Exercises - Far2 activities PDF

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EXERCISESA. Tik, Tak and Toe, who share profits and losses in the ratio of 4:4:2, respectively, decide toliquidate their partnership on December 31, 2019. The condensed statement of financialposition is presented below just prior to liquidation.3T PartnershipStatement of Financial PositionDecember 3...

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EXERCISES

A.

Tik, Tak and Toe, who share profits and losses in the ratio of 4:4:2, respectively, decide to liquidate their partnership on December 31, 2019. The condensed statement of financial position is presented below just prior to liquidation.

Cash Other Assets

Total Assets

3T Partnership Statement of Financial Position December 31, 2019 ASSETS LIABILITIES AND EQUITY P 40,000 Liabilities P 224,000 680,000 Tak, Loan 10,000 Toe, Loan 16,000 Tik, Capital 190,000 Tak, Capital 120,000 Toe, Capital 160,000 P 720,000

Total Liabilities and Equity

P 720,000

Instruction: Prepare a statement of Liquidation and the required journal entries for each of the following cases and supporting schedule of cash distribution, if necessary assuming cash is immediately distributed to the proper parties. Assume also that the deficient partner/s will invest cash which is then distributed as second payment to the proper parties.

Case A Case B

P 700,000 500,000

Case C Case D

P 370,000 340,000

Case E Case F

P 250,000 180,000

Case A: Other assets were sold for P 680,000. There is a gain on realization

3T Partnership Statement of Liquidation December 31, 2019 Cash

Other Assets 680,000 (680,000)

Balances Payment of liabilities

40,000 700,000 740,000 224,0000

Balances Payment to partners

516,000 (516,000)

Profit and loss ratio Balances before liquidation Realization and distribution of gain

Journal Entries: a) Sale of other assets and distribution of gain Cash Other assets Tik, capital Tak, Capital Toe, Capital b) Payment of liabilities Liabilities Cash

700,000 680,000 8,000 8,000 4,000

224,000 224,000

Liabilitie s

Tak

Toe

224,000

10,000

16,000

224,000 (224,00 0)

10,000

16,000

Loan

10,000 16,000 (10,000) (16,000)

Tik 4 190,000 8,000 198,000

Capital Tak 4 120,000 8,000 128,000

Toe 2 160,000 4,000 164,000

198,000 (198,00 0)

128,000 (128,00 0)

164,000 (164,00 0)

c) Payment to partners Tak, loan Toe, loan Tik, Capital Tak, Capital Toe, Capital Cash

10,000 16,000 198,000 128,000 164,000 516,000

Case B: Other assets were sold for P 500,000. There is a loss on realization but no capital deficiency. 3T Partnership Statement of Liquidation December 31, 2019

Cash Profit and loss ratio Balances before liquidation Realization and distribution of loss Balances Payment of liabilities Balances Payment to partners

40,000 500,000 540,000 224,000 316,000 (316,000)

Journal entries a) Sale of other assets and distribution of loss Cash Tik, Capital Tak, Capital Toe, Capital Other Assets

680,000 (680,000)

Loan

16,000

Tik 4 190,000 (72,000) 118,000

Capital Tak 4 120,000 (72,000) 48,000

Toe 2 160,000 (36,000) 124,000

16,000 (16,000)

118,000 (118,000)

48,000 (48,000)

124,000 (124,000)

Liabilities

Tak

Toe

224,000

10,000

16,000

224,000 (224,000)

10,000 10,000 (10,000)

c) Payment to partners

500,000 72,000 72,000 36,000 680,000

b) Payment of liabilities Liabilities Cash

Other Assets

224,000 224,000

Tak, loan Toe, loan Tik, Capital Tak, Capital Toe, Capital Cash

10,000 16,000 118,000 48,000 124,000 316,000

Case C: Other assets were sold for P 370,000. There is a loss on realization with capital deficiency, right of offset is exercised. 3T Partnership Statement of Liquidation December 31, 2019

Cash Profit and loss ratio Balances before liquidation Realization and distribution of loss Balances Payment of liabilities Balances Offset Tak, loan to Tak capital deficiency Balances Payment to partners

40,000 370,000 410,000 224,000 186,000 186,000 (186,000)

Journal entries a) Sale of other assets and distribution of loss Cash Tik, Capital Tak Capital Toe, Capital Other Assets

b) Payment of liabilities

Other Assets 680,000 (680,000)

Loan Liabilities

Tak

Toe

224,000

10,000

16,000

224,000 (224,000)

10,000

16,000

Tik 4 190,000 (124,000) 66,000

10,000 (4,000) 6,000 (6,000)

16,000

66,000

16,000 (16,000)

66,000 (66,000)

d) Payment to partners

370,000 124,000 124,000 62,000 680,000

Tak, loan Toe, loan Tik, Capital Toe, Capital Cash

6,000 16,000 66,000 98,000 186,000

Capital Tak 4 120,000 (124,000) (4,000) (4,000) 4,000

Toe 2 160,000 (62,000) 98,000 98,000 98,000 (98,000)

Liabilities Cash c)

224,000 224,000

Offset loan to capital deficiency Tak, loan Tak, Capital

4,000 4,000

Case D: Other assets were sold for P 340,000. There is a loss on realization with capital deficiency, deficient partner is solvent. 3T Partnership Statement of Liquidation December 31, 2019 Cash Profit and loss ratio Balances before liquidation Realization and distribution of loss Balances Payment of liabilities Balances Offset Tak, Loan to Tak’s capital deficiency Balances Paymet to Partners (see schedule) Balances Additional investment of Tak Balances Payment to partners

40,000 340,000 380,000 224,000 156,000

Other Assets 680,000 (680,000)

Loan Liabilities

Tak

Toe

224,000

10,000

16,000

224,000 (224,000)

10,000

16,000

Tik 4 190,000 (136,000) 54,000

10,000 (10,000)

16,000

54,000

16,000 (16,000)

54,000 (50,000) 4,000

156,000 (156,000) 6,000 6,000 (6,000)

3T Partnership Schedule to Accompany Statement of Liquidation December 31, 2019 Tik Tak Capital Balance 54,000 (6,000) Additional Loan:

4,000 (4,000)

Toe 92,000 16,000

Capital Tak 4 120,000 (136,000) (16,000) (16,000) 10,000 (6,000) (6,000) 6,000

Toe 2 160,000 (68,000) 92,000 92,000 92,000 (90,000) 2,000 2,000 (2,000)

Total partner's interest Restricted Interest Free interest

54,000 (4,000) 5,000

Payment to apply on: Loan Capital Cash settlement

50,000 50,000

Journal entries a) Sale of other assets and distribution of loss Cash Tik, Capital Tak, Capital Toe, Capital Other Assets b)

c)

Offset loan to capital deficiency Tak, loan Tak, Capital

108,000 (2,000) 106,000

16,000 90,000 106,000

d) Payment to partners (see schedule)

340,000 136,000 136,000 68,000

Toe, Loan Tik, Capital Tik, Loan Cash

16,000 50,000 90,000 156,000

680,000

Payment of liabilities Liabilities Cash

(6,000)

e) Additional investment of Tak 224,000

Cash Tak, Capital

224,000

6,000 6,000

f. Final payment to partners Tik, Capital Toe, Capital Cash

10,000 10,000

4,000 2,000 6,000

Case E: Other assets were sold for P 250,000. There is a loss on realization with capital deficiency. 3T Partnership Statement of Liquidation December 31, 2019

Cash

Other Assets

Loan Liabilities

Tak

Toe

Tik

Capital Tak

Toe

Profit and loss ratio Balances before liquidation Realization and distribution of loss Balances Payment of liabilities Balances Offset Tak, Loan to Tak’s capital deficiency Balances Payment to partners (see schedule) Balances Additional investment of Tak Balances Payment to partners

40,000 250,000 290,000 (224,000) 66,000

680,000 (680,000)

16,000

4 190,000 (172,000) 18,000

4 120,000 (172,000) (52,000)

2 160,000 (86,000) 74,000

16,000

18,000

74,000

16,000 (16,000)

18,000

(52,000) 10,000 (42,000)

224,000

10,000

16,000

224,000 (224,000)

10,000 10,000 (10,000)

66,000 (66,000) 42,000 42,000 ( 42,000)

18,000

(42,000) 42,000

18,000 (18,000)

24,000 (24,000)

3T Partnership Schedule to Accompany Statement of Liquidation December 1-31, 2019 Tik Capital Balances Add: Loan balances

18,000

Total partners' interest Restricted interest - Possible loss of P 42,000 to Tik and Toe in the ratio of 4:2 if Tak fails to pay his deficiency

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

Balance Restricted interest - Possible loss of P 10,000 to Toe if Tik fails to pay his deficiency Free interest- Amount to be paid to partners Payment to apply in: Loan Capital

10,000

Tak (42,000 )

74,000 (50,000) 24,000

Toe 74,000 16,000

(42,000 )

90,000

42,000

(14,000) 76,000 (10,000) 66,000

16,000 50,000

Cash settlement

66,000

Journal entries: a)

Sale of other assets and distribution of loss Cash Tik, Capital Tak, Capital Toe, Capital Other Assets

d) Payment to partners with accompanying schedule

250,000 172,000 172,000 86,000

Toe, Loan Toe, Capital Cash

c)

e) Additional investment of Tak 224,000

Cash Capital

224,000

Offset loan to capital deficiency Tak, loan Tak, Capital

66,000

680,000

b) Payment of liabilities Liabilities Cash

16,000 50,000

42,000 42,000

f) Final payment to partners 10,000

Tik, Capital Toe,Capital Cash

10,000

18,000 24,000 42,000

Case F: 180,000

Cash Profit and loss ratio Balances before liquidation Realization and distribution of loss Balances Payment of liabilities Balances Offset Tak, Loan to Tak’s capital deficiency Balances

40,000 180,000 220,000 (220,000) -

3T Partnership Statement of Liquidation December 1-31, 2019 Other Assets Liabilities 680,000 (680,000)

Loan Tak

Toe

224,000

10,000

16,000

224,000 (224,000) (4,000)

10,000

16,000

Tik 4 190,000 (200,000) (10,000)

10,000 (10,000)

16,000

(10,000)

16,000

(10,000)

(4,000)

Capital Tak 4 120,000 (200,000) (80,000) (80,000) 10,000 (70,000)

Toe 2 160,000 (100,000) 60,000 60,000 60,000

Additional investment of Tik and Tak Balances Payment to partners

80,000 80,000 (80,000)

10,000 (4,000) 4,000

16,000 (16,000)

60,000 (60,000)

3T Partnership Schedule to Accompany Statement of Liquidation December 31, 2019

Balance Add: Loan balance Total partner's interest Restricted interest Free interest: Amount to be paid to partners

Liabilitie Tik Tak Toe s (10,000 (70,000 ) ) 60,000 4,000 16,000 (10,000 (70,000 ) ) 76,000 4,000 (76,000 10,000 70,000 ) (4,000) 76,000 4,000

Payments to apply in: Loan Capital Remaining liabilities Cash settlement

16,000 60,000 76,000

4,000 4,000

80,000

Journal entries: a)

Sale of other assets and distribution of loss Cash Tik, Capital Tak, Capital Toe, Capital Other Assets

d) Additional investment of Tik and Tak

180,000 200,000 200,000 100,000

Cash Tik, Capital Tak, Capital 680,000

70,000

80,000 10,000 70,000

b) Payment of liabilities Liabilities Cash c)

220,000

Cash Liabilities

220,000

Offset loan to capital deficiency Tak, loan Tak, Capital

C.

e) Payment of Remaining Liabilities 4,000 4,000

f) Final payment to partners 10,000

Toe, Capital Cash

10,000

76,000 76,000

The partnership accounts of Guess, Jag and Levis are shown below as of December 31, 2019. Profits and losses are shared 50%; 30%; and 20%, respectively. Guess, Drawing (debit balance) Levis, Drawing (debit balance) Jag, Loan Guess, Capital Jag, Capital Levis, Capital

P (32,000) (12,000) 40,000 164,000 134,000 144,000

Total assets amounted to P 638,000, including cash of P 70,000, and P 200,000 worth of liabilities. On January 2019, the partnership was liquidated, and Jag received P 111,000 cash as final settlement. Required: 1. 2.

The total loss from the liquidation of the partnership Prepare the statement of liquidation.

3.

Journal entries to record the liquidation.

1. Jag Capital 134,000 – Jag final settlement 111,000= P 23,000 23,000/.30% (Jag’s P&L ratio) = 76,667 76,667= TOTAL LOSS FROM THE LIQUIDATION OF THE PARTNERSHIP

2. Statement of Liquidation Guess, Jag, Levis Partnership Statement of Liquidation December 31, 2019 Other Assets

Cash Profit and loss ratio Balances before liquidation Realization and distribution of loss Balances Payment of liabilities Deduction of drawing accounts Balances Payment to partners

70,000 491,333 561,333 200,000 361,333 (361,333)

568,000 (568,000)

3. Journal entries a) Sale of other assets and distribution of loss

Liabilities

Drawing Guess Levis

Loan Jag

200,000

(32,000)

(12,000)

40,000

200,000 (200,000)

(32,000)

(12,000)

40,000

Guess 50% 164,000 (38,334) 125,666

32,000

12,000 40,000 (40,000)

(32,000) 93,666 (93,666)

d) Payment to partners

Capital Jag 30% 134,000 (23,000) 111,000

111,000 (111,000)

Levis 20% 144,000 (15,333) 128,667 (12,000) 116,667 (116,667 )

Cash Guess, Capital Jag, Capital Levis, Capital Other Assets

491,334 38,334 23,000 15,333 568,000

Jag, loan Guess, Capital Jag, Capital Levis, Capital Cash

40,000 93,666 111,000 116,667 361,333

b) Payment of liabilities Liabilities Cash

200,000 200,000

c. Deduction of drawings from the capital Guess, Capital Levis, Capital Guess, Drawing Levis, Drawing

D.

32,000 12,000 32,000 12,000

Red, White, and Blue are partners who share profits and losses 20%; 30%; and 50% respectively. The partners have decided to liquidate the partnership. Their capital accounts show the following balances: Red – P 60,000 credit; White – P 90,000 credit; Blue – P 30,000 debit. What is the amount of cash available for distribution? 90,000 + 60,000- 30,000= 120,000 Cash is available for distribution, 30,000 receivable from blue = 150,000 to be received by Red and white 120,000 cash available for distribution Red- 48,000 White- 72,000 30,000 receivable from blue Red- 12,000 White- 18,,000

E.

Orange and Lemon share profits and losses equally. They decided to liquidate their partnership when their net assets amounted to P 260,000. Capital balances were P 170,000 and P 90,000, respectively. If the non-cash assets were sold for an amount equal to book value, what amount of cash should Orange and Lemon respectively received? 170,000 + 90,000 = 260,000 Amount of cash to be received: Orange= 170,000 Lemon= 90,000

F.

The partnership of Anthony and Davis had an unprofitable year and agreed to liquidate their business on December 31, 2019. The Statement of Financial Position as of December 31, 2019 is presented below: ASSETS

Cash Accounts Receivable P 80,000 Less Allowance for Bad Debts 20,000 Merchandise Inventory Prepaid Advertising Office Equipment P 100,000 Less Accumulated Depreciation 60,000 TOTAL ASSETS LIABILITIES AND EQUITY Accounts Payable Notes Payable (due October 31, 2020) Anthony, Capital Davis, Capital TOTAL LIABILITIES AND EQUITY

P

1,000 60,000 50,000 2,000

40.000 P 153,000 P 20,000 86,000 30,000 17,000 P 153,000

The information concerning liquidation are as follows: 1. Accounts receivable’s net carrying value plus 20% of the estimated bad debts were collected. 2. Merchandise inventory were realized for P 25,000 3. The contract for Prepaid Advertising has a cancellation value of P 800. 4. Office Equipment were realized equal to 60% of their book value. 5. Unrecorded Accounts Payable of P 2,000 were discovered. 6. Bank charges of P 1,000 was added to the note for early payment than the due date.

Anthony is personally insolvent. However, Davis’ personal assets exceeded his personal liabilities by P 4,000. Anthony and Davis share profits and losses 40%; 60%, respectively. Required: 1. Prepare a schedule showing the net amount of liquidation gain or loss. 2. Prepare a Statement of Liquidation.

3. Journal entries to record the liquidation. 1. Schedule 1. ASSETS Accounts receivable Merchandise inventory Prepaid advertising Office equipment

Book Value 60,000 50,000 2,000 40,000

Realization 64,000 25,000 800 24,000

152000

Gain (Loss) 4,000 (25,000) (1,200) (16,000) (38,200 )

2. Statement of liquidation Anthony and Davis Partnership Statement of Liquidation December 31, 2019 Cash

Other Assets

Liabilitie s

Capital

Profit and loss percentage Balances before realization Realization and distribution of loss Balances Payment of liabilities Balances Additional investment of Davis Balances Additional loss to Anthony Balances Payment to partners

3. Journal Entries

1,000

152,000

113,800 114,800 (109,000 ) 5,800 4,000 9,800

152,000

9,800 (9,800)

109,000

Anthon y 40% 28,800

109,000

(15,280) 13,520

Davis 60% 15,200 (22,920 ) (7,720)

109,000 13,520 13,520 (3,720) 9,800 (9,800)

(7,720) 4,000 (3,720) 3,720

A. Sale of other assets and distribution of loss Cash Anthony, Capital Davis, Capital Other Assets

113,800 15,280 22,920 152,000

B. Payment of Liabilities Liabilities Cash

109,000 109,000

C. Additional investment of Davis Cash Davis, Capital

4,000 4,000

D. Additional loss to Anthony’s capital for Davis insolvency. Anthony, Capital Davis, Capital

3,720 3,720

E. Payment to Anthony Anthony, Capital Cash

G.

9,800 9,800

Bench, Mark, Spencer, and Lee are partners, sharing earnings in the ratio of 3:4:6:8, respectively. The balances of their capital accounts on December 31, 2019 are as follows:

Bench – P 1,000

Mark – P 25,000

Spencer – P 25,000

Lee – P 9,000
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