Chapter 5

Problem I
1.
A, B, C and D Partnership
Statement of Liquidation
January 1, 20x4 to May 31, 20x4
Cash
Balances before
Liquidation
January
- Realization
- Payment of
expenses
- Payment
of
liabilities
Balances after Jan
February
- Realization
- Payment of
expenses
- Payment
of
liabilities
Balances before
payment to
partners
Payment to
Partners (Sch.
1)
Balances after
February
March
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Sch.
2)
Balances after
March
April

- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Note
1)
Balances after
April
May
- Realization
- Payment of
expenses

72,000
(1,200)
(66,00
0)
4,800
21,600

NonCash
Assets
181,80
0

Liabilitie
s
84,000

A,
loan
6,000

D, loan

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

3,000

26,400

25,800

20,400

16,200

(3,600
)

(3,600)

(90,00
0)

______
91,800

(66,000
)
18,000

_____
6,000

_____
3,000

(30,00
0)

(1,320)

(7,200)

(3,600)

( 480)

( 240)

( 240
)

______
18,720

______
21,960

______
16,560

(3,360)

(1,680)

( 528)

( 264)

(1,680
)

( 240)
______
12,360
(1,680)
( 264)
______

______

______

______

_______

( 264
)
______

61,800

6,000

3,000

14,832

20,016

14,616

10,416

( 5,280
)

______

______

_____

______

(5,280)

______

_____

1,800

61,800

6,000

3,000

14,832

14,736

14,616

10,416

19,200

(24,00
0)

( 960)

( 960)

(1,920)

( 960)

(18,00
0)

_______

7,080

( 1,440
)

(18,00
0)

______

_____

( 576)

( 288)

( 288
)

( 288)

______

19,560

31,500

6,000

3,000

12,336

13,488

13,368

9,168

(18,36
0)

(2,73
6)

(3,000)

(5,688)

(5,568
)

(1,368)

______

1,200

37,800

3,264

12,336

7,800

7,800

7,800

6,000

(19,80
0)

(5,520)

(2,
760)

(2,760
)

(2,760)

(4,800)

______

(1,920)

( 960)

( 960)

2,000

15,000

3,264

4,896

4,080

4,080

4,080

(1,500)

______

( 720)

( 360)

( 360)

500

18,000

2,400

(18,00
0)

2,554
_____

( 960)

( 360)

( 960)

4,896

3,720

3,720

3,720

(6,240)

(3,120)

(3,120)

( 384)

( 192)

(3,120
)

( 192)

( 192
)
Balances before
Offsetting
Offset deficit vs.
Loan
Balances before
payment
Payment to
Partners (Note
2)

1,440

( 1,728
)

408

408

408

1,728

_____

______

_____

408

408

(408)

(408)

______

2,554
(1,72
8)

2,040

816

408

(2,040)

(816)

(408)

2.
A, B, C and D Partnership
Schedule of Safe Payments
Schedule 1 February 28, 20x4
Computation of Distribution of Cash on February 28, 20x4

Balances before payment to partners:

Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
61,800
Cash withheld
1,800

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

6,000
14,832
20,832

20,016
20,016

14,616
14,616

3,000
10,416
13,416

(12,72
0)

(12,72
0)
1,896

(12,72
0)
696

(1,536)
360
( 420)
(
60)
60

(1,536)
( 840)
840

P 63,600
Restricted for possible insolvency of A (2:2:2)

(25,44
0)
( 4,60
8)
4,608

Restricted for possible insolvency of D (2:2)

Restricted for possible insolvency of C
Payment to partner (s)
Applied to:
Loans
Capital

7,296
(1,536)
5,760
( 420)
5,340
( 60)
5,280

-05,280
5,280

Schedule 2 March 31, 20x4

Computation of Distribution of Cash on March 31, 20x4

Balances before payment to partners:

Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
37,800
Cash withheld
1,200

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

6,000
12,336
18,336

13,488
13,488

13,488
13,488

3,000
9,168
12,168

(15,60
0)
2,736

( 7,800
)
5,688

( 7,800
)
5,568

( 7,800
)
4,368

P 39,000

Applied to:

A,
capital
(40%)

Loans
Capital

2,736
___-02,736

-05,688
5,688

-05,568
5,568

3,000
1,368
4,368

3.
T, U, V and W Partnership
Cash Payment Priority Program*
January 31, 20x4
Interests

Balances before
liquidation:
Loans
Capital
Total Interests
Divided by: P & L
%
Loss Absorption
Abilities

T,
capital
(40%)

U,
capital
(20%)

V,
capital
(20%)

W,
capital
(20%)

6,000
26,400
32,400

25,800
25,800

20,400
20,400

3,000
16,200
19,200

T,
capital
(40%)

Payments

U,
capital
(20%)

___20%
__20%
__20%
129,00
81,000
0 102,000
96,000
(27,00
Priority I
______
0)
_______
_______
102,00
81,000
0 102,000
96,000
( 6,000
Priority II
______
)
( 6,000)
_______
81,000
96,000
96,000
96,000
(15,00
(15,000
(15,000
Priority III
______
0)
)
)
_______
81,000
81,000
81,000
81,000
____-0*also known as Schedule of Cash Distribution Plan / Pre-distribution Plan.

V,
capital
(20%)

W,
capital
(20%)

Total

__40%

5,400

5,400

1,200

1,200

3,000
9,600

3,000
4,200

2,400
3,000

9,000

3,000

16,800

4.
Total Interests
Divided by: P & L %
Loss Absorption
Abilities
Order of Cash
Distribution
Vulnerability Rankings (1
Is most vulnerable)

T, capital
(40%)
P 32,400
____40%

U, capital
(20%)
P 25,800
____20%

W, capital
(20%)
P 19,200
____20%

P129,000

V, capital
(20%)
P 20,400
____20%
P
102,000

P 81,000
(4)

(1)

(2)

(3)

(1)

(4)

(3)

(2)

P 96,000

The vulnerability ranks indicate that partner T is most vulnerable to losses because his
equity were reduced to zero with a partnership liquidation loss of P81,000. Partner U is
least vulnerable because his equity is sufficient to absorb his share of liquidation losses
up to P129,000. This interpretation helps explain why partner U received all the cash
distributed to partner on the first installment distribution (August 20x4).
Incidentally, the cash priority program developed will yield the same cash payment as
the process of computing safe payments each time cash is available. The cash
distribution under the cash priority program is as follows:
Order of Cash
Distribution
1. First P70,000
2. Next P 4,500

Creditor
s
100%

U
100%

3. Next P2,000
4. Next P7,500
5. Remainder

40%

50%
33 1/3%
20%

50%
33 1/3%
20%

33 1/3%
20%

The first P84,000 available is, of course paid to the creditors. Cash may be held back
from distribution if it is anticipated that additional expenses will be incurred and
unrecorded liabilities will be discovered. The distribution of cash in excess of the reserve
amount proceeds as determined. Partner U will receive all of an additional ash up to
P5,400. Additional cash in excess of P5,400 and up to P7,800 is distributed 50:50 to
partners U and V. Any amount in excess of P7,800up to P16,800 is distributed 1: 1: 1 to
partners U, V, and W, respectively. After P16,800 (P5,400 + P2,400 + P9,000) has been
distributed to the partners, the capital accounts are in the desired profit and loss ratio of
4:2:2:2. Any further distributions to the partners are made in accordance with the profit
and loss ratio.
Even though both methods produce the same results, the cash payment priority
program is more informative to both personal and partnership creditors, and to the
partners. Interested parties now know the order in which the individual partners will
receive cash and the amounts that each may receive at each period of the distribution
process.
One requirement that must be satisfied in the development of the advance plan is that
the partners must share income in the same ratio that they share losses. If this were not
the case the potential amount of a new loss would need to be computed after every
allocation to the partners capital accounts. This occurs because the allocation of
liquidation gain alters the order of cash distribution computed in the priority program.
Problem II

ABC Partnership
Statement of Partnership Realization and Liquidation
For the period from January 1, 20x4, through March 31, 20x4

Cash
Balances before Liquidation,
18,000
January 1,20x4
January transactions:
1. Collection of accounts
receivable at a loss
of P15,000
51,000
2. Sale of inventory at a
38,000
loss of P14,000
3. Liquidation expenses
(2,000)
paid
4. Share of credit memorandum
5. Payments to creditors
(50,000
)
55,000
Safe payments to partners
(Schedule 1)
February transactions:
6. Liquidation expenses
paid

Other
Assets

Accounts
Payable

307,000

(53,000)

(66,000)
(52,000)

Capital
Balances
AA
BB
30%
50%
(88,000)
(110,000
)

CC
20%
(74,000)

7,500
7,000

4,500
4,200

3,000
2,800

1,000

600

400

3,000
50,000

(1,500)

(900)

(600)

189,000

-0-

(74,000)

(101,600
)

(68,400)

(45,000)
10,000

189,000

__
-0-

(74,000)

26,600
(75,000)

18,400
(50,000)

(4,000)
6,000

__
189,000

-0-

2,000
(72,000)

1,200
(73,800)

800
(49,200)

Safe payments to partners

(Schedule 2)
March transactions:
8. Sale of M&Eq. at a loss
of P43,000
9. Liquidation expenses
paid
10. Payments to partners

Balances at end of
liquidation, March 31, 20x4

-06,000
146,000
(5,000
)
147,000
(147,000
)

__
189,000

-0-

(189,000
)

-0-

-0-

___ -0(72,000)

-0(73,800)

-0(49,200)

21,500

12,900

8,600

2,500
(48,000)

-0-

1,500

1,000

(59,400)
59,400

(39,600)
39,600

48,000
-0-

-0-

-0-

-0-

0-

ABC Partnership
Schedules of Safe Payments to Partners

Schedule 1: January 31, 20x4

Capital balances
Possible loss:
Other assets (P189,000) and possible
liquidation costs (P10,000)
Absorption of AAs potential deficit balance
BB: (P25,500 x 3/5 = P15,300)
CC: (P25,500 x 2/5 = P10,200)
Safe payment, January 31, 20x4
Schedule 2: February 27, 20x4
Capital balances
Possible loss:
Other assets (P189,000) and possible
liquidation costs (P6,000)
Absorption of AAs potential deficit balance:
BB: (P25,500 x 3/5 = P15,300)
CC: (P25,500 x 2/5 = P10,200)
Safe payment, February 27, 20x4

AA
50%
(74,000)

BB
30%
(101,600)

CC
20%
(68,400)

99,500
25,500
(25,500)

59,700
(41,900)

39,800
(28,600)

15,300
-0-

(26,600)

10,200
(18,400)

(72,000)

(73,800)

(49,200)

97,500
25,500
(25,500)

58,500
(15,300)

39,000
(10,200)

15,300
-0-

-0-

10,200
-0-

Note that the computation of safe payments on February 27, 20x4, resulted in no payments to
partners. This is due to the large book value of Other Assets still unrealized and the reservation of
the $6,000 cash on hand for possible future liquidation expenses.

Problem III: Cash Distribution Plan

PET Partnership
Cash Distribution Plan
June 30, 20x4

Loss Absorption Power

PP

EE

Capital Accounts
TT

PP

EE

TT

Profit and loss

percentages

50%

30%

20%

Preliquidation
capital balances

(55,000)

(45,000)

(24,000)

(55,000)

9,000
(36,000)

(24,000)

Loss absorption
Power (Capital
balances /
Loss percent)

(110,000)

(150,000)

(120,000)

(110,000)

30,000
(120,000)

(120,000)

Decrease highest LAP

to next highest:
EE
(P30,000 x .30)

Decrease LAPs
to next highest:
EE
(P10,000 x .30)
TT
(P10,000 x .20)

10,000

(110,000)

3,000

(110,000)

10,000
(110,000)

(55,000)

2,000
(22,000)

(33,000)

Summary of Cash Distribution

(If Offer of P100,000 is Accepted)
Accounts
Payable
Cash available
First
Next
Next
Additional paid
in P&L ratio

P106,000
(17,000)
(9,000)
(5,000)

PP
50%

EE
30%

TT
20%

P 9,000
3,000

P 2,000

22,500
P34,500

15,000
P17,000

P17,000

(75,000)
P
-0-

______
P17,000

P37,500
P37,500

Problem IV

PET Partnership
Statement of Partnership Liquidation and Realization
From July 1, 20x4, through September 30, 20x4
Capital

Preliquidation balances
July:

Cash

Noncash
Assets

Accounts
Payable

6,000

135,000

(17,000)

PP

EE

50%
(55,00
0)

30%
(45,000)

TT
20%
(24,000)

Assets Realized
Paid liquidation costs
Paid creditors

26,500
(1,000)
(17,000
)
14,500

(36,000)

4,750
500

2,850
300

1,900
200

(49,75
0)

(41,850)

(21,900)

17,000
99,000

-0-

Safe Payments (Sch. 1)

6,500
(6,500)
8,000

August:
Equipment withdrawn
(allocate P6,000 gain)
Paid liquidation costs

99,000

-0-

(49,75
0)

(35,350)

(21,900)

(4,000)

(3,000)

(1,800)

8,800

95,000

750
(52,00
0)

450
(1,500)
6,500

-0-

(36,700)

Safe Payments (Sch. 2)

September:
Assets Realized
Paid liquidation costs

Payments to partners
Postliquidation balances

300
(12,800)

4,000
(4,000)
2,500

95,000

75,000

(95.000)

(1,000)
76,500

-0-

(76,500
)
-0-

-0-

(32,700)

(12,800)

10,000

6,000
300

4,000
200

(26,400)

(8.600)

26,400

8,600

-0-

-0-

500
(41,50
0)
41,500

-0-

-0-

(52,00
0)

-0-

0-

PET Partnership
Schedules of Safe Payments to Partners
Schedule 1: July 31, 20x4
Capital balances
Possible loss on noncash assets (P99,000)
Cash retained (P8,000)
Absorption of Pen's potential deficit
EE: P3,750 x .30/.50
TT: P3,750 x .20/.50

PP
50%
(49,750)
49,500
4,000
3,750
(3,750)

Schedule 2: August 31, 20x4

Capital balances
Possible loss on noncash assets (P95,000)
Cash retained (P2,500)

TT
20%
(21,900)
19,800
1,600
(500)

2,250
-0-

Absorption of TTs potential deficit

EE P1,000 x .30/.30
Safe payment

EE
30%
(41,850)
29,700
2,400
(9,750)

(7,500)

-0-

(52,000)
47,500
1,250

1,000
(6,500)

(36,700)
28,500
750

1,500
1,000
(1,000)
-0-

(12,800)
19,000
500

(3,250)
Absorption of TTs potential deficit
PP: P6,700 x .50/.80
EE: P6,700 x .30/.80

(7,450)

6,700
(6,700)

4,188
938
(938)

Absorption of PPs potential deficit

EE: P938 x .30/.30
Safe payment

-0-

2,512
(4,938)

-0-

938
(4,000)

-0-

Problem V
DSV Partnership
Statement of Partnership Realization and Liquidation Installment Liquidation
From July 1, 20x4, through September 30, 20x4
Capital

Preliquidation balances, 6/30

July, 20x4: Sale of assets and
distribution of P120,000
loss

Cash

Noncash
Assets

50,000

670,000

390,000
440,000

(510,000
)
160,000

Liabilitie
s
(405,000
)

(405,000
)

Balances
D
50%

S
30%

20%

(100,00
0)

(140,00
0)

(75,000)

36,000

24,000

(104,00
0)
750

(51,000)

(103,25
0)

(50,500)

60,000
(40,000)

Liquidation expenses

Payment to creditors

Payments to partners (Sch.

1)

160,000

(405,00
0)
32,500

(405,000
)
405,000

160,000

-0-

(38,750)

(103,25
0)
22,500

(50,500)

(22,500)
10,000

160,000

-0-

(38,750)

(80,750)

(50,500)

(35,000
)
125,000

3,900

2,600

22,000
32,000

-0-

6,500
(32,250)

(76,850)
750

(47,900)
500

125,000

-0-

1,250
(31,000)

(76,100)
13,700

(47,400)
5,800

125,000

-0-

(31,000)

(62,400)

(41,600)

21,000

14,000

(41,400)
2,400

(27,600)
1,600

(39,000)

(26,000)
1,000

Liquidation expenses
Payments to partners (Sch.
2)

500

(2,500)
437,500

August, 20x4: Sale of assets

&
distribution of P13,000 loss

1,250
(38,750)

(2,500)
29,500
(19,500
)
10,000

September, 20x4: Sale of

assets
distribution of P70,000 loss
55,000
65,000

(125,000
)
-0-

-0-

35,000
4,000

65,000

-0-

-0-

(4,000)
-0-

Allocate D's deficit to S and

V
Liquidation expenses
(2,500)

1,500

62,500

-0-

-0-

-0-

Payments to partners

(62,500)

(37,500)
37,500

(25,000)
25,000

0-

Postliquidation balances

-0-

-0-

-0-

-0-

-0-

0-

DSV Partnership
Schedule of Safe Payments to Partners
Schedule 1, July 31, 20x4:
Capital balances, July 31,
Before cash distribution
Assume full loss of P160,000 on
remaining noncash assets and
P10,000 in possible future
liquidation expenses
Assume D's potential deficit
must be absorbed by S and V:
30/50 x P46,250
20/50 x P46,250

D
50%

S
30%

V
20%

(38,750)

(103,250)

(50,500)

85,000
46,250

51,000
(52,250)

34,000
(16,500)

(46,250)
27,750
-0-

Assume V's potential deficit

must be absorbed by S completely
Safe payments to partners
on July 31, 20x4

-0-

Schedule 2, August 31, 20x4:

Capital balances, August 31,
before cash distribution
Assume full loss of P125,000 on
remaining noncash assets and
P10,000 in possible liquidation
expenses
Assume D's potential deficit
must be absorbed by S and V:
30/50 x P36,500
20/50 x P36,500
Safe payments to partners

(24,500)

18,500
2,000

2,000

(2,000)

(22,500)

-0-

(31,000)

(76,100)

(47,400)

67,500
36,500

40,500
(35,600)

27,000
(20,400)

(36,500)
21,900
-0-

(13,700)

14,600
(5,800)

Problem VI: Cash Distribution Plan (or better use the format presented in the
discussion)

DSV Partnership
Cash Distribution Plan
June 30, 20x4

Loss Absorption Power

D

Capital Accounts
V

Profit and loss sharing ratio

Preliquidation capital balances
Loss absorption power (LAP)
capital accounts /
loss sharing percentage
Decrease highest LAP to next
highest LAP:

D
50%
(100,000)

(200,00
0)

(466,66
7)

(375,00
0)

30%
(140,000)

20%
(75,000
)

Decrease S by P91,667
(Cash distribution: P91,667 x .
30)

91,667
27,500
(200,00
0)

Decrease LAP to next highest

level:
Decrease S by P175,000
Cash distribution: P175,000 x .
30)
Decrease V by P175,000
Cash distribution: P175,000 x .
20)

Decrease LAPs by distributing

cash in the P/L sharing ratio

(375,00
0)

(375,00
0)

(100,000)

(112,500)

175,000
52,500
175,000
35,000

(200,00
0)

(200,00
0)

(200,00
0)

50%

30%

20%

(100,000)

(60,000)

Summary of Cash Distribution Plan

(Estimated on June 30, 20x4)
Liquidatio
n
Creditors

100%
60%

40%

30%

20%

Expenses
1.
2.
3.
4.
5.

(75,000
)

First P405,000
100%
Next P10,000
Next P27,500
Next P87,500
Any additional distributions
in the partners' profit
and loss ratio

100%

50%

b. Confirmation of cash distribution plan

DSV Partnership
Capital Account Balances
June 30, 20x4, through September 30, 20x4
Profit and loss ratio
Preliquidation balances, June 30
July loss of P120,000 on disposal of assets
and P2,500 paid in liquidation costs

50%
(100,000)

30%
(140,000)

20%
(75,000)

61,250
(38,750)

36,750
(103,250)

24,500
(50,500)

(38,750)

22,500
(80,750)

(50,500)

7,750
(31,000)

4,650
(76,100)

3,100
(47,400)

July 31 distribution of P22,500 of

available cash to partners (Sch. 1)
First P22,500 of P27,500 layer:
100% to S
August loss of P13,000 on disposal of
assets and P2,500 paid in
liquidation costs
August 31 distribution of P19,500 of
available cash to partners (Sch. 2)
Remaining P5,000 of P27,500 layer
of which P22,500 paid on July 31:
100% to S
Next $14,500 of P87,500 layer:

5,000

(40,000
)

60% to S
40% to V

8,700

September loss of P70,000 on disposal of

assets and P2,500 paid in liquidation
costs
Distribution of D's deficit

(31,000)

(62,400)

5,800
(41,600)

36,250
5,250
(5,250)
-0-

21,750
(40,650)
3,150
(37,500)

14,500
(27,100)
2,100
(25,000)

September 30 distribution of P62,500 of

available cash to partners (Sch. 3)
Next P62,500 of P87,500 layer of which
P14,500 paid on August 31:
60% to S
40% to V
Postliquidation balances

37,500
-0-

-0-

25,000
-0-

Schedule 1, July 31, 20x4: Computation of P22,500 of cash available to be distributed to

partners on July 31, 20x4:
Cash balance, July 1, 20x4
P 50,000
Cash from sale of noncash assets
390,000
Less: Payment of actual liquidation expenses
(2,500)
Less: Payments to creditors
(405,000)
Less: Amount held for possible
future liquidation expenses
(10,000)
Cash available to partners, July 31, 20x4
P 22,500
Schedule 2, August 31, 20x4: Computation of P19,500 of cash available to be distributed to
partners on August 31, 20x4:
Cash balance, August 1, 20x4
Cash from sale of noncash assets
Less: Payment of actual liquidation expenses
Less: Amount held for possible
future liquidation expenses
Cash available to partners, August 31, 20x4

P10,000
22,000
(2,500)
(10,000)
P 19,500

Schedule 3, September 30, 20x4: Computation of P62,500 of cash available to be distributed to

partners on September 30, 20x4:
Cash balance, September 1, 20x4
Cash received from sale of noncash assets
Less: Payment of actual liquidation expenses
Cash available to partners, September 30, 20x4

P10,000
55,000
(2,500)
P62,500

Problem VII

Cash distribution program:

First
Next
Next
All over

P 50,000
34,000
48,000
P132,000

Creditors
100%

Ames

40%

Beard
100%
33 1/3%
20%

Craig
66 2/3%
40%

Working paper for cash distributions to partners during liquidation (not required):
Ames
Beard
Craig
Capital balances before liquidation
P60,000 P80,000 P92,000
Income-sharing ratio
4
4
2

Capital per unit

Reduce Beard's
Capital per unit
Reduce Beard's
Capital per unit

of income sharing
P15,000
capital to next highest capital for Craig ______
of income sharing
P15,000
and Craig's capital to Ames's capital
______
of income sharing
P15,000

P40,000 P23,000
(17,000)
______
P23,000 P23,000
(8,000) (8,000)
P15,000 P15,000

Problem VIII
Cash
60,000
Quanto, Capital
5,000
Rollo, Capital
3,000
Simms, Capital
2,000
Assets
To record realization of assets at a loss of $10,000, divided
amount Quanto, Rollo, and Simms in 5:3:2 ratio, respectively.
Liabilities
Cash
To record payment to creditors.

30,000

Loan Payable to Quanto

Rollo, Capital
Simms, Capital
Cash
To record payment to partners, computed as follows:

9,500
10,500
5,000

30,000

Quanto
Capital (including Quanto's
loan of P10,000)
before liquidation
Loss on realization of assets
Balances
Maximum potential
additional
loss (P5,000 +
P50,000 = P55,000)
divided in 5:3:2 ratio
Cash payments
Multiple Choice Problems

1. d

Prior capital
Loss on sale
of inventory

Possible loss
of remaining
inventory

Rollo

25,000

Simms

P42,000
(5,000)
P37,000

P30,000
(3,000)
P27,000

P18,000
(2,000)
P16,000

(27,500)
P 9,500

(16,500)
P10,500

(11,000)
P 5,000

JJ
(160,000)

CC
(45,000
)

TT
(55,000)

24,000

30,000

6,000

(136,000)

(15,000
)

(49,000)

60,000
(200,000)

64,000

80,000

16,000

160,000

(33,000)

(40,000)

(72,000)
Allocate Charles'

70,000

65,000

Total
(260,000)

potential
capital deficit:

52,000
(20,000)

2. a

Capital balances
Loss on sale of assets
(475,000 600,000)
4:4:2

Possible loss for unrealized

assets
P1,000,000 P600,000 =
400,000

3.

4.

Profit and loss ratio

Beginning capital

Possible loss unrealized

NCA
Safe payments
b

6.

( 50,000
)
250,000

160,000
(90,000

13,000
(20,000)

(40,000)

Paul
350,00
0

Mary
400,000

Total
1,050,00
0

(50,000
)

(25,000
)

(125,000)

300,00
0

375,000

925,000

160,00
0
140,00
0

80,000

400,000

295,000

525,000

-0-

The loan payable to AA has the same legal status as the partnerships
other liabilities. After payment of the loan, then any available cash can
be distributed to the partners using the safe payments computations.

Actual loss on assets (5:3:2)

5.

Peter
300,000

(65,000
)

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(77,500 x .20 = 15,500)
Balances

CC
5/10
80,000

DD
3/10
90,000

(15,000
)

(9,000)

65,000
( 50,00
0)
15,000

AA
37,000
40%
92,500

81,000
(30,000)
51,000

EE
2/10
70,000
(6,000)
64,000
(20,000
)
44,000

Total
10/10
240,00
0
( 30,00
0)
210,00
0
( 20,00
0)
190,00
0

BB

CC

65,000
40%

48,000

162,500

240,000

20%

77,500
92,500

162,500

162,500

Loss to reduce BB & CC to

AA:
(B:70,000 x .40 = 28,000)
(C:70,000 x .20 = 14,000)
Balances

70,000

70,000

92,500

92,500

92,500

Cash of P20,000 after settlement of liabilities: CC receives first

P15,500; remaining P4,500 split 2/3 to BB and 1/3 to CC
7.

d Cash of P17,000: CC receives first P15,500; remaining P1,500 split

2/3 to BB and 1/3 to CC.

8.

a If all partners received cash after the second sale, then the remaining
12,000 is distributed in the loss ratio.

9.

AE
40%
(40,000)
40,000
-0-

Profit and loss ratio

Capital balances
Loss of P100,000
Remaining equities

BT
30%
(180,000)
30,000
(150,000)

KT
30%
(30,000)
30,000
-0-

AE will receive nothing; the entire P150,000 will be paid to BT.

10. b

Ding

Total

Capital before
realization
Loss on sale (4:2:2:2)

60,000

Laurel

67,000

(52,800)
7,200

Possible insolvency loss (4:2:2)

( 26,400)
40,600

( 4,700)

Ezzard

Tillman

17,000

96,000

(26,400)

(26,400
)

( 9,400)

69,600

240,00
0
(132,00
0)
108,00
0

( 2,350)

( 9,400)

( 2,350)

38,250

295,000

67,250

-0Safe payments
108,000
11. a

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(80,000 x .20 = 16,000)
Balances

2,500

D
72,000
40%
180,000

32,000
20%

52,000

24,000

20%

20%

160,000

260,000

120,000

80,000
180,000

160,000

180,000

____0
120,000

12. No answer available Harding, P6,107; Jones, P12,275

Capital balances
Potential loss from Sandy
deficit

Loss to reduce H and J:

(50:35)
Balances
Note:

20,000
(5,882)
14,118
(8,011)
6,107

Total

22,000
(4,118)

(10,000)

32,000

10,000

17,882

32,000
(13,618)

(5,607)
12,275

13,382

1. Regardless there is a forthcoming contribution to be made by Sandy, it is assumed that the P10,000 deficit
may
not be recovered for purposes of distribution of cash.
2. The P13,382 cannot be distributed in accordance with profit and loss ratio for reason that the capital
balances of Harding and Jones is not the same with the P&L ratio (H: 20/42 =48%; J: 22/42 = 52%)

or, alternatively: Using Cash Payment Priority Program

Capital balances
Additional contribution

20,000

22,000
0

Capital balances

53,429

34,000

Loss to reduce JJ to HH:

(19,428 x 35/85 = 8,000)

10,000

35/85

50/85

Loss absorption power

(10,000)

22,000

20,000

Divided by: Profit and loss ratio

19,428

Balances

34,000

Cash available
P18,382
Less: Priority I to Jones (P19,428 x 35/85)
8,000
P10,382
Less: P& L (50:35)
(10,382)
P6,107

34,000
P 8,000
P 6,107

4,275
P 12,275

13. b

Capital before realization

Loss on sale (30:45:25); [200
150]

Gonda

60,000
(15,000)
45,000

Herron

70,000

( 22,500)
47,500

Morse

40,000
(12,500)
27,500

Total

170,00
0
(50,000
)
120,00
0

14. 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

100,000

50,000

Loss on sale (30:20:50); [350

150]

(60,000)

Possible insolvency (2:5)

(10,000)
10,000

Safe payments
150,000

Less: Machine, at fair value

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce E to D:
(45,000 x 1/3 = 15,000)
Balances

( 40,000)

(100,00
0)
100,000

60,000
(2,857)

(7,143)

57,143

15. a

Capital balances

200,000

92,857

40,000
______

90,000
(35,000)

30,000
______

40,000
1/3

55,000
1/3

30,000

120,000

165,000

90,000

(45,000)

____0

120,000

90,000

120,000

350,00
0
(200,00
0)
150,00
0
0

1/3

16. c
Total

Capital
Loan
Total interests
Loss on sale (5:3:2) - [90,000
26,000]
Possible insolvency (5:3)
Additional investment

40,000
________
40,000

15,000
_______
15,000

5,000

60,000

5,000

5,000

10,000

65,000
(64,000
)
1,000

(32,000)
8,000

( 19,200)

(12,800)

( 4,200)

(1,750)

( 1,050)

( 2,800)
2,800

6,250
_______
6,250

( 5,250)
5,250

1,000
5,250
6,250

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

18. 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

19. b

5,000
13,000

Total

Capital before realization

Loss on sale (2:2:1); [90 50]

Possible loss P90,000, unrealized

NCA

65,000

37,000

( 16,000)

21,000

49,000

(36,000)

(36,000)

(15,000)

48,000

(16,000)

20,000
Possible insolvency loss (2:1)

18,000

( 8,000)
40,000
(18,000)

13,000

15,000

150,00
0
(40,000
)
110,00
0
90,000

22,000

(10,000)
3,000

( 5,000)

17,000

20. b
Total

Capital before realization

Loss on sale (2:2:1); [90 50]

Possible loss P90,000, unrealized

NCA
plus P3,000 = P93,000

17,000
Possible insolvency loss (2:1)

65,000

37,000

48,000

(16,000)

( 16,000)

21,000

49,000

(37,200)

(37,200)

(16,200)

( 8,000)
40,000
(18,600)

11,800

16,200

93,000

21,400

(10,800)
1,000

17,000

150,00
0
(40,000
)
110,00
0

( 5,400)

16,000

21. d - Since the partnership currently has total capital of P400,000, the P30,000 that is
available would indicate maximum potential losses of P370,000.
A

Reported balances
Anticipated loss (P370,000) split on
a 2:3:5 basis
Potential balances
Potential loss from C's deficit (split 2:3)
Current cash distribution
22. c

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(170,000 x .10 = 17,000)
Balances
23. c

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(15,000 x .20 = 3,000)
Balances

P100,000
(74,000)
P 26,000
( 2,000)
P 24,000

P120,000

P180,000

(111,000)
P 9,000
(3,000)
P 6,000

(185,000)
P (5,000)
5,000
P
-0-

59,000

39,000
30%

34,000

34,000

10%

20%

130,000

340,000

170,000

40%
147,500

170,000
147,500

130,000

60,000

27,000
30%

43,000

20,000

20%

10%

90,000

215,000

200,000

15,000

____0

200,000

200,000

40%
150,000

150,000

90,000

170,000

____0

170,000
M

24. c - the P16,000 available cash can be distributed but should be done under the
assumption that all deficit balances will be total losses. After offsetting JJ loan, the two
deficits total P4,000. FF and RR, the two partners with positive capital balances, share
profits in a 30:20 relationship (the equivalent of a 60%:40% ratio). FF would absorb P2,400
of the potential loss with RR being allocated P1,600. The remaining capital balances
(P10,600 and P5,400) are safe capital balances and those amounts can be immediately
distributed.
or, alternatively:

Capital balances
Loan
Total interests
Potential insolvency loss (3:2)

W
(2,000)
______
(2,000)
2,000

(5,000)

13,000

7,000

3,000

_______

(2,000)
2,000

13,000

7,000

( 2,400)

(1,600)

__

10,600

25. b

Capital balances
Potential loss from A deficit (5:3)

(5,000)

14,875

Loss to reduce H and J:

(5:3)

18,000
(3,125)

5,000

5,400

(8,750)
6,125

Possible insolvency loss

Total

6,000

19,000

(1,875)
4,125

(5,250)
(1,125)
(1,125)

19,000
(14,000)
5,000

1,125

5,000
26. c

Total

Capital before realization

Loan
Total interests
Loss on sale (240,000 195,000)

70,000
20,000
90,000
(15,000)
75,000

30,000
______
30,000
( 15,000)
15,000

50,000
______
50,000
(15,000)
35,000

150,00
0
20,000
170,00
0
(45,000
)
125,00
0

27. b liabilities should be paid first, then the balance of P30,000 should be given to Able
since he is the one entitled to the first priority.
INTERESTS
PAYMENTS______
A
B
C
A
B
C
Total
Balances before realization
Loans.. P 20,000
Capital...
70,000 P 30,000 P 50,000
Total interests... P 90,000 P 30,000 P 50,000
Divided by: P&L ratio
1/3
1/3
1/3
Loss absorption ability.. P270,000 P 90,000 P150,000
Priority I. 120,000
_______ P40,000
P40,000
P150,000 P90,000 P150,000
Priority II
60,000
0
60,000 20,000
0 P20,000
40,000
P 90,000 P90,000 P 90,000 P60,000 P
0 P20,000
P80,000
28. d
A

Total

Capital before realization

70,000

Loan

20,000

Total interests

90,000

Loss on sale (240,000 195,000)

(15,000)
75,000

Payment of loans to partner

30,000

50,000

______

______
50,000

30,000

(15,000)

( 15,000)
15,000

35,000

______

(20,000)

55,000
105,000
Asset received
______
(30,000)
Payment to partners after payment of loan 55,000
75,000

150,00
0

_____

15,000

20,000
170,00
0
(45,000
)
125,00
0
(20,000
)

35,000

______

(30,000)

15,000

5,000

Note: The requirement is payment to partners after outside creditors and loans to partners had been paid,
therefore, the payment to partners is in so far as capital is concerned.

29. d
D

INTERESTS
K
R

Balances before realization

Loans.. P
0
P 10,000 P(20,000)
Capital... 170,000
170,000
100,000
Total interests... P170,000 P180,000 P 80,000
Divided by: P&L ratio
50%
30%
20%
Loss absorption abilities.. P340,000 P600,000 P400,000
Priority I.
(200,000)
0
P340,000 P400,000 P400,000
Priority II
(60,000)
(60,000)
P340,000 P340,000 P340,000

P60,000

INTERESTS
N
D

Balances before realization

Loans.. P
0
P
0 P
0
Capital...
22,000 15,500
14,000
Total interests... P 22,000 P15,500 P 14,000
Divided by: P&L ratio
2/4
1/4
1/4
Loss absorption abilities.. P 44,000 P62,000 P 56,000
Priority I.
( 6,000)
0
P 44,000 P56,000 P56,000
Priority II
(12,000) (12,000) __

___

P60,000

18,000
P P 78,000

Cash received by the partner Kemp

Add (deduct):
Liabilities paid
Expenses paid
Contingency
Cash, beginning
Proceeds from sale of other assets
30. b

PAYMENTS
R
Total

18,000
36,000
P18,000 P 96,000

P 60,000
250,000
5,000
10,000
(120,000)
P205,000

PAYMENTS
N
D

P 1,500
3,000

P 3,000

___
Total

P1,500
6,000

P 44,000 P44,000 P44,000

P 4,500

Cash received by Tree

Divided by: P & L ratio
Amount in excess of P7,500
Total cash payments refer to program
Payment to partners

P 3,000 P 7,500

6,250
2/4
P 12,500

7,500

P 20,000

31. d
Cash, beginning
Add (deduct):
Proceeds from sale of certain assets
Liquidation expenses paid
Payment of liabilities
Payment to partners (refer to No. 30)
Cash withheld

P 12,000
32,000
1,000)
5,400)
( 20,000)
P 17,600
(
(

32. b - (P40,000 + P10,000 P2,000 P4,000 = P44,000)

33. d

Balances before realization

Loans..
Capital...
Total interests...
Divided by: P&L ratio
Loss absorption abilities..
Priority I.
2,000
Priority II
14,000 (d)

INTERESTS
Q
R

PAYMENTS______
Q
R
Total

P 6,000
P(10,000)
24,000 P36,000
60,000
P30,000 P36,000
P50,000
3/10
3/10
4/10
P100,000 P120,000 P125,000
(5,000)
P100,000 P120,000 P120,000
(20,000) (20,000)
P100,000 P100,000 P100,000

P16,000

P 2,000 P
P6,000
P P6,000

8,000
P10,000

34. d
Priority
Creditors
First P300,000. P300,000
Next P80,000 (7:3)
Next P70,000 (3:4)
Remainder*..
P300,000
(d)

Mattews

Norell

Theories

6.

7.

11
.
12
.

Total

P300,000
P56,000
P24,000
80,000
30,000
P40,000
70,000
22,000
34,000
44,000
100,000
P108,000
P58,000
P84,000 P550,000

*P550,000 P300,000 P80,000 P70,000 = P100,000

1
.
2
.

Reams

e
a

16
.
17
.

b
a

3
.
4
.
5
.

8.

9.

10
,

13
.
14
.
15
,

a
c
d

18
.
19
.
20
.

b
c
d