,900
______
_24,900
_____30%
83,000
( 8,000)
75,000
( 11,000)
P 64,000
CRUZ
P 15,000
______
_15,000
_____20%
75,000
______
75,000
( 11,000)
P 64,000
Capital balances
Loan balances
Total interest
Priority I to Bello
Balances
Priority II to Bello & cruz, 3:2
Total
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
_____
P
CASH PAYMENTS
BELLO
CRUZ
2,400
3,300
_____
_2,200
P 5,700
P2,200
Further Cash distribution, Profit and Loss ratio

Based on the above cash priority program, the P2,000 is only a partial payment to Bello who is entitled to a
maximum of P2,400 under Priority I. Only after satisfying Priority I, Cruz will receive payment and only after
P7,900 has been distributed to Bello and Cruz will Arce receive payment. Therefore no payments are made to
Arce and Cruz.
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
Total Interest
Loss absorption balances
Priority I - to Nieka
Total
BALANCES
CASH PAYMENT
MONZON
NIEVA
MONZON
NIEVA
P22,500
P17,500
_____60%
_____40%
37,500
43,750
______
( 6,250)
_____
_2,500
P37,500
P37,500
P
P2,500
Further cash distribution - Profit and Loss ratio

All the P2,000 should be paid Nieva, since she is entitled to P2,500 under Priority I
5-19:
b
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,
Distribution to Partners - August
Monzon (22,500 X 60%)
Nieva (22,500 x 40%)
CASH MONZON
P12,500
( 500)
_12,000
__7,200
P
P 7,200
P 5,000
18,000
( 20,000)
__2,000
1,000
12,000
( 500)
( 12,500)
_22,500
P22,500
P13,500
P 9,000
NIEVA
500
_4,800
P5,300
99
5-21:
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
Balances, June 1, 2011
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
Sale of assets, June 15, 2011

Payment of liabilities
(20,000)
Balances
8,000
Contribution of personal assets
9,000
Balances
(20,000)
66,000
43,000
9,000
17,000
66,000
Distribution of assets
43,000
(20,000)
Balances
Sale of assets
17,000
46,000
54,000
(40,000)
43,000
(43,000)
Balances
(28,000)
Balances
-0-
(2,000)
1,000
600
600
19,800
(1,400)
1,600
8,400
2,800
2,800
(43,000)
28,000
Distribution to partners, sch. 1
41,000
(21,200)
6,000
P
-0-
6,000
-0-
28,200
1,400
4,400
(24,600)
(200)
(3,200)
P 3,600
P 1,200
P 1,200
100
Chapter 5
5-21, continued:
Schedule 1:
Schedule of Safe Payments:
July distribution
5-22:
Carla
Maria
Rita
Total
Capital and loan balances

Before cash distribution
Maximum possible loss
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
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
65,000
73m000
29,000
(60,000)
(36,000)
(24,000)
(35,000)
47,000
Possible loss
Balances
3.
(35,000)
120,000
(120,000)
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)
(55,000)
(33,000)
(22,000)
(5,000)
31,000
1,000
5,000
(3,000)
(2,000)
(1,000)
1,000
P27,000
P0
Balances
Sale of assets
(35,000)
Possible loss
Balances
(35,000)
(110,000)
27,000
Absorb deficit
Absorb deficit
Balances
P27,000
P0
P0
P0
101
5-22, No. 3, continued:
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
Balances before liquidation. P 2,000.00 P46,000.00 P6,000.00
January Installment:
Realization of assets and
distribution of loss.... 10,500.00 ( 12,000.00) _______
Balances......................... 12,500.00 34,000.00 6,000.00
Payment of expenses of
realization and distribution
to partners...................... ( 500.00) _______ _______
Balances......................... 12,000.00 34,000.00 6,000.00
Payment of liabilities..... ( 6,000.00) _______ ( 6,000.00)
Balances......................... 6,000.00 34,000.00
Payments to partners
(Schedule 1).............. ( 4,000.00) _______ _______
Balances......................... 2,000.00 34,000.00
February Installment:
distribution of loss.... 6,000.00 ( 7,000.00) _______
Balances......................... 8,000.00 27,000.00
to partners...................... ( 750.00) _______ ______
Balances......................... 7,250.00 27,000.00
(Schedule 2).............. ( 6,000.00) _______ ______
Balances......................... 1,250.00 27,000.00
March Installment:
distribution of loss.... 10,000.00 ( 15,000.00)______
Balances......................... 11,250.00 12,000.00
to partners...................... ( 600.00) _______ ______
Balances......................... 10,650.00 12,000.00
Payments to partners,
P & L ratio................( 10,150.00) ______
______
Balances.........................
500.00 12,000.00
April Installment:
distribution of loss.... 4,000.00 ( 12,000.00)______
Balances......................... 4,500.00
to partners...................... _(400.00) ______
______
Balances......................... 4,100.00
Final Payments to partnersP(41,100.00)_____

_____
Tulio,
Umali,
Partners' Capitals
Loan
Loan Suarez (40%) tulio (35%) Umali (25%)
P5,000.00 P2,500.00 P14,450.00 P12,550.00 P7,500.00
_______
______
5,000.00 2,500.00
( 600.00) ( 525.00)
13,850.00 12,025.00
( 375.00)
7,125.00
_______
5,000.00
_______
5,000.00
( 200.00) ( 175.00)
13,650.00 11,850.00
_______
________
13,650.00 11,850.00
( 125.00)
7,000.00
_______
7,000.00
_______
2,500.00
_______
2,500.00
( 3,812.50) ( 187.50)
1,187.50 2,312.50
_______
13,650.00
_______
11,850.00
_______
7,000.00
_______
1,187.50
_______
2,312.50
__(400.00) ( 350.00)
13,250.00 11,500.00
( 250.00)
6,750.00
_______
1,187.50
_______
2,312.50
( 300.00) ( 262.50)
12,950.00 11,237.50
( 187.50)
6,562.50
( 1,187.50) ( 1,812.50)
500.00
( 1,650.00) ( 1,350.00)
11,300.00
9,887.50
_______
6,562.50
______
______
500.00
( 2,000.00) ( 1,750.00) ( 1,250.00)

9,300.00
8,137.50
5,312.50
______
_______
500.00
______
( 500.00)
( 4,060.00) ( 3,552.50) ( 2,037.50)

5,000.00
4,375.00
3,125.00
240.00) ( 210.00)
9,060.00
7,927.50
( 150.00)
5,162.50
______
______
( 3,200.00) ( 2,800.00) ( 2,000.00)

1,800.00
1,575.00
1,125.00
______
_____
______
_____
___(160.00) ( 140.00) ( 100.00)

1,640.00
1,435.00
1,025.00
P( 1,640.00) P( 1,435.00) P(1,025.00)
103
Problem 5-1, continued:

Schedule 1
Capital balances......................................
Loan balances.........................................
Total interests..........................................
Possible loss (P2,000 + P34,000)...........
Balances..................................................
Additional loss to Tulio and Umali 35:25
Payments to partners...............................
Apply to loan..........................................
Suarez (40%)
P13,650.00
_____ _
13,650.00
( 14,400.00)
( 750.00)
___750.00
__ __
Tulio (35%) Umali (25%)

P11,850.00
P7,000.00
__5,000.00
_2,500.00
16,850.00
9,500.00
( 12,600.00)
( 9,000.00)
4,250.00
500.00
( 437.50)
( 312.50)
P 3,812.50
P 187.50
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
Tulio (35%) Umali (25%)

P11,237.50
P6,562.50
__1,187.50
_2,312.50
12,425.00
8,875.00
( 9,887.50)
( 7,062.50)
P 2,537.50
P1,812.50
_1,187.50
_1,812.50
P 1,350.00
P
102
Chapter 5
Problem 5 2
Miller and Bell Partnership
Statement of Partnership Realization and Liquidation
Cash
25,000
40,000
Balances
Sale of inventory
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
Inventory
120,000
( 60,000)
Accounts
Payable
15,000
Bell
Loan
60,000
Capital
Miller
Bell
80%
20%
65,000
5,000
(16,000)
(4,000)
______
60,000
(10,000)
5,000
______
60,000
______
49,000
______
1,000
______
60,000
( 60,000)
______
5,000
(49,000)
11,000
_(1,000)
48,000
(24,000)
______
1,000
6,000)
______
0
( 5,000)
0
______
11,000
______
24,000
______
(5,000)
______
0
______
0
( 5,000)
6,000
______
24,000
(5,000)
0
______
0
______
0
( 6,000)
______
0
(24,000)
0
______
0
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller
80%
49,000
(48,000)
1,000
Capital and loan balances

Possible loss of 60,000 on remaining inventory
Safe payment
Bell
20%
61,000
(12,000)
49,000
103
Problem 5 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May July, 2011
Assets
Partners Capital
TT
(1/3)
Cash
Other
Liabilities
SS
(1/3)
20,000
75,000
280,000
(105,000)
80,000
______
60,000
(10,000)
70,000
(10,000)
90,000
(10,000)
Balances
Payment to creditors
95,000
(80,000)
175,000
______
80,000
(80,000)
50,000
______
60,000
______
80,000
______
Balances
Payments to PP (Exhibit A)
15,000
(15,000)
175,000
______
______
50,000
______
60,000
______
80,000
(15,000)
0
25,000
175,000
(61,000)
______
50,000
(12,000)
60,000
(12,000)
65,000
(12,000)
25,000
(25,000)
114,000
______
______
38,000
______
48,000
(10,000)
53,000
(15,000)
114,000
38,000
38,000
38,000
(114,000)
(11,000)
(11,000)
(11,000)
27,000
(27,000)
27,000
(27,000)
27,000
(27,000)
SS
TT
60,000
1
60,000
70,000
1
70,000
90,000
1
90,000
______
______
(20,000)
Balances before liquidation

May sale of assets at a loss of P30,000
Balances
June sale of assets at a loss of P36,000
Balances
Payment to partners (Exhibit A)
Balances
July sale of remaining assets at a loss of
P33,000
81,000
Balances
Payment to partners
81,000
(81,000)
PP
(1/3)
Exhibit A Cash distributions to partners during liquidation:
Capital account balances before liquidation

Income sharing ratio
Required reduction to bring
capital account balance for PP
to equal the next highest balance for TT PI.
PP
Balances
Required reduction to bring the balances for
TT and PP to equal the balance for SS PII.
60,000
70,000
70,000
______
(10,000)
(10,000)
Balances
60,000
60,000
60,000
10,000
20,000
10,000
1/3
1/3
Summary of cash distribution program:

To creditors before partners receive anything
To partners:
(1) First distribution to PP
(2) Second distribution to TT and PP equally
(3) Any amount in excess of $120,000
to the three partners in incomesharing ratio
80,000
20,000
20,000
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
Capital balances..................................
Loan balances.....................................
Balances
Y
P60,000
22,5000
P45,000
15,000
Z
P20,000
6,500
X (50%)
Cash Payments
Y (30%) Z (20%)
Total
Total interests......................................
P82,500
Loss absorption balances.................... P165,000

Priority I to Y...................................
Balances.............................................
Priority II to X and Y.......................
165,000
(32,500)
Total.................................................... P132,500
P60,000
P26,500
P200,000
(35,000)
P132,500
165,000
(32,500)
P132,500
P10,500
P10,500
132,500
________
P16,250
9,750
26,000
P132,500
P16,250
P20,250
P36,500
Any amount in excess of P36,500.......
50%
30%
20%
100%
2. January
Available for distribution...............................
Priority I to Y..............................................
Cash
P 7,500
( 7,500)
Payment to partner.........................................
February.......................................................
Priority I to Y (P10,500 P7,500)..............
Priority II to X and Y; 5:3...........................
Cash
P20,000
( 3,000)
( 17,000)P10,625
Cash
P45,000
( 9,000)
( 36,000)
Cash
P15,000
( 15,000)
Payments to partners......................................
P 7,500
P 3,000
6,375
_____
P10,625 P 9,375
April..............................................................
Excess; 5:3:2..................................................
P 7,500
March............................................................
Priority II to X and Y; 5:3
(P26,000 P17,000).................................
Excess; 5:3:2..................................................
P 5,625
18,000
P 3,375
10,800
P7,200
P23,625
P14,175
P7,200
P 7,500
P 4,500
P3,000
P 7,500
P 4,500
P3,000
105
Problem 5 5
AB, CD & EF Partnership
Statement of Partnership Realization and Liquidation
Able
Other Accounts CD
AB
Cash
Loan
Assets Payable Loan
50%
18,000 30,000 307,000 53,000 20,000 118,000
Balances before liquidation

January transactions:
1. Collection of accounts
receivable at loss
of 15,000
51,000
2. Sale of inventory at
loss of 14,000
38,000
3. Liquidation expenses paid ( 2,000)
4. Share of credit memorandum
5. Payments to creditors
( 50,000) _____
55,000 30,000
Sale payments to partners
(Schedule 1
( 45,000) ______
10,000 30,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______
6,000 30,000
Safe payments to partners
(Schedule 2)
-0- _____
6,000 30,000
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000
146,000
Capital
CD
30%
90,000
EF
20%
74,000
( 66,000)
( 7,500) ( 4,500) ( 3,000)
( 52,000)
( 2,800)
( 400)
600
______
68,400
( 7,000) ( 4,200)
( 1,000) ( 600)
( 3,000)
1,500
900
______ (50,000) _____ ______ _____
189,000
-0- 20,000 104,000 81,600
_____ ______ (20,000) ______ ( 6,600) (18,400)

189,000
-0-0- 104,000 75,000 50,000
______ ______ ______ ( 2,000) ( 1,200) ( 800)
189,000
-0-0- 102,000 73,800 49,200
______ ______ ___
0
189,000
-0-0- 102,000
(189,000)
0
73,800
0
49,200
( 21,500) (12,900) ( 8,600)
9. Liquidation expenses paid ( 5,000) ______ _______ ______ ______ ( 2,500) ( 1,500) ( 1,000)
147,000 30,000
-0-0-0- 78,000 59,400 39,600
10. Offset AB's loan
receivable against capital
(30,000)
( 30,000)
(147,000) ______ _______ ______ ______ ( 48,000) (59,400) (39,600)
Balances at end of liquidation
0
0
0
0
0
0
0
0
106
Chapter 5

Schedules of Safe Payments to Partners
AB
50%
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
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)
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
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital
CD
30%
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
107
Problem 5 6
1.
M, N, O and P
Cash Priority Program
January 1, 2011
M
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
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) ________
Balances.............. 240,000
200,000 280,000
280,000
Priority II to O
and P............... _______ _______ ( 40,000) ( 40,000)
Balances.............. 240,000
200,000 240,000
240,000
Priority III to
Cash Payments
M (3/8) N (3/8) O (1/8)
P (1/8)
P20,000
5,000
Total
P20,000
P5,000
10,000
M, O and P.....( 40,000) _______ ( 40,000) ( 40,000)P15,000

Total....................P200,000 P200,000 P200,000 P200,000P15,000
Any amount in excess of P55,000
3/8
5,000
P30,000
3/8
1/8
5,000
25,000
P10,000 P55,000
1/8
8/8
2.
Schedule 1
Available for distribution......................

Priority I to O....................................
Priority II to O and P; 1:1..................
Payments to partners............................
Apply to loan........................................
Apply to capital....................................
Cash
P25,000
( 20,000)
( 5,000)
________
_______
P20,000
2,500
P22,500
( 22,500)
P2,500
2,500
( 2,500)
Schedule 2
Available for distribution......................

Priority II to O and P; 1:1..................
Priority III to M, O and P; 3:1:1........
Excess, 3:3:1:1.....................................
Payments to partners............................
Apply to loan........................................
Apply to capital
Cash
P40,000
( 5,000
( 25,000)
( 10,000)
P15,000
3,750
18,750
( 18,750)
P3,750
P3,750
( 3,750)
P 2,500
5,000
1,250
8,750
( 2,500)
P 6,250
P2,500
5,000
1,250
8,750
( 8,750)
108
Chapter 5
Problem 5 7
Bronze, Gold & Silver
Cash Distribution Plan
June 30, 2011
Loss Absorption Balances
Bronze
Gold
Silver
Profit and loss ratio
Pre-liquidation capital and
loan balances
(Capital and loan
balances/P& L ratio)
P110,000
Decrease highest LAB
to next highest:
Gold: (30,000 x .30) _______
110,000
Decrease LAB's
to next highest:
Gold: (10,000 x .30)
Silver: (10,000 x .20) _______
P110,000
Capital and Loan Accounts

Bronze
Gold
Silver
50%
30%
20%
P55,000
P45,000
P24,000
( 9,000)
36,000
______
24,000
P150,000
P120,000
( 30,000)
120,000
_______
120,000
______
55,000
( 10,000)
________
P110,000
( 10,000)
P110,000
_______
P 55,000
Accounts
Payable
Bronze
50%
Gold
30%
P37,500
P37,500
P 9,000
3,000
22,500
P34,500
( 3,000)
_______ _( 2,000)
P 33,000 P 22,000
Summary of Cash Distribution

(If Offer of P100,000 is Accepted)
Cash available
First
Next
Next
Additional paid in P&L ratio
P106,000
( 17,000)
( 9,000)
( 5,000)
( 75,000)
P
-0-
Silver
20%
P 17,000
_______
P 17,000
P 2,000
15,000
P17,000
109
Problem 5 8
Part A
Balances
South
East
North
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
Cash Payments
North South
East
West
P109,000 P 60,000
20%
40%
P545,000 P150,000
________
545,000
150,000
(145,000)
400,000
150,000
(250,000)
150,000
______
150,000
West
33,500
14,500 29,000
75,000 25,000 50,000 _____

75,000 73,000 79,000
Further cash distribution P/L ratio

Part B
(1) Cash
65,600
North capital (30% of P16,400 loss)
4,920
South capital (10%)
1,640
East capital (20%)
3,280
West capital (40%)
6,560
Accounts receivable
To records collection of receivables with losses allocated to partners.
(2)
(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)
Liabilities
Cash
To record payment of liabilities.
74,000
74,000
110
(5)
(6)
Chapter 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
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)
North capital (30% of expenses)

South capital (10%)
East capital (20%)
West capital (40%)
Cash
To record liquidation expenses paid.
11,000
North capital (30/60 of deficit)

2,080
South capital (10/60)
693
East capital (10/60)
1,387
West capital
To eliminate capital deficiency of West as computed below:
Capital balances, beginning

Loss on accounts receivable
Loss on property and equipment
Cash distribution
Liquidation expenses
Subtotal
Elimination of West deficiency
Capital balances
(9)
3,300
1,100
2,200
4,400
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
North capital
South capital
East capital
Cash
To record final cash distribution.
P 1,666
P 0
2,500
834
1,666
5,000
111
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
Capital and loan balances, August 1, 2011

Write-off of P24,000 in goodwill
Write-off of P12,000 of receivables
Gain of P6,000 on sale of P32,000 of
inventory (one-half of P64,000 book
value)
Capital and loan balances, August 31, 2011
Possible loss of P16,000 for remaining
receivables and P32,000 for
remaining inventory
Possible liquidation costs of P4,000
Balances (* = deficit)
Distribute Bens potential deficit
To Dan: P7,600 x 40/70
To Red: P7,600 x 30/70
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)
Journal entry to record Jennys contribution:

Cash
Equipment
Jenny, capital
40,000
60,000
100,000
Journal entry to record Kennys contribution:

Cash
Inventory
Equipment
Notes payable
Kenny, capital
60,000
10,000
180,000
50,000
200,000
112
Chapter 5

(2)
Capital balances of Jenny and Kenny before admission of Lenny:

Beginning capital balance
Interest on beginning capital balance
Annual salary
Remainder
Ending capital balance
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)
Schedule of Safe Payments

Capital balances
Partners loan
Gain on realization
Possible loss
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.

Chapter 5

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Chapter 5

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Partnership Liquidation by Installment

Capital balances before liquidation

Capital balances before liquidation

Partnership Liquidation by Installment

Further cash distribution, Profit and Loss ratio

Further Cash distribution, Profit and Loss ratio

Further cash distribution - Profit and Loss ratio

Balances, June 1, 2011

Sale of assets, June 15, 2011

Contribution of personal assets

Distribution to partners, sch. 1

Capital and loan balances

Partnership Liquidation by Installment

5-22, No. 3, continued:

Final Payments to partnersP(41,100.00)_____

( 2,000.00) ( 1,750.00) ( 1,250.00)

( 4,060.00) ( 3,552.50) ( 2,037.50)

( 3,200.00) ( 2,800.00) ( 2,000.00)

___(160.00) ( 140.00) ( 100.00)

Partnership Liquidation by Installment

Problem 5-1, continued:

Tulio (35%) Umali (25%)

Tulio (35%) Umali (25%)

Capital and loan balances

Partnership Liquidation by Installment

Balances before liquidation

Exhibit A Cash distributions to partners during liquidation:

Capital account balances before liquidation

Summary of cash distribution program:

Loss absorption balances.................... P165,000

Any amount in excess of P36,500.......

Partnership Liquidation by Installment

Balances before liquidation

( 7,500) ( 4,500) ( 3,000)

_____ ______ (20,000) ______ ( 6,600) (18,400)

( 21,500) (12,900) ( 8,600)

Problem 5-5, continued:

Partnership Liquidation by Installment

M, O and P.....( 40,000) _______ ( 40,000) ( 40,000)P15,000

Available for distribution......................

Available for distribution......................

Capital and Loan Accounts

Summary of Cash Distribution

Partnership Liquidation by Installment

75,000 25,000 50,000 _____

Further cash distribution P/L ratio

North capital (30% of expenses)

North capital (30/60 of deficit)

Capital balances, beginning

Partnership Liquidation by Installment

Capital and loan balances, August 1, 2011

Journal entry to record Jennys contribution:

Journal entry to record Kennys contribution:

Problem 5-10, continued:

Capital balances of Jenny and Kenny before admission of Lenny:

Schedule of Safe Payments

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_ (20,000) ____ ( 6,600) (18,400)