CHAPTER 4 - PROBLEM 4: MULTIPLE CHOICE: COMPUTATIONAL

On January 1, 2003, the partners of Cobb, Davis, and Eddy, who share profits and losses in the ratio
of 5:3:2, respectively, decided to liquidate their partnership. On this date the partnership condensed
balance sheet was as follows:

Cash 50,000 Liabilities 60,000

Other assets 250,000 Cobb, capital 80,000
Davis, capital 90,000
Eddy, capital 70,000
Total assets 300,000 Total liabilities and equit 300,000

1. On January 15, 2003, the first cash sale of other assets with a carrying amount of P150,000 realized
P120,000. Safe installment payments to the partners were made the same date. How much cash
should be distributed to each partner?
Cobb Davis Eddy
a. 15,000 51,000 44,000
b. 40,000 45,000 35,000
c. 55,000 33,000 22,000
d. 60,000 36,000 24,000

Answer: A
50% 30%
Cobb Davis
Capital balances before liquidation 80,000 90,000
Actual loss on realization - January 15, 2003 (15,000) (9,000)
Total 65,000 81,000
Maximum loss possible (50,000) (30,000)
First installment payment to partners 15,000 51,000

Allocation of loss on realization

Carrying amount of assets realized 150,000
Cash proceeds (120,000)
Actual loss on realization - January 15, 2003 30,000

Maximum loss possible

Carrying amount of unsold non-cash assets 100,000
Maximum loss possible 100,000

Use the following information for the next five questions:

Jack and Beans, who share in profits and losses in the ratio of 3:7, decided to liquidate their
Talk Partnership. The partners' capital balances were P300,000 and P190,000, respectively.
2. If all partnership assets and liabilities are realized and settled at their carrying amounts,
how much will Beans receive from the liquidation?
a. 300,000
b. 190,000
c. 120,000
d. answer not determinable

Answer: B

Since it is apparent that the partners will have no gains or losses from the sale
of its non-cash assets due to the settlement at its carryig amount.
The partners shall receive equal amounts of their claims.

3. The partnership has total liabilities of P200,000. If all partnership assets are realized
for P500,000, how much will Jack receive from the liquidation?
a. 243,000
b. 57,000
c. 300,000
d. 133,000

Answer: A
ASSETS = LIABILITIES + EQUITY
? = 200,000 + 490,000
690,000 = 200,000 + 490,000

CASH NON-CASH ASSETS

Balances before liquidation - 690,000
Actual loss on realization 500,000 (690,000)
Total 500,000 -
Settlement of liabilities (200,000)
Total 300,000### -
Payment of claims (300,000) -
Total - ### -

Allocation of loss on realization

Carrying amount of assets realized 690,000
Cash proceeds (500,000)
Actual loss on realization 190,000

4. If after all partnership assets are realized and all liabilities are settled. And the partnership has
remaining cash of P120,000, how much will Beans receive from the liquidation?
 a. 189,000
b. 120,000
c. 69,000
d. 0

Answer: D

CASH NON-CASH ASSETS

Remaining cash balance 120,000 -
Actual loss on realization - -
Total 120,000 -
Payment of claims (120,000) -
Total - ### -

Allocation of loss on realization

Carrying amount of assets realized 490,000
Cash proceeds (120,000)
Actual loss on realization 370,000

Beans has already incurred a deficiency on his capital account after allocating the loss on realization.

5. If on the final settlement of the partners' claims Beans received P99,000, how much did Jack receive?
a. 261,000
b. 234,000
c. 89,000
d. 0

Answer:

Answer: A

CASH NON-CASH ASSETS

Remaining cash balance - -
Actual loss on realization (squeezed) 360,000 -
Total 360,000 -
Payment of claims (360,000) -
Total - ### -

Allocation of loss on realization

Carrying amount of assets realized 490,000
 Cash proceeds (360,000)
Actual loss on realization 130,000

6. Before the realization of non-cash assets, the partnership has a zero balance in its cash account and
a P200,000 balance in its liabilities. If Jack received P261,000 on the final settlement of the partners'
claims, how much were the net proceeds from the sale of the non-cash assets?
a. 560,000
b. 360,000
c. 290,000
d. 0

Answer: A

CASH NON-CASH ASSETS

Remaining cash balance - 690,000
Actual loss on realization (squeezed) 560,000 (690,000)
Total 560,000 -
Settlement of liabilities (200,000)
Total 360,000### -
Payment of claims (360,000) -
Total - ### -

Allocation of loss on realization

Carrying amount of assets realized 690,000
Cash proceeds (560,000)
Actual loss on realization 130,000

7. Partners A, B and C decided to liquidate their partnership. A summary of the partnership's statement
of financial position is shown below:

Assets Liabilities Equity

Cash Noncash A (20%)
20,000 480,000 30,000 100,000

One-third of the noncash assets were sold for P70,000. The partnership paid P8,000 liquidation expenses.
Partner C is insolvent. How much cash did A receive from the settlement of the partners' interests?
a. 12,400
b. 16,800
c. 13,600
d. 12,800

Answer: D

CASH NCA
Beginning balances 20,000 480,000
Actual loss on realization 62,000 (160,000)
Total 82,000 320,000
Settlement of liabilities (30,000)
Total 52,000### 320,000
Maximum loss possible (320,000)
Total 52,000### -
Loss absorpotion
Total 52,000### -
Payment of claims (52,000) -
Total - ### -

Allocation of loss on realization

Carrying amount of assets realized 160,000
Cash proceeds (70,000)
Liquidation expenses 8,000
Actual loss on realization 98,000

Maximum loss possible

Carrying amount of unsold non-cash assets (320,000)
Maximum loss possible (320,000)

Use the following information for the next two questions:

A, B and C decided to liquidate their partnership business. The financial position of the partnership
shows the following partners' equity:
A, capital (30%) 210,000
B, capital (20%) 150,000
C, capital (50%) 210,000
Total 570,000

Upon liquidation, all the partnerships' assets are sold and sufficient cash is realized to pay all liabilities
except one for P30,000. All partners are solvent except C.
8. By what amount would the capital of A change?
a. 180,000 decrease
b. 234,000 decrease
c. 24,000 increase
d. 0

Answer: B

CASH NCA
Balances after realization of assets - -
Actual loss on realization - -
Total - -
Loss absorpotion
Total - ### -
Payment of claims - -
Total - ### -

Allocation of loss on realization

Carrying amount of assets realized 600,000
Cash proceeds -
Actual loss on realization 600,000

9. How much is the additional contribution required of B?

a. 6,000
b. 18,000
c. 24,000
d. 0

Answer: A

CASH NCA
Balances after realization of assets - -
Actual loss on realization - -
Total - -
Loss absorpotion
Total - ### -
Payment of claims - -
Total - ### -

Allocation of loss on realization

 Carrying amount of assets realized 600,000
Cash proceeds -
Actual loss on realization 600,000

10. ABC Co. is undergoing liquidation. Information before the start of the liquidation process
is as follows:

Cash 10,000 Accounts payable 80,000

Accounts receivable 80,000 Payable to B 20,000
Receivable from A 10,000 A, Capital (50%) 250,000
Inventory 180,000 B, Capital (30%) 150,000
Equipment, net 320,000 C, Capital (20%) 100,000
Total Assets 600,000 Total Liab. & Equity 600,000

The total cash distributed to the partners after the first and second sales of noncash assets
were P12,000 and P30,000, respectively. How much cash did B receive in the second cash
distribution?
a. 12,000
b. 17,600
c. 3,600
d. 26,000

Answer: B

50% 30%
A B
Capital balances 250,000 150,000
Interest adjustments in the partnership
Receivable from A (10,000)
Payable to B 20,000
Total interest 240,000 170,000
Divded by: P/L ratio 50% 30%
Maximum loss absorption capacity (MLAC) 480,000 566,667
First priority - (66,667)
Adjusted 480,000 500,000
Second priority - (20,000)

Adjusted 480,000 480,000

CASH A
Priority claims -
First available cash for distribution: 12,000
 First payment according to priority (12,000) -

Adjusted priority claims -

Second available cash for distribution: 30,000
Second payment according to priority (18,000)

Adjusted priority claims 12,000 -

Distribution for remaining cash after priority (12,000) (6,000)

B received in the second payment of cash distribution

sses in the ratio
rship condensed

50,000 realized
w much cash

20%
Eddy Total
70,000 240,000
(6,000) (30,000)
64,000 210,000
(20,000) (100,000)
44,000 110,000
or losses from the sale

30% 70%
LIABILITIES JACK BEANS
200,000 300,000 190,000
- (57,000) (133,000)
200,000 243,000 57,000
(200,000)
- 243,000 57,000
- (243,000) (57,000)
- - -
 30% 70%
LIABILITIES JACK BEANS
- 300,000 190,000
- (111,000) (259,000)
- 189,000 (69,000)
- (189,000) 69,000
- - -

ss on realization.

did Jack receive?

30% 70%
LIABILITIES JACK BEANS
- 300,000 190,000
- (39,000) (91,000)
- 261,000 99,000
- (261,000) (99,000)
- - -
ash account and
of the partners'

30% 70%
LIABILITIES JACK BEANS
200,000 300,000 190,000
- (39,000) (91,000)
200,000 261,000 99,000
(200,000) -
- 261,000 99,000
- (261,000) (99,000)
- - -

rship's statement

Equity
B (30%) C (50%)
170,000 200,000

liquidation expenses.
ners' interests?
 20% 30% 50%
LIABILITIES A B C
30,000 100,000 170,000 200,000
- (19,600) (29,400) (49,000)
30,000 80,400 140,600 151,000
(30,000) -
- 80,400 140,600 151,000
(64,000) (96,000) (160,000)
- 16,400 44,600 (9,000)
(3,600) (5,400) 9,000
- 12,800 39,200 -
- (12,800) (39,200) -
- - - -

he partnership

ed to pay all liabilities

 30% 20% 50%
LIABILITIES A B C
30,000 210,000 150,000 210,000
(30,000) (180,000) (120,000) (300,000)
- 30,000 30,000 (90,000)
(54,000) (36,000) 90,000
- (24,000) (6,000) -
- 24,000 6,000 -
- - - -
(234,000)

30% 20% 50%

LIABILITIES A B C
30,000 210,000 150,000 210,000
(30,000) (180,000) (120,000) (300,000)
- 30,000 30,000 (90,000)
(54,000) (36,000) 90,000
- (24,000) (6,000) -
- 24,000 6,000 -
- - - -
20% CASH PRIORITY
C A B C
100,000

100,000
20%
500,000
- 20,000
500,000
(20,000) 6,000 4,000

480,000 - 26,000 4,000

B C
26,000 4,000
(12,000) -

14,000 4,000

(14,000) (4,000)

- -
(3,600) (2,400)

(17,600)
TOTAL

20,000

10,000

30,000
CHAPTER 4 - PROBLEM 6: FOR CLASSROOM DISCUSSION

CASE 1: LUMP-SUM LIQUIDATION

Done Partnership is undergoing liquidation. Information on Done is as follows:

Cash 20,000 Accounts payable

Accounts receivable 60,000 Payable to B
Receivable from A 10,000 A, Capital (60%)
Inventory 120,000 B, Capital (40%)
Equipment, net 290,000
Total assets 500,000 Total liabilities and equity

The non-cash assets were realized as follows:

a. Only 70% of the accounts receivable was collected; the balance is uncollectible.
b. P20,000 was received for the entire inventory.
c. The equipment was sold for P310,000.
d. P12,000 liquidation expenses were paid.

Requirements:
Compute for the cash distributions to the partners.

Done Partnership
Statement of Liquidation
(Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets
Accounts receivable 42,000 (60,000)
Inventory 20,000
Equipment 310,000
Total 392,000### -
Liquidation expenses (12,000)
Total 380,000### -
Payment to outside creditors (30,000)
Total 350,000### -
Payment to partners (350,000)
Total -

CASE 2: INSTALLMENT LIQUIDATION

Done will be liquidated on installment basis. Cash distributions to the partners will be
 made as cash becomes available. In the first month of the liquidation process, the
non-cash assets were realized as follows:
a. Half of the accounts receivable was collected. Of the remaining half, P10,000 accounts
are deemed worthless.
b. Seventy-five percent of the inventory was sold at 80% of cost.
c. Equipment with carrying amount of P200,000 was sold for P185,000.
d. P12,000 liquidation expenses were paid. Additional P5,000 liquidation expenses
are expected to be incurred in subsequent periods.

Requirements:
Compute for the cash distributions to the partners.

Done Partnership
Statement of Liquidation
(Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets
Accounts receivable 30,000 (30,000)
Inventory 72,000
Equipment 185,000
Total 307,000### 30,000
Actual liquidation expenses (12,000)
Total 295,000### 30,000
Allocation of loss on unrealized NCAs & future expenses
Accounts receivable (30,000)
Inventory
Equipment
Cash retained for future expen (5,000)
Total 290,000### -
Payment to outside creditors (30,000)
Total 260,000### -
Payment to partners (260,000)### -
Total -

CASE 3: GAIN ON SETTLEMENT OF LIABILITY

All the non-cash assets, except the receivable from A, were realized for P250,000.
The accounts payable was settled for P24,000, after offset of a P6,000 credit
memorandum.
 Requirements:
Compute for the cash distributions to the partners.

Done Partnership
Statement of Liquidation
(Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets 250,000
Accounts receivable (60,000)
Inventory
Equipment
Total 270,000### -
Payment to outside creditors (24,000)
Total 246,000### -
Payment to partners (246,000)
### -
Total -### -

Sale of certain non-cash assets 250,000

Less: Carrying amounts of NCA (470,000)
Total loss (220,000)

Beginning balance of cash 20,000

Net cash proceeds 250,000
Payments for liabilities (24,000)
Cash available for distribution to partners 246,000

CASE 4: MARSHALLING OF ASSETS

All the non-cash assets, except the receivable from A, were realized for P65,000.
The personal assets and liabilities of the partners are as follows:
A B

Personal assets 200,000 380,000

Personal liabilities (440,000) (240,000)

Requirements:
Compute for the cash distributions to the partners.

Done Partnership
 Statement of Liquidation
(Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets 65,000
Accounts receivable (60,000)
Inventory
Equipment
Total 85,000### -
Payment to outside creditors (30,000)
Total 55,000### -
Allocation of capital deficiency of the
personally insolvent partner
Balances 55,000### -
Payment to partners (55,000)
### -
Total -### -

Sale of certain non-cash assets 65,000

Less: Carrying amounts of NCA (470,000)
Total loss (405,000)

Beginning balance of cash 20,000

Net cash proceeds 65,000
Payments for liabilities (30,000)
Cash available for distribution to partners 55,000

CASE 5: RECONSTRUCTION OF INFORMATION

After all the assets (excluding the receivable from A) were realized and the liabilities
to outside creditors were settled, B received P140,000 in the cash distribution to the
partners.

Requirements:
a. Loss on sale
b. Share of A in the cash distribution to the partners
c. Cash available for distribution to the partners
d. Net proceeds from sale of the non-cash assets, excluding the receivable from A.

Done Partnership
Statement of Liquidation
 (Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets 270,000 (60,000)
Total 290,000### -
Payment to outside creditors (30,000)
Total 260,000### Zyne: -
Payment to partners (260,000) c - answer
Total -

B, received in the cash settlement 140,000

Less: B's interest in the parntership
B, Capital 200,000
Payable to B 20,000 (220,000)
Share in the loss of non cash asset realization (80,000)
Divided by: B's interest ratio in the partnership 40%
Total Loss on realization of non-cash assets (200,000)

CASE 6: NON-CASH ASSET USED AS PAYMENT FOR CLAIM

All the assets (excluding the receivable from A) were realized, except for equipment
with carrying amount of P60,000 which B will take at an equity setoff price of P20,000.
The remaining cash of P35,000 is to be divided among the partners in a manner that
will avoid the possible recovery of cash from a partner.

Requirements:
How much is the total payment to B in cash and in kind?

Done Partnership
Statement of Liquidation
(Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets 45,000
Accounts receivable (60,000)
Inventory
 Equipment at 20,000 set off price
Remaining CA of equipment after setoff price
Equipment Carrying amount sold to outside parties
Total 65,000### -
Payment to outside creditors (30,000)
Total 35,000### -
Allocation of capital deficiency of the
personally insolvent partner
Balances 35,000### -
Payment to partners (35,000)### -
Total -### -
Zyne:
squeez
e
B's Summary of claims received:
Equipment at set-off price 20,000
Cash received 35,000
Total 55,000

CASE 7: CASH PRIORITY PROGRAM

Done will be liquidated on installment basis. In the first month of the liquidation
process, the non-cash assets were realized as follows:
a. Half of the accounts receivable was collected.
b. Seventy-five percent of the inventory was sold at 80% of cost.
c. Equipment with carrying amount of P200,000 was sold for P185,000.
d. P12,000 liquidation expenses were paid. Additional P5,000 liquidation
expenses are expected to be incurred in subsequent periods.

Requirements:
Compute for the cash distributions to the partners using a cash priority program.

Done Partnership
Statement of Liquidation
(Date)

Cash Accounts receivable

Balances before liquidation 20,000 60,000
Interest adjustment
Adjusted interest 20,000### 60,000
Realization of non-cash assets
Accounts receivable 30,000 (30,000)
Inventory 72,000
Equipment 185,000
Total 307,000### 30,000
Actual liquidation expenses (12,000)
Total 295,000### 30,000
Allocation of loss on unrealized NCAs & future expenses
Accounts receivable (30,000)
Inventory
Equipment
Cash retained for future expen (5,000)
Total 290,000### -
Expected payable to outside credi (30,000)
Total 260,000### -
Payment to partners
First priority (60,000)
Remaining cash for distributio (200,000)
Total -### -

60%
A
Capital balances 250,000
Interest adjustments in the partnership
Receivable from A (10,000)
Payable to B
Total interest 240,000
Divded by: P/L ratio 60%
Maximum loss absorption capacity (MLAC) 400,000
First priority
Adjusted 400,000
 30,000
20,000
250,000
200,000

500,000

Done Partnership
Statement of Liquidation
(Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000

(10,800)
(120,000) (60,000)
(290,000) 12,000
- - - 30,000 - 181,200
(7,200)
- - - 30,000 - 174,000
(30,000)
- - - - - 174,000
(174,000)
- - - - - -
,000 accounts

Done Partnership
Statement of Liquidation
(Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000

-
(90,000) (10,800)
(200,000) (9,000)
- 30,000 90,000 30,000 - 220,200
(7,200)
- 30,000 90,000 30,000 - 213,000

(18,000)
(30,000) (18,000)
(90,000) (54,000)
(3,000)
- - - 30,000 - 120,000
(30,000)
- - - - - 120,000
- - - - - (120,000)
- - - - - -
 Done Partnership
Statement of Liquidation
(Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000
150,000
(36,000)
(120,000) (72,000)
(290,000) (174,000)
- - - 30,000 - 108,000
(30,000) 3,600
- - - - - 111,600
- - - (111,600)
- - - - - -

Done Partnership
Statement of Liquidation
(Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000
39,000
(36,000)
(120,000) (72,000)
(290,000) (174,000)
- - - 30,000 - (3,000)
(30,000) -
- - - - - (3,000)

3,000
- - - - - -
- - - -
- - - - - -

Test for personal solvency of partners

A B

Personal assets 200,000 380,000

Personal liabilities (440,000) (240,000)
(240,000) 140,000

Done Partnership
Statement of Liquidation
 (Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000
(120,000) (290,000) - (120,000)
- - - 30,000 - 120,000
(30,000)
- - - - - 120,000
(120,000)
- - - - - -
Zyne:
(b) answer

Carrying amount of Non-cash assets

Accounts receivable 60,000
Inventory 120,000
Equipment, net 290,000
Total 470,000
Total Loss on realization of non-cash assets (200,000)
(a) Net proceeds 270,000 (d)

Done Partnership
Statement of Liquidation
(Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000
27,000
(36,000)
(120,000) (72,000)
 (20,000)
(40,000) (24,000)
(230,000) (138,000)
- - - 30,000 - (3,000)
(30,000) -
- - - - - (3,000)

3,000
- - - - - -
- - - -
- - - - - -

Done Partnership
Statement of Liquidation
(Date)
60%
Receivable from Equipment, Accounts
A Inventory net payable Payable to B A, Capital
10,000 120,000 290,000 30,000 20,000 250,000
(10,000) (20,000) (10,000)
- 120,000 290,000 30,000 - 240,000

-
(90,000) (10,800)
(200,000) (9,000)
- 30,000 90,000 30,000 - 220,200
 (7,200)
- 30,000 90,000 30,000 - 213,000

(18,000)
(30,000) (18,000)
(90,000) (54,000)
(3,000)
- - - 30,000 - 120,000
(30,000)
- - - - - 120,000

(120,000)
- - - - - -

40% CASH PRIORITY

B A B TOTAL
200,000

20,000
220,000
40%
550,000
(150,000) 60,000 60,000
400,000 - 60,000 60,000
 40%

B, Capital
200,000
20,000
220,000

(7,200)
(40,000)
8,000
180,800
(4,800)
176,000

176,000
(176,000)
-
 40%

B, Capital
200,000
20,000
220,000

-
(7,200)
(6,000)
206,800
(4,800)
202,000

(12,000)
(12,000)
(36,000)
(2,000)
140,000

140,000
(140,000)
-
 40%

B, Capital
200,000
20,000
220,000
100,000
(24,000)
(48,000)
(116,000)
132,000
2,400
134,400
(134,400)
-
 40%

B, Capital
200,000
20,000
220,000
26,000
(24,000)
(48,000)
(116,000)
58,000
-
58,000

(3,000)
55,000
(55,000)
-
 40%

B, Capital
200,000
20,000
220,000
Zyne:
(80,000) squeeze
140,000

140,000
Zyne:
(140,000) start here
-
Zyne:
(b) answer

40%

B, Capital
200,000
20,000
220,000
18,000
(24,000)
(48,000)
 (20,000)
(16,000)
(92,000)
38,000
-
38,000

(3,000)
35,000
(35,000)
-

40%

B, Capital
200,000
20,000
220,000

-
(7,200)
(6,000)
206,800
 (4,800)
202,000

(12,000)
(12,000)
(36,000)
(2,000)
140,000

140,000

(60,000)
(80,000)
-