Chapter 4 Partnership Liquidation PDF

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Chapter 4 Partnership LiquidationPROBLEM 1: TRUE OR FALSE FALSE FALSE TRUE 4. FALSE - ₱3 - ₱1 liabilities = ₱ 2 5. TRUE 6. TRUE 7. TRUE 8. TRUE 9. TRUE 10. TRUE 11. FALSE - ₱ 2 net proceeds (squeeze) - ₱5 carrying amount = (₱3 loss) 12. TRUE 13. FALSE - ₱6 - ₱1 liabilities = ₱5 available to partners...

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Chapter 4 Partnership Liquidation PROBLEM 1: TRUE OR FALSE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

FALSE FALSE TRUE FALSE - ₱3 - ₱1 liabilities = ₱2 TRUE TRUE TRUE TRUE TRUE TRUE FALSE - ₱2 net proceeds (squeeze) - ₱5 carrying amount = (₱3 loss) TRUE FALSE - ₱6 - ₱1 liabilities = ₱5 available to partners x 50% = ₱2.5 TRUE FALSE - ₱3

PROBLEM 2: FOR CLASSROOM DISCUSSION 1.

D

2.

D

3.

Solutions:

Case #1: Lump-sum liquidation Net cash proceeds Carrying amount of non-cash assets Total loss on sale

50,000 (80,000) (30,000)

Capital balances before liquidation Loans payable to partners Total Allocation of loss (-30K x 80%); (-30K x 20%) Amounts received by the partners

1

A (80%) 20,000 10,000 30,000

B (20%) 18,000 17,000 35,000

Totals 38,000 27,000 65,000

(24,000)

(6,000)

(30,000)

6,000

29,000

35,000

Checking: Available cash (from sale) Outside creditors Available cash for distribution to partners

50,000 (15,000) 35,000

Case #2: Installment liquidation 45,000 (80,000) (35,000)

Net cash proceeds - first sale Carrying amount of all non-cash assets Loss

A (80%) Capital balances before liquidation Loans payable to partners Total Allocation of loss (-35K x 80%); (-35K x 20%) Amounts received by the partners - 1st sale

B (20%)

Totals

20,000 10,000 30,000

18,000 17,000 35,000

38,000 27,000 65,000

(28,000)

(7,000)

(35,000)

2,000

28,000

30,000

Checking: Available cash (from 1st sale) Outside creditors Available cash for distribution to partners

45,000 (15,000) 30,000

Case #3: Installment liquidation Net cash proceeds - first sale Carrying amount of all non-cash assets

15,000 (80,000)

Loss

(65,000)

Capital balances before liquidation Loans payable to partners Total Allocation of loss (-65K x 80%); (-65K x 20%) Amounts received by the partners - 1st sale

2

A (80%)

B (20%)

Totals

30,000 20,000 50,000

(28,000) 10,000 (18,000)

2,000 30,000 32,000

(52,000)

(13,000)

(65,000)

(2,000)

(31,000)

(33,000)

Answer: The partners receive nothing from the 1st sale. Checking: Available cash (from sale) Outside creditors Available cash for distribution to partners

4.

15,000 (15,000) -

Solutions:

Case #1: Lump-sum liquidation Collection from accounts receivable (60K x 70%) Sale of inventory Sale of equipment Liquidation costs Net proceeds Carrying amt. of all non-cash assets, except Receivable from A (60K + 120K +290K) Loss

Capital balances before liquidation Payable to (Receivable from) partners Total Allocation of loss (-110K x 60%); (-110K x 40%) Amounts received by the partners

42,000 20,000 310,000 (12,000) 360,000 (470,000) (110,000)

A (60%) 250,000 (10,000) 240,000

B (40%) 200,000 20,000 220,000

Totals 450,000 10,000 460,000

(66,000) 174,000

(44,000) 176,000

(110,000) 350,000

Checking: Available cash (20K on hand + 360K from sale) Outside creditors Available cash for distribution to partners

380,000 (30,000) 350,000

Case #2: Lump-sum liquidation Collection from accounts receivable (60K x 1/2) Sale of inventory Liquidation expenses Estimated liquidation costs Net proceeds Carrying amt. of all non-cash assets, except Receivable from A

30,000 20,000 (12,000) (5,000) 33,000 (470,000)

Loss

(437,000)

3

Capital balances before liquidation Payable to (Receivable from) partners Total Allocation of loss (-437K x 60%); (-437K x 40%) Total Allocation of deficiency to other partner Amount received by partners

A (60%) 250,000 (10,000) 240,000

B (40%) 200,000 20,000 220,000

Totals 450,000 10,000 460,000

(262,200)

(174,800)

(437,000)

(22,200) 22,200 -

45,200 (22,200) 23,000

23,000 23,000

Checking: Available cash (20K on hand + 33K from sale, net) Outside creditors Available cash for distribution to partners

53,000 (30,000) 23,000

PROBLEM 3: EXERCISES 1. Solution: Net cash proceeds Carrying amount of non-cash assets

32,000 (40,000)

Total loss on sale

(8,000) A (50%)

B (50%)

Totals

Capital balances before liquidation Allocation of loss (-8K x 50%); (-8K x 50%)

20,000 (4,000)

15,000 (4,000)

35,000 (8,000)

Amounts received by the partners

16,000

11,000

27,000

2.

Solution:

Net cash proceeds Carrying amount of non-cash assets Total loss on sale

32,000 (120,000) (88,000)

Capital balances before liquidation

A (50%) 60,000

B (50%) 45,000

Totals 105,000

Allocation of loss (-88K x 50%); (-88K x 50%)

(44,000)

(44,000)

(88,000)

4

Amounts received by the partners

16,000

1,000

3. Solution: Net proceeds Carrying amt. of other assets

300,000 (450,000)

Loss

(150,000)

A (40%) Capital balances before liquidation Allocation of loss Amounts received by the partners

4.

17,000

B (30%)

C (30%)

Totals

60,000

270,000

45,000

375,000

(60,000)

(45,000)

(45,000)

(150,000)

-

225,000

-

225,000

Solutions:

Case #1: Lump-sum liquidation Net cash proceeds (50,000 – 5,000) Carrying amount of non-cash assets

45,000 (80,000)

Total loss on sale

(35,000)

Capital balances before liquidation Loans payable to partners Total Allocation of loss (-35K x 80%); (-35K x 20%) Amounts received by the partners

A (80%) 36,000 10,000 46,000 (28,000)

B (20%) 22,000 17,000 39,000 (7,000)

Totals 58,000 27,000 85,000 (35,000)

18,000

32,000

50,000

Checking: Available cash (on hand + from sale, net) 20K + 45K Outside creditors Available cash for distribution to partners

65,000 (15,000) 50,000

Case #2: Installment liquidation Net cash proceeds - first sale (45K – 5K) Carrying amount of all non-cash assets

40,000 (80,000)

Loss

(40,000)

5

Capital balances before liquidation Loans payable to partners Total Allocation of loss (-40K x 80%); (-40K x 20%) Amounts received by the partners - 1st sale

A (80%) 36,000 10,000 46,000

B (20%) 22,000 17,000 39,000

Totals 58,000 27,000 85,000

(32,000)

(8,000)

(40,000)

14,000

31,000

45,000

Checking: Available cash (on hand + from 1st sale, net) 20K + 40K Outside creditors Available cash for distribution to partners

5.

60,000 (15,000) 45,000

Solutions:

Case #1: Lump-sum liquidation Collection from accounts receivable (60% x 180K) Sale of inventory Sale of equipment Liquidation costs Net proceeds

108,000 50,000 310,000 (10,000) 458,000

Carrying amt. of all non-cash assets, except Receivable from B (180K + 160K +310K)

(650,000)

Loss

(192,000)

Capital balances before liquidation Payable to (Receivable from) partners Total Allocation of loss (-192K x 60%); (-192K x 40%) Amount received by partners

A (60%) 240,000 20,000 260,000

B (40%) 190,000 (10,000) 180,000

Totals 430,000 10,000 440,000

(115,200)

(76,800)

(192,000)

144,800

103,200

248,000

Case #2: Lump-sum liquidation Collection from accounts receivable (50% x 180K) Sale of inventory Sale of equipment Liquidation expenses

6

90,000 20,000 120,000 (10,000)

Estimated liquidation costs

(5,000)

Net proceeds

215,000

Carrying amt. of all non-cash assets, except Receivable from B (180K + 160K +310K)

(650,000) (435,000)

Loss

Capital balances before liquidation Payable to (Receivable from) partners Total Allocation of loss (-192K x 60%); (-192K x 40%) Total Allocation of deficiency to other partner Amount received by partners

A (60%) 240,000 20,000 260,000

B (40%) 190,000 (10,000) 180,000

Totals 430,000 10,000 440,000

(261,000) (1,000) 1,000 -

(174,000) 6,000 (1,000) 5,000

(435,000) 5,000 5,000

PROBLEM 4: CLASSROOM ACTIVITY Solutions: Case #1: Lump-sum liquidation The total loss on the sale is computed as follows: Collection on accounts receivable Sale of inventory Sale of equipment Liquidation expenses Net cash proceeds Carrying amount of non-cash assets (120K + 60K + 180K +600K) Total loss on sale

100,000 140,000 500,000 (4,000) 736,000 (960,000) (224,000)

The final settlement to partners is computed as follows:

Capital balances before liquidation Payable to B Total Allocation of loss [224K x (20%; 30% & 50%)]

A (20%)

B (30%)

C (50%)

Totals

200,000

300,000

400,000

900,000

200,000

40,000 340,000

400,000

40,000 940,000

(44,800)

(67,200)

(112,000)

(224,000)

7

Amounts received by the partners

155,200

272,800

288,000

Case #2: The total loss on the sale is computed as follows: Collection on account receivable Sale of inventory Sale of equipment Actual liquidation expenses Estimated liquidation expenses Cash retained for future expenses Net cash proceeds – (net of all costs) Carrying amount of all non-cash assets (120K + 60K + 180K +600K) Total loss on sale

716,000

60,000 80,000 240,000 (4,000) (2,000) (18,000) 356,000 (960,000) (604,000)

The partial settlement to partners is computed as follows: Capital balances before liquidation Payable to B Total Allocation of loss [604K x (20%; 30% & 50%)] Amounts received by the partners

A

B

200,000

300,000

400,000

900,000

200,000

40,000 340,000

400,000

40,000 940,000

(120,800)

(181,200)

(302,000)

(604,000)

79,200

158,800

98,000

316,000

PROBLEM 5: MULTIPLE CHOICE - THEORY 1. B 2.

A

3.

C

4.

A

5.

A

8

C

Totals

PROBLEM 6: MULTIPLE CHOICE – COMPUTATIONAL 1. D (348K + 232K) = 580K ÷ 80% = 725K capital after admission x 20% = 145,000 2. B Solution: The total loss on the sale is computed as follows: Sale of other assets Carrying amount of other assets Total loss on sale

500,000 (625,000) (125,000)

The partial settlement to partners is computed as follows: Alpha 348,000

Capital balances before liquidation Receivable from Beda Total Allocation of loss [125K x (60% & 40%)]

Amounts received by the partners

348,000

Beda 232,000 (20,000) 212,000

Totals 580,000 (20,000) 560,000

(75,000) 273,000

(50,000) 162,000

(125,000) 435,000

3. A Solution: The total loss on the sale is computed as follows: Sale of other assets Carrying amount of other assets Total loss on sale The partial settlement to partners is computed as follows: Capital balances before liquidation Receivable from Beda Total Allocation of loss [65K x (60% & 40%)]

Amounts received by the partners

Smith 195,000 (20,000) 175,000

Jones 155,000 155,000

Totals 350,000 (20,000) 330,000

(39,000) 136,000

(26,000) 129,000

(65,000) 265,000

4. A Solution: The total loss on the sale is computed as follows: Sale of other assets Carrying amount of all other assets Total loss on sale

9

385,000 (450,000) (65,000)

120,000 (250,000) (130,000)

The partial settlement to partners is computed as follows: Capital balances Allocation of loss [130K x (50%; 30% & 20%)]

Amounts received

Cobb 80,000

Davis 90,000

Eddy 70,000

Totals 240,000

(65,000) 15,000

(39,000) 51,000

(26,000) 44,000

(130,000) 110,000

5. B Solution: The loss is determined as follows: Given information Loss (squeeze) Adjusted balances

Cap. bal. - unadjusted Allocation of loss: -600K x 30%; x 20%; x 50% Total Allocation of deficiency (-90K x 3/5); (-90K x 2/5) Total Additional contributions Total

A

=

0

=

0

=

L

+

30,000

E

+

30,000

570,000 (600,000) (30,000)

+

A (30%) 210,000 (180,000)

B (20%) 150,000 (120,000)

C (50%) 210,000 (300,000)

Totals 570,000 (600,000)

30,000

30,000

(90,000)

(30,000)

(54,000) (24,000) 24,000 -

(36,000) (6,000) 6,000 -

90,000 -

(30,000) 30,000 -

Allocation of loss Allocation of deficiency Decrease in A's capital balance

(180,000) (54,000) (234,000)

6. A (Refer to solution above) 7. B (equal to carrying amount of partner’s claim) 8.

A

Solution:

A Given information Loss (squeeze) Adjusted balances

=

L

+

E

500,000

not equal to

200,000

+

500,000

=

200,000

+

490,000 (190,000) 300,000

10

Capital balances – unadjusted Allocation of loss Total

Jack (30%) 300,000 (57,000) 243,000

Beans (70%) 190,000 (133,000) 57,000

Totals 490,000 (190,000) 300,000

9. D Solution:

A

=

L

+

E

Given information Loss (squeeze)

120,000

not equal to

-

+

490,000 (370,000)

Adjusted balances

120,000

=

-

+

120,000

Capital balances – unadjusted Allocation of loss Total

Jack (30%) 300,000 (111,000) 189,000

Beans (70%) 190,000 (259,000) (69,000)

10. A Solution:

Capital balances – unadjusted Allocation of loss Total

Beans (70%) 190,000 (91,000) 99,000

(squeeze) (start)

Total loss = (91,000) ÷ 70% = (130,000)

Capital balances – unadjusted Allocation of loss (-130K x 30%) Total

Jack (30%) 300,000 (39,000) 261,000

11. A Solution: Jack (30%) Capital balances – unadjusted Allocation of loss Total

300,000 (39,000) 261,000

Total loss = (39,000) ÷ 30% = (130,000)

11

(squeeze) (start)

Totals 490,000 (370,000) 120,000

Beans (70%) Capital balances – unadjusted Allocation of loss (-130K x 70%)

190,000 (91,000)

Total

99,000

Amount received by Jack Amount received by Beans Settlement of liabilities Net proceeds from sale

261,000 99,000 200,000 560,000

12. B Solution: Cap. bal. before liquidation Allocation of loss Total Allocation of deficiency Total

A (50%)

B (25%)

C (25%)

Totals

76,000 (78,000) (2,000) 2,000 -

64,000 (39,000) 25,000 (1,000) 24,000

56,000 (39,000) 17,000 (1,000) 16,000

196,000 (156,000) 40,000 -

C (20%) 40,000 20,000 60,000 (80,000) (20,000) 20,000 -

Totals 376,000 84,000 460,000 (400,000) 520,000 20,000 540,000

13. C Solution: Net proceeds Carrying amount of all othe r assets Loss

Cap. bal. before liquidation Payable to partners Total Allocation of loss Total Additional contribution Total

320,000 (720,000) (400,000)

A (50%) 250,000 250,000 (200,000) 50,000

B (30%) 86,000 64,000 150,000 (120,000) 30,000

50,000

30,000

14. C Solution: Personal assets Personal liabilities Net free assets

A 90,000 (75,000) 15,000

12

B 240,000 (150,000) 90,000

C 180,000 (216,000) (36,000)

15. A (100,000 x 40%) = 40,000...