Partnership Liquidation Reviewer - 1.20 13u3 rp2 PDF

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Partnership Liquidation The following condensed balance sheet is presented for the partnership of AA, BB, and CC, who share profits and losses in the ratio of 4:3:3, respectively: Cash P 160, Other assets 320, Total P 480,Liabilities P 180, AA, capital 48, BB, capital 216, CC, capital 36, Total P 48...

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Partnership Liquidation 115. The following condensed balance sheet is presented for the partnership of AA, BB, and CC, who share profits and losses in the ratio of 4:3:3, respectively: Cash Other assets Total

P 160,000 320,000 P 480,000

Liabilities AA, capital BB, capital CC, capital Total

P 180,000 48,000 216,000 36,000 P 480,000

The partners agreed to dissolve the partnership after selling the other assets for P200,000. Upon the dissolution of the partnership. AA should have received. a. P 0

c. P72,000

b. 48,000

d. 84,000 (AICPA)

Answer: (a)

Capital balances before liquidation Loss on realization (P320,000 – P200,000): 4:3:3 Cash received

AA P48,000

BB P216,000

CC P36,000

(48,000)

(36,000)

(36,000)

P

0 P180,000

P

0

116. W, X, and Y are partners sharing profits and losses in the ratio of 4:3:3, respectively. The condensed balance sheet of Heidi Partnership as of December 31, 20x5 is: Cash Other assets

P 50,000 130,000

Total assets

P 180,000

Liabilities W, capital X, capital Y, capital

P 40,000 60,000 40,000 40,000

Total liabilities and capital

P 180,000

Assume instead that the Heidi Partnership is dissolved and liquidated by installments, and the first realization of P40,000 cash is on the sale of other assets with book value of P80,000. After the payment of liabilities, the available cash shall be distributed to W, X, and Y respectively, as follows: a. P36,000: P27,000: and. P27,000 b. P44,000; P28,000; and, P28,000 c. P16,000: P12,000: and, P12,000 d. P24,000: P13,000; and, P13,000 (PhilCPA) Answer: (d) W

X

Y

Balances before liquidation Loss on realization (80,000 – P40,000): 4:3:3

P 60,000

P 40,000

P 40,000

(16,000)

(12,000)

(12,000)

Balances

P 44,000

P 28,000

P 28,000

(20,000)

(15,000)

(15,000)

P 24,000

P 13,000

P 13,000

Loss in possible unrealization of noncash assets (P130,00 – P80,000) : 4:3:3 Cash received

117. The partners of the M&N Partnership started liquidating their business on July 1, 20x5, at which time the partners were sharing profits and losses 40% to M and 60% to N. The balance sheet of the partnership appeared as follows: Assets Cash Receivable Inventory Equipment Accumulated Depreciation

P 65, 200 (30,800)

Total

Liabilities & Equity P 8,800 Accounts Payable 22,400 M, capital 39,400 M, drawing N, capital N, drawing 34,400 N, loan P 105,000

P 32,400 P 31,000 ( 5,400) P 33,200 ( 200)

25,600 33,000 14,000

Total

P 105,000

During the month of July, the partners collected P600 of the receivables with no loss. The partners also sold during the month the entire inventory on which they realized a total of P32,400. How much of the cash was paid to M's capital on July 31, 20x5? a. P25,600

c. P320

b. 5,400

d.

0

(PhilCPA) Answer: (c) M Drawing Loan Capital Total interest Loan on realization: 40%: 60% Receivables – collection Less: book value

P 600 22,400

P21,800

N

P(5,400)

P(200)

-

14,000

31,000

33,200

P25,600

P47,000

Proceeds – inventory Less: book value

P32,400 39,400

7,000

Unrealized noncash assets

34,400 P63,200

(25,280)

(37,920)

P 320

P 9,080

118. Larry, Marsha, and Natalie are partners in a company that is being liquidated. They share profits and losses 55 percent, 20 percent, and 25 percent, respectively. When the liquidation begins they have capital account balances of P108,000, P62,000, and P56,000, respectively. The partnership just sold equipment with a historical cost and accumulated depreciation of P25.000 and P18,000, respectively for P10,000. What is the balance in Marsha's capital account after the transaction is completed? a. P62,000

c. P62,600

b. P61,400

d. P65,000

Answer: (c) P62,000 P62,000 P62,000 P62,600

+ [P10,000 - (P25,000 - P18,000)] (.20) + (P3,000) (.20) + (P600) (c)

119. After operating for five years, the books of the partnership of Bo and By showed the following balances:

Net assets Bo, Capital By, Capital

P 169,000 110,500 58,500

If liquidation takes place at this point and the net assets are realized at book value, the partners are entitled to:

a. Bo to receive P117,000 & By to receive P52,000 b. Bo to receive P126,750 & By to receive P42,250 c. Bo to receive P84,500 & By to receive P84,500 d. Bo to receive P110,500 & By to receive P58,500 (PhilCPA) Answer: (d) The non-cash assets are realized at book value therefore: There is no gain or loss, in which case partners are entitled to received an amount equivalent to their capital interest.

120. RR, SS and I decided to dissolve the partnership on November 30, 20x5. Their capital balances and profit ratio on this date, follow:

Capital Balances P 50,000 60,000 20,000

RR SS TT

Profit Ratio 40% 30% 30%

The net income from January 1 to November 30, 20x5 is P44,000. Also, on this date, cash and liabilities are P40,000 and P90,000, respectively. For RR to receive P55,200 in full settlement of his interest in the firm, how much must be realized from the sale of the firm's non-cash assets? a. P196,000

c. P193,000

b. 177,000

d. 187,000 (Adapted)

Answer: (c) Total Capital ( P50,000 + P60,000 + P20,000 + P44,000) Total Liabilities Total Assets

P174,000 90,000 P264,000

Less: Cash Non-cash assets

40,000 P224,000

Less: Loss on realization: (P55,200 - P67,600*) / 40% Proceeds from sale

31,000 P 193,000

* [P50,000 + (P44,000 x 40%)] (P50,00 + P17,600) P67,600

121. Larry. Marsha, and Natalie are partners in a company that is being liquidated. They share profits and losses 55 percent, 20 percent, and 25 percent, respectively. When the liquidation begins they have capital account balances of P108,000, P62,000, and P56,000, respectively. The partnership just sold equipment with a historical cost and accumulated depreciation of P25,000 and P18,000, respectively for P10,000. What is the balance in Larry's capital account after the transaction is completed? a. P106,350

c. P109,650

b. P108,000

d. P110,000

Answer: (c) P108,000 + [P10,000 - (25,000 - P18,000)] (.55) P108,000 + (P3,000) (.55) P108,000 + (P1,650) P109,650

122. Donald, Marion, and Jeff are liquidating their partnership. At the date the liquidation begins Donald, Marion, and Jeff have capital account balances of P147,000, P260,000, and P285,000, respectively and the partners share profits and losses 35%, 25%, and 40%, respectively. In addition, the partnership has a P28,000 Notes Payable to Donald and a P15,000 Notes Receivable from Jeff. When the liquidation begins, what is the loss absorption power with respect to Donald? a. P 80,000

c. P420,000

b. P340,000

d. P500,000

Answer: (d) (P147,000 + P28,000 ) / (.35) (P175,000) / (.35) P500,000

123. Silverio, Domingo, Reyes, and Pastor are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and 8/21, respectively. The balances of their capital accounts on December 31, 20x5 are as follows: Silverio Domingo Reyes Pastor

P 1,000 25,000 25,000 9,000 P 60,000

The partners decide to liquidate, and they accordingly convert the noncash assets into P23,200 of cash. After paying the liabilities amounting to P3,000, they have P22,200 to divide. Assume that a debit balance in any partner's capital is uncollectible. After the P22,200 was divided, the capital balance of Domingo was a. P3,200

c. P 4,500

b. 3,920

d. 17,800 (PhilCPA)

Answer: (b) Silverio

Domingo

Reyes

Pastor

Total

Balances before liquidation

P 1,000

P 25,000

P 25,000

P 9,000

P 60,000

Loss or realization: (P22,200 - P60,000) 3/21: 4/21: 6/21: 8/21

(5,400)

7,200

(10.800)

(14,400)

(37,800)

Balances Loss for possible insolvency of Silverio and Pastor: 4:6 P4,400 + P5,400)

P(4,400)

P17,800

P14,200

P(5,400)

P22,200

4,400

(3,920)

(5,880)

5,400

_

P13,880

P8,320

Cash received

P22,200

Therefore, the capital balance of Domingo after cash settlement is: Capital balance after loss on realization but before payment to patterns P17,800 13,880

Less: cash received

P 3,920

124. As of December 31, 20x5, the books of Ton Partnership showed capital balances of: T, P40,000: O, P25,000: N, P5,000. The partners' profit and loss ratio was 3:2:1, respective. The partners decided to liquidate and they sold all non-cash assets for P37,000. After settlement of all liabilities amounting P12,000, they still have cash of P28,000 left for distribution. Assuming that any capital debit balance is uncollectible, the share of T in the distribution of the P28,000 cash would be: a. P17,800

c. P19,000

b. 18,000

d. 17,000 (PhilCPA)

Answer: (a) T Balances before Liquidation Loss on realization: (P28,000 – P70,000) 3:2:1

O

N

TOTAL

P40,000

P25,000

P5,000

P70,000

(21,000)

(14,000)

(7,000)

(42,000)

Balances Loss on possible insolvency of N: 3:2

P19,000 (1,200)

P11,000

P(2,000)

P28,000

(800)

2,000

0

Cash received

P17,800

P10,200

P28,000

125. A local partnership was considering the possibility of liquidation since one of the partners is solvent (Tillman) and the others are insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively.

Ding, capital Laurel, capital Ezzard, capital Tillman, capital

P 60,000 67,000 17,000 96,000

Ding's creditors filed a P25,000 claim against the partnership's assets. At that time, the partnership held assets reported at P360,000 and liabilities of P 120,000. If the assets could be sold for P228,000, what is the minimum amount that Ding's creditors would have received? a. P 0

c. P36,000

b. P2,500

d. P38,720

Answer: (b)

Balances before liquidation Loss on realization 4:2:2:2 (P228,000 –P360,000)

Ding P60,000

Laurel P67,000

Ezzard P17,000

Tillman P96,000

Total P240,000

(52,800)

(26,400)

(26,400)

(13,200)

(132,000)

Balances Loss on possible insolvency (4:2:2)

P7,200

P40,600

P(9,400)

P69,600

P108,000

(4,700)

(2,350)

9,400

(2,350)

-0-

Balances

P2,500

P38,250

-0-

P67,250

P108,000

Cash Non-cash assets

P 10,000 Liabilities 300,000 Keaton, capital Lewis, capital Meador,capital

P 130,000 60,000 40,000 80,000

P 300,000

P 310,000

126. The Keaton. Lewis and Meador partnership had the following balance sheet just before entering liquidation: Keaton, Lewis and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for P180,000. Liquidation expenses were P10,000. Assume that Keaton was personally insolvent with assets of P8,000 and liabilities of P60,000. Lewis and Meador were both solvent and able to cover deficits in their capital accounts, if any. What amount of cash could Keaton's personal creditors have expected to receive from partnership assets? a. P0

c. P30,000

b. P26,000

d. P34,000

Answer: (d) Keaton

Lewis

Meador

Total

Balances before liquidation Liquidation expenses (2:4:4)

P60,000 (2,000)

P40,000 (4,000)

P80,000 (4,000)

P180,000 (10,000)

Loss on realization – 2:4:4 (P180,000 – P300,000)

(24,000)

(48,000)

(48,000)

(120,000)

Balances Additional investment

P34,000

P(12,000) 12,000

P28,000

P50,000 12,000

Payment to partners

P34,000

-0-

P28,000

P62,000

127. The following account balances were available for the Perry, Quincy and Renquist partnership just before it entered liquidations: Cash Non-cash assets

Total

P90, 000 300,000

P390,000

Liabilities Perry,capital

P170,000 70,000

Quincy, capital Renquist, capital

50,000 100,000 P390,000

Perry, Quincy and Renquist had shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to beP8,000 . All partners are solvent. What would be the minimum amount for which the non-cash assets must have been sold for, in order for Quincy to receive some cash from the liquidations? a. b. c. d.

Any amount in excess of P175,000 Any amount in excess of P117,000 Any amount in excess of P183,000 Any amount in excess of P198,667

Answer: (c)

Quincy capital before liquidation

P50,000

Less: share in liquidation expenses (P8,000x40%) Quincy capital before realization of non-cash assets Less: cash received by Quincy(minimum)

3, 200 P46,800 0

Share in the loss of realization

P46,800

Divided by: Profit and loss ratio

40%

Loss on realization

P117,000

Less: non-cash assets

300,000

Proceeds from sale

P183,000

128. AA, BB, and CC are partners in ABC and share profits and losses 50%, 30%, and 20%, respectively. The partners have agreed to liquidate the partnership and some liquidation expenses to be incurred. Prior to the liquidation, the partnership balance sheet reflects the following back values:

Cash Non-cash assets Notes payable to CC

P 25,200 297,600 38,400

Other liabilities AA, capital BB, capital deficit CC, capital

184,800 72,000 (12,000) 39,600

Assuming that the actual liquidation expenses are P16,800 and that the non-cash assets with a book value of P240,000 are sold for P216,000. How much cash should CC received? a. P 46,457

c. P 74,571

b.

d. -0-

39, 600

(Adapted) Answer: (b) AA Capital (deficit) balance Notes payable Total Interest

P 72,000 0 P 72,000

BB (P 12,000) 0

CC P 39,600 38, 400

(P 12,000)

P 78,000

( 2,200)

(4,800)

Loss on realization: ( P216,000- P240,000) 50%, 30%, 20%

( 12,000)

Balances

P 60,000

Payment of liquidation expenses Balances

(8,400) P 51,600

( P 19,200) ( 5,040) ( P 24,240)

P 73,200 ( 3,360) P 69,840

Loss on possible unrealization of noncash assets: (P297,600- P240,000) Balances

(28,800) P 22,800

Loss for possible insolvency of 58(5:2)

(29,657)

Balances

( 6,857)

(17,280) ( P 41,520) P 41,520

(11,520) P 58,320 (11,862) P 44,457

Loss for possible insolvency of AA

P 6,857

( 6,657)

Cash received

P 39,600 (b)

or alternatively, AA Total Interest

P 72,000

Other deficit (5:2)

( 8,571)

Balances

BB

CC

(P 12,000)

P 39,600

P12,000

( 3, 429)

P 63,429

Loss on realization: ( P216,000- P240,000)

P 74,571

(17,143)

Balances

P 46,286

Payment of liquidation expenses

(P 12,000)

Balances

P 34,286

(6,657) P 73,200 ( 4,800) P 62,914

Loss on possible unrealization of noncash assets: (P297,600- P240,000)

(41,143)

Balances

( 6,857)

Loss for possible insolvency of AA

(16,457) P 46,457

P 6,857

( 6,857)

Cash received

P 39,600 (b)

129. After all non-cash assets have been converted into cash in the liquidation of the AA and JJ partnership, the ledger contains the following account balances:

Cash Accounts payable Loan payable to AA AA, capital JJ, capital

Debit P 34, 000

Credit P 25, 000 9, 000

8, 000 8, 000

Available cash should be distributed P25, 000 to accounts payable and: a. P9, ,000 loan payable to AA b. P4,500 each to AA and JJ

c. P1,000 to AA and P8,000 to JJ d. P8,000 to AA and P1,000 to JJ

(Adapted) Answer: (c) Cash

Accounts Payable

Balances before liquidation P34,000 Payment of accounts payable (25, 000) Balances 9, 000 Payment to partners (9, 000) *Net of capital deficit

P 25,000

AA P 1,000

JJ 8,000

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

8, ,000 (8,000) (c)

130. Arthur, Baker and Carter are partners in textile distribution business sharing profit and losses equally. On December 31, 20x5 the partnership capital and partners drawings were as follows: Capital Drawing

Arthur P100, 000 60, 000

Baker P 80, 000 40, 000

Carter P 300, 000 20, 000

Total P 480, 000 120, 000

The partnership was unable to collect on trade receivables and was forced to liquidate. Operating profit in 20x5 amounted to P72, 000 which was all exhausted, including the partnership assets. Unsettled creditor’s claims of December 31, 20x5 totalled P84, 000. Baker and Carter have substantial private resources but Arthur has no personal assets. The final cash distribution to Carter was? a. P78, 000 b. 84, 000

c. P108, 000 d. 162, 000

( PhilCPA)

Answer: (a) Arthur Balances before net

Baker

Carter

Total

income: Capital

P100, 000

P 80, 000

P 300, 000

P 480, 000

60, 000

40, 000

20, 000

120, 000

P 40, 000

P 40, 000