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
24,000
96,000
120,000
(12,000)

NonCash
Assets
84,000
(84,000)

Liabilities
12,000
____
_
12,000
(12,000)

Q, Loan
2,400

Q,
Capital
30%)
9,600

R,
Capital
(50%)
48,000

S,
Capital
(20%)
36,000

______
2,400

3,600
13,200

6,000
54,000

2,400
38,400

108,000

2,400

13,200

54,000

(2,400)

(2,400)

______

______

38,400
______
_

105,600

13,200

54,000

38,400

(105,600)

(13,200)

(54,000)

(38,400)

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

Balances before liquidation

Realization and distribution
of loss
Balances after realization
Payment of liabilities
Balances after payment of
liabilities
Offset deficit versus loans
Balances after offsetting
Payment to partners loan
Balances after payment of
partners loans
Payment to partners capital

Q, Loan
2,400

Q, capital
(30%)
9,600

R,
Capital
(50%)
48,000

S,
Capital
(20%)
36,000

______
2,400

(10,800)
(1,200)

(18,000)
30,000

(7,200)
28,800

60,000

2,400

(1,200)

30,000

28,800

_______
60,000
(1,200)

(1,200)
1,200
(1,200)

1,200

_______
30,000
_______

______
_
28,800
______

58,800

30,000

28,800

(58,800)

(30,000)

(28,800)

Cash
24,000
48,000
72,000
(12,000)

NonCash
Assets
84,000
(84,000)

Liabilities
12,000
____
_
12,000
(12,000)

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

Balances before liquidation

Realization and distribution
of loss
Balances after realization

Cash
24,000
36,000
60,000

NonCash
Assets
84,000
(84,000)

Liabilities
12,000
_____
___
12,000

Q, Loan
2,400

Q, capital
(30%)
9,600

R,
Capital
(50%)
48,000

S,
Capital
(20%)
36,000

________
2,400

(14,400)
( 4,800)

(24,000)
24,000

(9,600)
26,400

Payment of liabilities
Balances after payment of
liabilities

(12,000)

(12,000)

______
_

________

_______

_______

48,000

2,400

( 4,800)

24,000

Offset loan versus deficit

Balances after offsetting
partners loan

_______

(2,400)

2,400

_______

48,000

(2,400)

24,000

Additional investment by Q
Balances after additional
Investment
Payment to partners capital

__2,400

2,400

_______

26,400
______
_

50,400

24,000

26,400

(50,400)

(24,000)

(26,400)

26,400
______
_

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
Balances after realization
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

NonCash
Assets
84,000

R,
Capital
(50%)
48,000

S,
Capital
(20%)
36,000

Liabilities
12,000

Q, Loan
2,400

Q, capital
(30%)
9,600

_______
12,000

________
2,400

(12,600)
( 3,000)

(21,000)
27,000

(12,000)

_______

_______

_______

(8,400)
27,600
______
_

2,400
(2,400)

(3,000)
2,400
( 600)

27,000
______
27,000

27,600
______
27,600

( 429)

( 171)

54,000

26,571

27,429

(54,000)

(26,571)

(27,429)

Cash
24,000
42,000
66,000

(84,000)

(12,000)
54,000
_______
54,000
_______

600

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

Liabilities
12,000

Q, Loan
2,400

Q, capital
(30%)
9,600

_______
12,000

_______
2,400

(18,000)
( 8,400)

R,
Capital
(50%)
48,000
(30,000
)
18,000

(12,000)

_______

_______

_______

36,000

2,400

( 8,400)

18,000

Offset loan versus deficit

Balances after offsetting

______
36,000

(2,400)

2,400
(6,000),

______
18,000

Additional investment by Q
Balances after additional

_3,600
39,600

_ 3,600
(2,400)

______
18,000

Balances before liquidation

Realization and distribution
of gain
Balances after realization
Payment of liabilities
Balances after payment of
liabilities

Cash
24,000
24,000
48,000
(12,000)

NonCash
Assets
84,000
(84,000)

S,
Capital
(20%)
36,000
(12,000)
24,000
______
_
24,000
______
_
24,000
______
_
24,000

investment
Additional loss due to
insolvency of Q
Balances after additional
Loss
Payment to partners capital

______

2,400

(1,714)

( 686)

39,600

16,286

23,314

(39,600)

(16,286)

(23,314)

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

Cash
24,000

NonCash
Assets
84,000

(14,400)

Q, capital
(30%)
9,600

R,
Capital
(50%)
48,000

S,
Capital
(20%)
36,000

Q, Loan
2,400

______

Liabilities
12,000
_______
_

________

(4,320)

(7,200)

(2,880)

9,600

84,000

12,000

2,400

5,280

40,800

33,120

_______
9,600

(72,000)
12,000

_______
12,000

________
2,400

(21,600)
(16,320)

(36,000)
4,800

(14,400)
18,720

1,200
10,800

(12,000)

_______
12,000

________
2,400

( 3,240)
( 19,560)

(10,800)

________

_______

( 5,400)
( 600)
_______
_

( 2,160)
16,560
______
_

2,400

(19,560)

(2,400)

2,400
(17,160)

Payment of liabilities
Balances after payment of
Liabilities

(10,800)

Offset loan versus deficit

Balances after offsetting
Additional investment by Q
and R
Balances after additional
Investment

______
-0-

_______
1,200

17,760

_______

17,760

1,200

Payment of liabilities
Balances after payment of
Liabilities
Payment to partners Capital

(1,200)

(1,200)

-0-

1,200

17,160

600)

16,560

_______
( 600)

______
_
16,560

600

______
16,560
______
_

16,560

16,560

(16,560)

(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
Received noncash assets
Balances after receipt
of noncash assets

______
24,000

NonCash
Assets
84,000
1,200
(600)
84,600

_6,960
30,960
______

(8,400)
76,200
(10,200)

_______
12,000
_______

______
2,400
______

_(432)
9,348
_____

(720)
47,580
(7,200)

(288)
35,832
(3,000)

30,960

66,000

12,000

2,400

9,348

40,380

32,832

Cash
24,000

Liabilities
12,000

Q, Loan
2,400

_______
12,000

______
2,400

Q, capital
(30%)
9,600
360
_(180)
9,780

R,
Capital
(50%)
48,000
600
(300)
48,300

S,
Capital
(20%)
36,000
240
(120)
36,120

Realization and distribution

of loss
Balances after realization

32,400
63,360

(66,000)

_______
12,000

______
2,400

( 10,080
)
( 732)

( 16,800)
23,580

(12,000)

_______

_______

_______

( 8,064)
26,112
______
_

732)

23,580

26,112

732

______
23,580

______
26,112

______

______
_

Payment of liabilities
Balances after payment of
liabilities

(12,000)
51,360

2,400

Offset loan versus deficit

Balances after offsetting

_______
51,360

( 732)
1,668

(1,668)

(1,668)

Payment to partners loan

Balances after payment
of loans
Payment to partnerscapitals

49,692

23,580

(49,692)

(23,580)

26,112
(26,112
)

Problem II
DISCOUNT PARTNERSHIP
Schedule of Partnership Liquidation
January 14, 20x4

Explanation
Balances before realization

Cash Other Assets

P25,000
P120,000

Sales of noncash assets

Balances

60,000
85,000

Payment of liabilities
Balances
Allocation of Hardin's debit balance
Balances
Distribution of cash to partners
Balances

(120,000)
0

Liabilities
P(40,000)

Capital Balances
Dawson
Feeney
P(31,000) P(65,000)

Hardin
P(9,000)

______
(40,000)

18,000
(13,000)

24,000
(41,000)

18,000
9,000

(40,000) __________
45,000
0

40,000
0

________
(13,000)

________
(41,000)

________
9,000

______ __________
45,000
0

______
0

3,857
(9,143)

(45,000) __________
0
P
0

______
P
0

9,143
P
0

5,143(9,000)
(35,857)
35,857
P
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 contributed by Gail to
extent of positive net worth
Distribution of deficit of
insolvent partner:
20/60(P1,000)
40/60(P1,000)

Capital Balances
Dan
40%

Cash

Noncash
Assets

Liabilities

Carlos
20%

Gail
40%

25,000

475,000

(270,000)

(120,000)

(50,000)

(60,000)

260,000
285,000

(475,000)
-0-

(270,000)

43,000
(77,000)

86,000
36,000

86,000
26,000

25,000
310,000

-0-

(270,000)

(77,000)

36,000

(25,000)
1,000
(1,000)

333
667

310,000
Contribution by Dan to remedy
deficit
Payment to creditors
Payment to partner

-0-

(270,000)

(76,667)

36,667

36,667

-0-

(36,667)

346,667

-0-

(270,000)

(76,667)

-0-

-0-

(270,000)
76,667

-0-

270,000
-0-

(76,667)

-0-

-0-

-0-

-0-

(76,667)

Post-liquidation balances

-0-

76,667
-0-

0-

-0-

2.
CDG Partnership
Net Worth of Partners
December 10, 20X6
Carlos
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

Dan

Gail

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

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

Noncash
Assets

Liabilities

Beginning balances
P 25,000 P200,000 P165,000
Liquidation expense
(20,000)
Sale of non-cash assets
160,000 (200,000)
Payment of liabilities
(165,000)
(165,000)
Contribution by Flowers
10,000
Allocation
of
Flower's
deficit
Distribution
to partners
(10,000)
Ending balances
0
0
0

Capital and Loan Balances

Merz
Dechter
Flowers
P 40,000
(8,000)
(16,000)

P30,000
(8,000)
(16,000)

P(10,000
(4,000))
(8,000)

(6,000)
(10,000)
0

(6,000)
0
0

10,000
12,000
0
0

Problem V
Beginning:
Payment of liabilities
Cramer/Bower pay in
from personal worth
to cover
deficit balances:
Payment of liabilities
Allocation of
deficit balances:
Able paid:

Cash
P20,000
(20,000)
P
0

Liabilities
P(30,000)
20,000
P(10,000)

Able
P(10,000)

Bower
P5,000

Cramer
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

______
P 2,000
(2,000)
P
0

________
P
0

8,000
P (2,000)
2,000
P
0

(3,000)
P
0

(5,000)
0

Problem VI
Answer:
Cash
Arthur, Capital
Baker, Capital
Casey, Capital
Other Assets
To record realization of assets at a loss of $30,000, divided
among Arthur, Baker, and Casey in [Link] ratio, respectively.

70,000
6,000
15,000
9,000
100,000

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 [Link] ratio
Cash payments

65,000

Arthur
P70,000

20,000

35,000
Baker
P80,000
30,000

Casey
P55,000

(6,000)
P44,000

(15,000)
P95,000

(9,000)
P46,000

(30,000)
P14,000

(75,000)
P20,000

(45,000)
P 1,000

(20,000)

Multiple Choice Problems

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
Loss to eliminate
Neal

14.

c
Profit ratio
Prior capital
Loss on sale
of inventory

15.

Prior capital
Loss on sale
of inventory
Allocate Charles'
capital deficit:
JJ = .40/.50
TT = .10/.50

25%
Lang
30,000

P
(

25%
Maas
130,000

30,000 ) (
0
P

30,000 )
100,000

(
P

(
P

45,000 )
55,000

(
P

JJ

CC

TT

Total

40%

50%

10%

100%

(160,000)

(45,000)

(55,000)

(260,000)

24,000
(136,000)

30,000
(15,000)

6,000
(49,000)

60,000
(200,000)

50%
Neal
150,000

Total
310,000

60,000 )
90,000

(
P

120,000 )
190,000

90,000 )
0

(
P

135,000 )
55,000

(160,000)

(45,000)

(55,000)

(260,000)

72,000
(88,000)

90,000
45,000

18,000
(37,000)

180,000
(80,000)

9,000
(28,000)

(80,000)

(45,000)
36,000
(52,000)

16. c (P234,000 P434,000) x 20% = P40,000

17. b
T
Capital before realization
40,000

-0-

D
10,000

H
15,000

Loss on sale (85,000 33,000)

Additional loss (5:2)

(26,000)
14,000
(4,000)
10,000

(15,600)
( 5,600)
5,600

(10,400)
4,600
( 1,600)
3,000

T
40,000
(31,950)
8,050
(6,550)
1,500
( 400)
1,100

D
10,000
(19,170)
( 9,170)
9,170

H
15,000
(12,780)
2,220
(2,620)
( 400)
400

18. a
Capital before realization
Loss on sale (85,000 21,100)
Additional loss (5:2)
Additional loss
19. b
Capital before realization
Liquidation expenses
Loss on sale (300 - 180)
Additional loss (2:4)

K
60,000
(2,000)
(24,000)
34,000
( 4,000)
30,000

L
40,000
( 4,000)
(48,000)
(12,000)
12,000

M
80,000
( 4,000)
( 48,000)
28,000
( 8,000)
20,000

H
80,000
(61,000)
19,000
( 4,000)
15,000

I
110,000
(122,000)
(12,000)
12,000

J
Total
140,000
330,000
(122,000)
(305,000)
18,000
25,000
( 8,000)
10,000

20. d
Capital before realization
Loss on sale ([Link])
Additional loss (2:4)

21. d [(P240,000 P96,000) /30% = P480,000]

22. a
Capital before realization C
Liquidation expenses (12,000 x 50%)
Share on loss on realization
Capital balance after realization
Total loss on realization: P132,000/50%
Non-cash assets
Proceeds

130,000
(6,000)
(132,000)
( 8,000)
(264,000)
434,000
170,000

23. b
Ding
Laurel
Ezzard
Tillman
Total
60,000
67,000
17,000
96,000
240,000
(52,800)
( 26,400)
(26,400)
(26,400)
(132,000)
7,200
40,600
( 9,400)
69,600
108,000
Possible insolvency loss ([Link])
( 4,700) ( 2,350)
( 9,400)
( 2,350)
-0Safe payments
2,500
38,250
0
67,250
108,000

Capital before realization

Loss on sale ([Link])

24. e refer to No. 23

25. b

Capital before realization

Loss on sale ([Link]); [200 150]

Gonda
60,000
(15,000)
45,000

Herron
70,000
( 22,500)
47,500

Morse
40,000
(12,500)
27,500

Total
170,000
(50,000)
120,000

S
40,000
________
40,000
(32,000)
8,000
(1,750)
6,250
_______
6,250

D
15,000
_______
15,000
( 19,200)
( 4,200)
( 1,050)
( 5,250)
5,250

F
5,000
5,000
10,000
(12,800)
( 2,800)
2,800

Total
60,000
5,000
65,000
(64,000)
1,000
0
1,000
5,250
6,250

26. c
Capital
Loan
Total interests
Loss on sale ([Link]) - [90,000 26,000]
Possible insolvency (5:3)
Additional investment

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
100,000
200,000
350,000
Loss on sale ([Link]); [350 150]
(60,000)
( 40,000)
(100,000)
(200,000)
(10,000)
60,000
100,000
150,000
Possible insolvency (2:5)
10,000
(2,857)
(7,143)
0
Safe payments
57,143
92,857
150,000
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

5,000
13,000
18,000

30. b
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
X
Capital before realization
Loss on sale (35%:35%:30%)

90,000
(42,000)
48,000

*balancing figure total reduction in capital

Quiz - IV
1. Zero/nil

Y
60,000
(42,000)
18,000)

Z
30,000
(36,000)
( 6,000)

Total
180,000
*(120,000)
60,000

Capital before realization

Loss on sale ([Link]))
Additional loss ([Link])
Additional loss (2:1)

B
P
L
S
25,000
110,000
100,000
65,000
(45,000)
( 30,000)
(15,000)
(60,000)
(20,000)
80,000
85,000
5,000
(20,000)
( 5,714)
( 2,857)
(11,429)
74,286
82,143
( 6,429)
( 4,286)
( 2,143)
6,429
70,000
80,000

2. Zero/nil refer to No. 1

3. Page, P70,000 and Larry, P80,000 refer to No. 1
4. P39,525 = P42,000 - (P15,000 - P9,500)(.45)
5. P56,750 = P56,000 + [P10,000 - (P25,000 - P18,000)](.25)
6. P(1,000) = P20,000 - [P30,000 + (P50,000 - P90,000)](.30)
7. P(1,500) = P30,000 - [P30,000 + (P50,000 - P90,000)](.45)
8. P(2,500) = P15,000 - [P30,000 + (P50,000 - P90,000)](.25)
9. P340,000 = (P147,000 + P28,000)/.35
10. P1,040,000 = (P260,000 / .25)
11. Abrams and Creighton

A
Capital before realization
Liquidation expenses
Loss on sale (134 - 434)

80,000
(3,600)
(90,000)
(13,600)

B
90,000
(2,400)
(60,000)
27,600

12. Tom, P30,000; Dick, P4,000 and harry, P11,000

T
D
Capital before realization
40,000
10,000
Loss on sale (85,000 65,000)
(10,000)
(6,000)
30,000
4,000

C
130,000
(6,000)
(300,000)
(176,000)
H
15,000
(4,000)
11,000

13. P34,000
K

Capital before realization

Liquidation expenses
Loss on sale (300 - 180)

L
M
40,000
80,000
( 4,000)
( 4,000)
(48,000)
( 48,000)
(12,000)
28,000
_____
12,000
______
34,000
28,000

60,000
(2,000)
(24,000)
34,000

Additional investment
14. P25,000
Cash, beginning
Payment of liquidation expenses
Payment of liabilities
Payment to partners

P90,000
( 5,000)
( 60,000)
P25,000

15. P15,000
Capital before realization
Loss on sale ([Link])
Additional loss ([Link])

B
P
L
S
25,000
110,000
100,000
65,000
(60,000)
( 30,000)
(15,000)
(45,000)
(35,000)
80,000
85,000
20,000
(35,000)
(11,667)
( 5,833)
(17,500)
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

Less: Bonds share of P140,000

(P140,000 50%)

_____

19.

..............P300,000

loss in liquidation
.........................

(70,000)

__________________P230,000
Less: Bonds share of Zells capital deficiency of
P8,000 (5/8 of P8,000)................................................................

Alexa: P25,000;

5,000)

P225,000

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) (

(
(

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 )

140,000
(

45%
Kane
90,000
4,500
2,700 )

23,200

60,000)
80,000

91,800

18,000 )
5,200

27,000 )
64,800

25,000
(

15,000 )
10,000

(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

NonCash
Cash
Assets
Jan 1 Balance
3,000
33,000
Sale of assets
17,000
( 15,000
Subtotal
20,000
18,000

First
Rank
Debt
9,000
)
9,000

30%
Oak
Equity
2,000
600
2,600

20%
Nebe
Equity
4,000
400
4,400

50%
Pang
Equity
21,000
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

Cash
50,000

Ide
Capital
(
60,000

Hanly
Capital
4,000

Jen
Capital
106,000

Total
50,000

Ides personal
contribution

40,000
90,000

40,000
( 20,000
20,000
0

Write-off Ide
90,000
Hanlys personal
contribution

)
(
(

2,000
92,000

92,000
(

)(
)

106,000
12,500
93,500

40,000
90,000
)
90,000

2,000

Write-off Hanly
Distribute cash

4,000
7,500
3,500

92,000
0

2,000

1,500
1,500
0

)
(

93,500
1,500
92,000
92,000
0

92,000
)
92,000
) (

92,000 )
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

True or False
8. True
9. False
10. False
11. False
12. 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
False
False

33.
34.
35.

True
True
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.
23.
25.

This is called an installment liquidation

This document is called a Statement of Realization and Liquidation.
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. A
41. b
37. A
42. d
38. C
43. b
39. D
44. d
40. C
45. b

46.
47.
48.
49.
50.

c
a
c
d
b

51.
52.

b
a