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CHAPTER Partnership Liquidation EXERCISES Exercise - Capital balances before liquidation Loan from partners Total partners’ interest Loss on realization (P46,000 – P12,000) Balances Additional loss to partners Balances Additional loss to partners Distribution of cash to partners Aguilar P 11,000 2,000 P 13,000 (13,600) P( 600) 600 Benito P 10,300 Casimiro P 13,700 David P 9,000 P 10,300 ( 10,200) P 100 ( 300) P ( 200) 200 - P 13,700 ( 6,800) P 6,900 ( 200) P 6,700 ( 133) 6,567 P 9,000 ( 3,400) P 5,600 ( 100) P 5,500 ( 67) 5,433 Felipe P 20,000 7,500 ( 10,000) P 17,500 ( 16,250) P 1,250 ( 5,625) P( 4,375) Total P 92,500 30,000 ( 35,000) P 87,500 ( 65,000) P 22,500 ( 22,500) Exercise - Original investments Net income for 2007 Drawings in 2007 Total partners’ interest before dissolution Net assets distributed to partners Balances Loss to partners distributed 2:1:1 Cash settlement among partners Duque P 50,000 15,000 ( 15,000) P 50,000 ( 32,500) P 17,500 ( 11,250) P 6,250 Espino P 22,500 7,500 ( 10,000) P 20,000 ( 16,250) P 3,750 ( 5,625) P( 1,875) Exercise - 3 Guarin, Capital Receivable from Guarin To offset receivable from Guarin against his capital 1,500 Salary Payable to Henson Henson, Capital To include salary payable to Henson to his interest 500 Henson, Capital (P24,500 x 40%) Guarin, Capital (P24,500 x 60%) Loss from Liquidation To distribute loss from liquidation to partners Henson, Capital (P9,500 + P500 - P9,800) Guarin, Capital (P18,000 - P1,500 - P14,700) Cash Exercise - Original investment Net loss for six months* 1,500 500 9,800 14,700 24,500 200 1,800 2,000 Ibarra P 60,000 (18,000) Javier P 54,000 (12,000) Katindig P 16,000 ( 6,000) AA1 - Chapter (2008 edition) page Loss on realization (P121,000 - P49,000 = P72,000) Balances Additional loss to partners Cash distribution to Ibarra * (36,000) P 6,000 ( 1,200) ( 4,800) Total capital, March (P60,000 + P54,000 + P16,000) Net assets, Aug 31 (P5,000 + P121,000 - P32,000) Net loss (24,000) P 18,000 ( 800) P130,000 94,000 P 36,000 Book value of other assets Total loss on realization Capital balance of Katindig after dist of net loss Excess of personal liabilities over personal assets Maximum amount of loss that can be absorbed by Katindig Fractional share of Katindig Cash that must be realized on sale of other assets Exercise – Book value of other assets (P459,000 – P3,000) Cash realized: Accounts receivable [P180,000 – (P60,000 x 20%)] Merchandise inventory Prepaid advertising Machinery and equipment (P120,000 x 60%) Loss on realization (12,000) P( 2,000) 2,000 P121,000 P 10,000 ( 5,000) P 5,000 1/6 ( 30,000) P 91,000 P456,000 P168,000 75,000 2,400 72,000 317,400 P138,600 Lesaca – Manalo Partnership Statement of Liquidation December 31, 2008 Cash Balances before liquidation Sale of assets and distribution of loss Balances Payment of liabilities Balances Additional investment by Manalo Balances Payment of liabilities Balances Additional loss to Lesaca Payment to Lesaca P 3,000 317,400 Other Assets Liabilities AP NP Capital Lesaca Manalo P456,000 ( 456,000 ) P60,000 P258,000 P90,000 ( 55,440) P 51,000 ( 83,160) P60,000 ( 59,400) P258,000 ( 258,000 ) P34,560 ( 1,200) (P32,160) ( 1,800) P33,360 (P33,960) 12,000 P33,360 (P21,960) P33,360 ( 21,960) P11,400 (P21,960) 21,960 P320,400 ( 320,400 ) P600 12,000 P 12,000 ( 600) P 11,400 P ( 600 600) P 11,400 Exercise – Capital balances before liquidation Restricted interest – possible loss Non-cash assets P600,000 Liquidation expenses 9,000 Nocum P180,000 Oliva P300,000 Pascua P240,000 Quinto (P 33,000) AA1 - Chapter (2008 edition) page Unrecorded liabilities 15,000 Total P624,000 Balances Restricted interest – possible loss to Nocum, Oliva and Pascua for the deficiency of Quinto Balances Restricted interest – possible loss to Oliva and Pascua for the deficiency of Nocum Safe payment ( 156,000) P 24,000 ( 156,000) P144,000 ( 156,000) P 84,000 ( 156,000) (P189,000) ( 63,000) (P 39,000) ( 63,000) P 81,000 ( 63,000) P 21,000 189,000 - ( 19,500) P 61,500 ( 19,500) P 1,500 39,000 - - Exercise - Rama, Sison and Toledo Cash Priority Program PAYMENTS Capital balances Add Loan balances Total partners’ interest Rama P30,000 20,000 P50,000 Sison P70,000 20,000 P90,000 Toledo P40,000 30,000 P70,000 Rama Sison Toledo AA1 - Chapter (2008 edition) page Profit and loss ratio Loss absorption balance Allocation I – Cash to Toledo reducing LAB to an amount reported for Sison (P125,000 x 20%) Balances Allocation II - Cash to Sison & Toledo reducing LAB to an amount reported for Rama P100,000 x 40% P100,000 x 20% Balances Allocation III - Further cash distribution may be made in the P & L ratio Exercise 3-9 Balances before liquidation January: Sale of assets and dist Of loss Payment of liquidation expenses Payment of liabilities P125,000 40% P225,000 20% P350,000 P225,000 (125,000) P225,000 P25,000 (100,000) P125,000 P40,000 (100,000) P125,000 P125,000 20,000 P45,000 P40,000 Julian, Lagman and Magno Cash Priority Program January 1, 2008 Capital balances before liquidation Add Note payable to Magno Total partners’ interest Profit and loss ratio Loss absorption balances Allocation I – Cash to Lagman reducing LAB to an amount reported for Julian (P60,000 x 3/10) Balances Allocation II – Cash to Julian & Lagman reducing LAB to an amount reported for Magno (P40,000 x 3/10) Balances Allocation III – Further cash distributions may be made in the P & L ratio 40% P125,000 Julian P 36,000 Lagman P 54,000 P 36,000 3/10 P120,000 P 54,000 3/10 P180,000 Magno P18,000 14,000 P 32,000 4/10 P80,000 P120,000 (60,000) P120,000 P80,000 ( 40,000) P80,000 (40,000) P80,000 P80,000 Julian PAYMENTS Lagman Magno P18,000 P12,000 P12,000 12,000 P20,000 - Julian, Lagman and Magno Statement of Liquidation January to March, 2008 Cash P12,000 Other Assets P146,000 30,000 ( 38,000) ( 3,600) ( 36,000) Liabilities P36,000 (36,000) NP to Magno P14,000 Julian P36,000 PAYMENTS Lagman Magno P54,000 P18,000 ( 2,400) ( 2,400) ( 3,200) ( 1,080) (1,080 (1,440) AA1 - Chapter (2008 edition) Distribution of cash to partners (sch 1) Balances February: Sale of assets and distribution of gain Payment of liquidation expenses Distribution of cash to partners (sch 2) Balances March: Sale of assets and distribution of loss Balances Offset of loan against deficiency Final payment to partners page ( 2,400) P108,000 44,000 P32,520 (2,400) P48,120 P13,360 2,700 2,700 3,600 (2,520) (2,520) (3,360) P14,000 (10,000) P22,700 (25,600) P22,700 P13,600 P14,000 (11,100) P11,600 (11,100) P11,600 (14,800) P(1,200) (P11,600 ) (P11,600 ) P14,000 (35,000) (8,400) (35,600) P73,000 36,000 P36,000 (73,000) ( 1,200) (P12,800) (P36,000) 1,200 Schedule Installment Liquidation January 31, 2008 Cash available Allocation I – Payable to Lagman Amount P2,400 P2,400 Julian Lagman Mango P2,400 Schedule Installment Liquidation February 29, 2008 Cash available Allocation I – Balance Payable to Lagman Allocation II – Payable to Julian and Lagman Journal entries January Cash Julian, Capital Lagman, Capital Magno, Capital Other Asset Julian, Capital Lagman, Capital Magno, Capital Cash Liabilities Amount P2,400 Julian P2,400 P20,000 Lagman Mango P2,400 P10,000 P10,000 10,000 P25,600 - 30,000 2,400 2,400 3,200 38,000 1,080 1,080 1,440 3,600 36,000 AA1 - Chapter (2008 edition) page Cash 36,000 Lagman, Capital Cash February March 2,400 2,400 Cash Other assets Julian, Capital Lagman, Capital Magno, Capital 44,000 35,000 2,700 2,700 3,600 Julian, Capital Lagman, Capital Magno, Capital Cash 2,520 2,520 3,360 Julian Capital Lagman, Capital Cash 10,000 25,600 Cash Julian, Capital Lagman, Capital Magno, Capital Other assets 36,000 11,100 11,100 14,800 8,400 35,600 73,000 Note Payable to Magno Magno, Capital 1,200 Note Payable to Magno Julian, Capital Lagman, Capital Cash 12,800 11,600 11,600 1,200 36,000 Exercise - 10 U, V and W Co Cash Priority Program PAYMENTS Capital balances Profit and loss ratio Loss absorption balance Allocation I - Cash to Villa reducing LAB to an amount reported for Waldo (P4,900 x 2/7) Balances Allocation II - Cash to Villa & Waldo reducing LAB to an amount reported for Urbe P21,000 x 2/7 P21,000 x 1/7 Balances Urbe P 11,200 4/7 P 19,600 Villa P13,000 2/7 P 45,500 Waldo P 5,800 1/7 P 40,600 P 19,600 ( 4,900) P 40,600 P 40,600 ( 21,000) P 19,600 P 19,600 Urbe Villa Waldo P 1,400 (21,000) P 19,600 6,000 P 7,400 P 3,000 P 3,000 AA1 - Chapter (2008 edition) page Allocation III - Further cash distribution may be made in the P & L ratio Book value of assets Loss on realization: Capital balance of Urbe prior to realization Cash to be received by Urbe Share of Urbe in the loss on realization Fractional share of Urbe Cash to be realized of the sale of assets P 30,000 P 11,200 10,000 P 1,200 4/7_ 2,100 P 27,900 Allocation III - P3,200 ÷ 4/7 = P5,600 x 1/7 Allocation II Total cash received by Waldo P Book value of assets Total cash available Allocation I Allocation II - P1,800 - P1,400 = P400 ÷ 2/3 Loss on liquidation P 30,000 Exercise – 11 Partnership Books Inventories Capital Adjustment Account Accumulated Depreciation Equipment Capital Adjustment Account Goodwill Capital Adjustment Account P980,000 – P924,000 = P56,000 800 3,000 P 3,800 P 1,400 600 90,000 90,000 160,000 80,000 80,000 56,000 56,000 Capital Adjustment Account Belen, Capital (3/4) Bgnes, Capital (1/4) 226,000 Colored Co Stocks Allowance for Uncollectible Accounts Accounts Payable Accounts Receivable Inventories Equipment Goodwill 980,000 12,000 104,000 Belen, Capital Bagnes, Capital Cash Colored Co Stocks 563,500 458,500 New Corporation’s Books 2,000 P 28,000 169,500 56,500 124,000 296,000 520,000 156,000 42,000 980,000 AA1 - Chapter (2008 edition) page Authorized to issue 50,000 shares of P50 par value Ordinary Share Capital Cash Ordinary Share Capital PIC in Excess of Par 700,000 Accounts Receivable Inventories Equipment Goodwill Allowance for Doubtful Accounts Accounts Payable Ordinary Share Capital PIC in Excess of Par 124,000 296,000 520,000 156,000 500,000 200,000 12,000 104,000 700,000 280,000 Problem – (Case – cont.) Calma, Daza and Esteban Schedule of Cash Distribution to Partners Capital balances before cash distribution Add loan balance Total partners’ interest Restricted interest - possible loss to Calma and Esteban in the ratio of 2:1 if Daza fails to pay his deficiency Free interests - amounts to be paid to partners Payment to apply on: Loan Capital Cash distribution Calma P 27,000 Daza P ( 3,000) P 27,000 P ( 3,000) ( 2,000) P 25,000 P 25,000 P 25,000 Esteban P 46,000 8,000 P 54,000 3,000 - ( 1,000) P 53,000 - P 8,000 45,000 P 53,000 AA1 - Chapter – Partnership Liquidation (2005) Suggested Answers page Problem – (Case – cont.) Calma, Daza and Esteban Schedule of Cash Distribution to Partners Capital balances before cash distribution Add loan balance Total partners’ interest Restricted interest - possible loss to Calm and Esteban in the ratio of 2:1 if Daza fails to pay his deficiency Balances Restricted interest - possible loss to Esteban if Calma fails to pay his deficiency Free interests - amounts to be paid to partners Payment to apply on: Loan Capital Cash distribution Calma P 9,000 Daza P (21,000) P 9,000 P (21,000) Esteban P 37,000 8,000 P 45,000 (14,000) 21,000 P( 5,000) - P 38,000 5,000 - ( 5,000) - - - - - ( 7,000) P 8,000 25,000 P 33,000 Chapter – Partnership Liquidation Suggested Answers page Problem - a b c d e f g h a b Cash Accumulated Depreciation Fuentes, Capital (P72,000 x 5/15) Goco, Capital (P72,000 x 5/15) Herrera, Capital (P72,000 x 3/15) Isla, Capital (P72,000 x 2/15) Merchandise Inventory Accounts Receivable Store Fixtures 48,000 25,000 24,000 24,000 14,400 9,600 Accounts Payable Cash (P28,000 + P48,000) 76,000 55,000 60,000 30,000 76,000 Fuentes, Capital Herrera, Capital Isla, Capital Goco, Capital 4,500 2,700 1,800 Fuentes, Capital Isla, Capital Herrera, Capital 1,500 600 Fuentes, Loan Isla, Loan Fuentes, Capital Isla, Capital 2,000 3,000 Cash Fuentes, Capital Herrera, Capital 6,000 Accounts Payable Cash 4,000 Isla, Loan Cash 2,000 Accounts Payable Fuentes, Capital 4,000 Isla, Loan Fuentes, Capital Herrera, Capital 2,000 3,000 9,000 2,100 2,000 3,000 1,000 5,000 4,000 2,000 4,000 5,000 Problem – (cont.) a Accounts Payable Herrera, Capital 4,000 4,000 Chapter – Partnership Liquidation Suggested Answers b page Isla, Capital Fuentes, Capital Herrera, Capital 2,000 1,000 1,000 Schedule to support the entries in Requirement Balances before liquidation Distribution of loss Balances Additional loss for the deficiency of Goco Balances Additional loss for the deficiency of Herrera Balances Offset against debit balance in capital account Balances Additional investment by partners Payment to Isla L O A N Fuentes Isla P 2,000 P 5,000 C A P I T A L Goco Herrera P15,000 P10,000 ( 24,000) ( 14,400) P( 9,000) P( 4,400) P 2,000 P 5,000 Fuentes P27,000 ( 24,000) P 3,000 P 2,000 P 5,000 ( 4,500) P( 1,500) 9,000 - ( 2,700) P( 7,100) ( 1,800) P( 2,400) P 2,000 P 5,000 ( 1,500) P( 3,000) - 2,100 P( 5,000) ( 600) P( 3,000) ( 2,000) - ( 3,000) P 2,000 2,000 P( 1,000) - P 2,000 1,000 - P( 5,000) - 5,000 - Isla P 9,000 ( 9,600) P( 600) 3,000 - Chapter – Partnership Liquidation Suggested Answers page Problem -5 JKLM Trading Co Schedule To Accompany Statement of Liquidation Amounts to be Paid to Partners February 28, 2008 Capital balances before dist of cash Add Loan balances Total partners’ interest Restricted interest - possible loss if nothing is realized on remaining assets Balances Restricted interest - additional possible loss if Manabat is unable to pay his deficiency (20:30:30) Free interest - payments to partners Payment to apply on Loan Capital Total cash distribution Jocson P 19,128 15,000 P 34,128 Kaimo P 88,992 Legarda P 101,532 Manabat P 22,878 P 88,992 P 101,532 P 22,878 ( 25,494) P 8,634 ( 38,241) P 50,751 ( 38,241) P 63,291 ( 25,494) P( 2,616) ( 654) P 7,980 ( 981) P 49,770 ( 981) P 62,310 P 49,770 P 49,770 P 62,310 P 62,310 2,616 - P 7,980 P 7,980 - JKLM Trading Co Schedule To Accompany Statement of Liquidation Amounts to be Paid to Partners March 31, 2008 Capital balances before dist of cash Add Loan balance Total partners’ interest Restricted interest - possible loss if nothing is realized on remaining assets Free interest - payment to partners Payment to apply on: Loan Capital Total cash distribution Jocson P 18,348 7,020 P 25,368 Kaimo P 38,052 Legarda P 38,052 Manabat P 22,098 P 38,052 P 38,052 P 22,098 ( 16,524) P 8,844 ( 24,786) P 13,266 ( 24,786) P 13,266 (16,524) P 5,574 P 7,020 1,824 P 8,844 P 13,266 P 13,266 P 13,266 P 13,266 P 5,574 P 5,574 Problem – QRS Partnership AA1 -Chapter – Partnership Liquidation Suggested Answers page Schedule to Accompany Statement of Liquidation Amounts to be Paid to Partners July 31, 2008 Quizon Roman Balances before cash distribution P116,250 P159,750 Add Loan balance 150,000 Total partners’ interest P116,250 P309,750 Restricted interest – possible loss of P480,000 on remaining unsold assets and cash withheld of P30,000 ( 255,000) ( 153,000) Balances ( P138,750) P156,750 Restricted interest – possible loss of P138,750 to Roman and Silva 138,750 ( 83,250) Balances P 73,500 Restricted interest – possible loss to Roman ( 6,000) Payment to Roman to apply on loan P 67,500 QRS Partnership Schedule to Accompany Statement of Liquidation Amounts to be Paid to Partners August 31, 2008 Quizon Roman Balances before cash distribution P 93,000 P145,800 Add Loan balance 82,500 Total partners’ interest P 93,000 P228,300 Restricted interest – possible loss of P375,000 on remaining unsold assets and cash withheld of P30,000 ( 202,500) ( 121,500) Balances ( P109,500) P106,800 Restricted interest – possible loss of P109,500 to Roman and Silva 109,500 ( 65,700) Payment to Roman to apply on loan and to Silva to apply on capital P 41,100 Problem - Requirement Tabora, Ureta and Veloso Cash Priority Program Silva P151,500 P151,500 ( 102,000) P 49,500 ( 55,500) (P 6,000) 6,000 Silva P142,200 P142,200 ( 81,000) P 61,200 ( 43,800) P 17,400 AA1 -Chapter – Partnership Liquidation Suggested Answers page January 1, 2008 Capital balances Loan balances Total partners’ interest Profit and loss ratio Loss absorption balance Allocation I - Cash to Ureta to reduce LAB to amount reported for Tabora Balances Allocation II - Cash to Tabora and Ureta to reduce LAB to amount reported for Veloso Balances Allocation III - Further cash distribution may be made based on P & L ratio Tabora P120,000 45,000 P165,000 50% P330,000 Ureta P 90,000 30,000 P120,000 30% P400,000 Veloso P 40,000 13,000 P 53,000 20% P265,000 P330,000 ( 70,000) P330,000 P265,000 ( 65,000) P265,000 ( 65,000) P265,000 PAY M E N T S Tabora Ureta Veloso P21,000 P265,000 P32,500 P32,500 19,500 P40,500 Requirement Amount January: Cash available Allocation I - payable to Ureta February: Cash available Allocation I - Bal payable to Ureta Allocation II - Payable to Tabora and Ureta in the ratio of 50:30 Tabora Ureta P15,000 15,000 P15,000 P40,000 6,000 P 6,000 P34,000 March: Cash available Allocation II - Balance Allocation III - Based on P & L ratio P90,000 18,000 P72,000 April: Cash available Allocation III - Based on P & L ratio P30,000 30,000 Veloso P21,250 P21,250 12,750 P18,750 P11,250 36,000 P47,250 P 6,750 21,600 P28,350 P14,400 P14,400 P15,000 P 9,000 P 6,000 Problem – (cont.) Requirement January: a b Cash Accounts Receivable Neri, Capital Ordan, Capital 112,000 112,000 2,200 1,100 AA1 -Chapter – Partnership Liquidation Suggested Answers page Pacia, Capital Cash c d February: a b c d March: a b c 1,100 4,400 Accounts Payable Cash Pacia, Loan Pacia, Capital Cash 38,000 9,000 7,000 16,000 Cash Accounts Receivable Neri, Capital Ordan, Capital Pacia, Capital Cash Accounts Payable Cash Neri, Capital Ordan, Capital Pacia, Capital Salary Payable to Neri Neri, Capital Ordan, Capital Pacia, Capital Cash Cash Neri, Capital Ordan, Capital Pacia, Capital Accounts Receivable Neri, Capital Ordan, Capital Pacia, Capital Cash Neri, Capital Ordan, Capital Pacia, Capital Cash Problem - Requirement 38,000 Wilson, Yuson and Zapata Cash Distribution Schedule 36,000 36,000 1,400 700 700 2,800 39,000 38,000 500 250 250 6,000 1,400 3,700 8,700 19,800 35,000 4,000 2,000 2,000 43,000 2,000 1,000 1,000 4,000 39,500 19,750 19,750 79,000 AA1 -Chapter – Partnership Liquidation Suggested Answers page June 30, 2008 Capital balances Receivable from partners Total partners’ interest Profit and loss ratio Loss absorption balance Allocation I - Cash to Yuson to reduce LAB to amt reported for Zapata Balances Allocation II - Cash to Zapata and Yuson to reduce LAB to amt reported for Wilson Balances Allocation III - Based on P & L ratio (P6,000 + P100,000 P17,000 = P89,000 P14,000) TOTALS Wilson P 67,000 12,000 P 55,000 50% P110,000 Yuson P 45,000 P 45,000 30% P150,000 Zapata P 31,500 7,500 P 24,000 20% P120,000 P110,000 30,000 P120,000 P120,000 P110,000 10,000 P110,000 10,000 P110,000 P AY M E N T S Wilson Yuson Zapata P 9,000 3,000 P 2,000 P37,500 22,500 15,000 P37,500 P 34,500 P17,000 Problem – Requirement No Wilson, Yuson and Zapata Cash Distribution Schedule July - September 30, 2008 Capital balances before liquidation July - Dist of loss on sale of assets (1) Liquidation expenses Payment of liabilities Payment to partners (2) Liabilities P 17,000 Wilson P 55,000 (4,750) (500) Yuson P 45,000 (2,850) (300) (17,000) (6,500) Zapata P 24,000 (1,900) (200) AA1 -Chapter – Partnership Liquidation Suggested Answers page Balances Aug.- Liquidation expenses Equipment taken by Zapata Gain on transfer of eqt to Zapata Payment to Yuson (3) Balances Sept- Dist of loss on sale of assets (4) Liquidation expenses Final distribution to partners (1) (2) (3) (4) - - P 49,750 (750) P 35,350 (450) (3,000) (1,800) (4,000) P 32,700 (6,000) (300) P26,400 P 52,000 (10,000) (500) P41,500 - P 21,900 (300) (10,000) (1,200) P 12,800 (4,000) (200) P8,600 (P22,000 + P14,000) - (P16,500 + P10,000) = P9,500 loss on sale of assets (P6,000 + P26,500 - P1,000 - P17,000) - P8,000 cash withheld = P6,500 cash dist Req schedule of cash distribution below8,000 – 1,500 – 2,500 +4,000 (P99,000 - P4,000 BV of equipment taken by Zapata) - P75,000 = P20,000 loss on sale Schedule of Cash Distribution August 31, 20068 Wilson Yuson Zapata Capital balances after dist of equipment to Zapata Profit and loss ratio Loss absorption balance Allocation I - Cash to Yuson to reduce LAB to amt reported for Wilson Balances Allocation II - Cash to Wilson & Yuson to reduce LAB to amount reported for Zapata Balances Allocation III – P & L ratio P 52,000 50% P104,000 P 36,700 30% P122,333 P 12,800 20% P 64,000 P104,000 18,333 P104,000 P 64,000 40,000 P 64,000 40,000 P 64,000 P 64,000 Wilson Yuson Zapata P 5,500 P20,000 P20,000 12,000 P 17,500 Problem - - Requirement Cash available in September Allocation I – Balance Allocation II Balance - Allocation III Amount P76,500 1,500 32,000 P43,000 Wilson Yuson Zapata P 20,000 21,500 P 41.500 P 1,500 12,000 12,900 P 26,400 P 8,600 P 8,600 Problem -10 Arceo, Basco and Cervo Statement of Changes in Partners’ Capital For the Period January 1, 2006 to May 31, 2008 Arceo 2006: Original investment P50,000 Basco P30,000 Cervo Total P 80,000 AA1 -Chapter – Partnership Liquidation Suggested Answers Distribution of net income (sch 1) Drawings Balance, December 31 2007: Investment of Cervo (sch 2) Distribution of net loss Drawings Balances, December 31 2008: Distribution of cash in Feb (sch 3) Distribution of cash in April (sch 4) Balances Sale of assets & distribution of loss in May (sch 5) Final cash distribution page 15,200 (7,000) P58,200 12,800 (6,000) P36,800 28,000 (13,000) P 95,000 (9,100) 4,200 (4,900) P40,000 (4,900) 3,000 (3,900) P25,000 P54,000 4,800 (4,200) P45,000 40,000 12,000 (13,000) P110,000 (5,000) (7,000) P28,000 (5,000) P20,000 (5,000) (8,000) P32,000 (10,000) (20,000) P 80,000 (17,500) P 10,500 (12,500) P 7,500 (20,000) P 12,000 (50,000) P 30,000 Schedule - Distribution of 2006 net income Salaries Remainder – 65%:35% Total Arceo P10,000 5,200 P15,200 Schedule - Admission of Cervo Total capital before admission of Cervo Investment of Cervo Total capital Interest acquired by Cervo Capital credit of Cervo Investment of Cervo Bonus to Cervo from old partners (shared 65%:35%) Schedule - Cash distribution in February Capital balances before dist of cash Restricted interest - possible loss if nothing is realized on remaining assets (P100,000) Free interest - amount to be paid to partners Basco P10,000 2,800 P12,800 Total P20,000 8,000 P28,000 P 95,000 40,000 P135,000 40% P 54,000 40,000 P 14,000 Arceo P40,000 Basco P25,000 Cervo P45,000 35,000 P 5,000 25,000 P 40,000 P 5,000 Arceo P 35,000 Basco P25,000 Cervo P40,000 28,000 7,000 20,000 P 5,000 32,000 P 8,000 Schedule - Cash distribution in April Capital balances before dist of cash Restricted interest - possible loss if nothing is realized on remaining assets (P80,000) Free interest - amount to be paid to partners Schedule - Loss on realization of assets in May P AA1 -Chapter – Partnership Liquidation Suggested Answers page Capital balances equal to net assets Cash realized on sale of assets Loss on realization Problem 3-11 Partnership Books Inventories Prepaid Expenses Goodwill Accrued Expenses Leony, Capital Espie, Capital 60,000 3,000 243,000 6,000 200,000 100,000 Rover Corp Stocks Accounts Payable Accrued Expenses Allowance for Uncollectible Accounts Cash Accounts Receivable Inventories Prepaid Expenses Furniture and Equipment Goodwill 4,500,000 600,000 6,000 120,000 Leony, Capital Espie, Capital Rover Corp Stocks 2,600,000 1,900,000 450,000 660,000 1,350,000 3,000 2,520,000 243,000 4,500,000 Corporation’s Books Cash Accounts Receivable Inventories Prepaid Expense Furniture and Equipment Goodwill Allowance for Uncollectible Accounts Accounts Payable Accrued Expenses Ordinary Share Capital P80,000 30,000 P50,000 Land Cash Pre-Operating Expenses Ordinary Share Capital PIC in Excess of Par Rover Corporation Statement of Financial Position July 1, 2008 450,000 660,000 1,350,000 3,000 2,520,000 243,000 120,000 600,000 6,000 4,500,000 3,600,000 1,500,000 450,000 4,800,000 750,000 AA1 -Chapter – Partnership Liquidation Suggested Answers Assets Cash Accounts Receivable (net of Allow of P120,000) Inventories Prepaid Expenses Land Furniture and Equipment Goodwill Total Assets page Liabilities and Shareholders’ Equity Accounts Payable P 600,000 Accrued Expenses 6,000 Total Liabilities P 606,000 Shareholders’ Equity Ordinary Share Capital P9,300,000 PIC in Excess of Par 750,000 Retained Earnings (deficit) (450,000) Total Shareholders’ Equity P9,600,000 Total liabilities and SH equity P10,206,000 P 1,950,000 540,000 1,350,000 3,000 3,600,000 2,520,000 243,000 P10,206,000 MULTIPLE CHOICE D D C C A B Share on loss on realization (P39,000 + P4,800 – P33,000) Percentage ownership of Imperial Total loss on realization P10,800 ÷ 20% P54,000 Total capital Cash available Loss on realization P70,000 28,000 P42,000 Capital bal before liquidation Loss on realization Balances Add’l loss to Gueco & Tiangco for the deficiency of Barcelon Cash distribution to partners D A Gueco P 40,000 ( 21,000) P 19,000 Tiangco P 25,000 (14,000) P 11,000 Bacelon P 5,000 ( 7,000) P( 2,000) ( 1,200) P 17,800 ( 800) P 10,200 2,000 P -0 - Total capital (P360,000 + P72,000) Total liabilities Total loss on liquidation Capital balances Drawing Distribution of net income Loss on liquidation Balances Additional loss to partners Cash to be distributed Coronel Alarcon P 100,000 ( 60,000) 24,000 (172,000) P(108,000 108,000 to P432,000 84,000 P516,000 Baretto P 80,000 ( 40,000) 24,000 (172,000) P(108,000) ( 54,000) Coronel P 300,000 (20,000) 24,000 (172,000) P 132,000 ( 54,000) P 78,000 AA1 -Chapter – Partnership Liquidation Suggested Answers C 10 C page Total capital Loans from partners Total partners’ interest Cash available to partners (P37,500 – P28,500) Total loss on realization Doria P 24,500 4,000 P 28,500 ( 23,100) P 5,400 Capital balances before liquidation Loan balances Total partners’ interest Loss on realization Balances – cash to be paid to partners 11 C 12 C 13 B Total assets = Total capital + Total liabilities = P60,000 + P 3,000 Less Cash = P3,000 + P22,200 – P23,200 Book value of noncash assets Additional loss Payment to Lazaro 15 16 17 C Jurado P 1,000 ( 5,400) P( 4,400) 4,400 P 5,400 Katindig P25,000 ( 7,200) P(17,800) 3,920 Lazaro P25,000 ( 10,800) P14,200 ( 5,880) P 8,320 Total credits equal debits (P130,000 + P44,000 + P90,000) Less Cash Book value of other assets Loss on realization [(P50,000 + P17,600 – P55,200)/40%] Cash received from sale of other assets A A B Capital balances Loss on realization Additional loss Amt to be rec.from the part Esper P 50,000 (112,000) P(62,000) (3,000) Elma P 15,500 3,500 P 19,000 ( 15,400) P 3,600 P 63,000 _2,000 P 61,000 P61,000 – P23,200 = P37,800 x 3/21 Capital balances Loss on realization 14 P40,000 7,500 P47,500 9,000 P38,500 Ester P50,000 ( 56,000) P(6,000) 6,000 Ethel P50,000 ( 56,000) P(6,000) ( 1,500) Marcelo P 9,000 ( 14,400) P( 5,400) 5,400 P264,000 40,000 P224,000 31,000 P193,000 Elmer P 75,000 ( 56,000) P19,000 (1,500) P 17,500 200,00 P217,500 AA1 -Chapter – Partnership Liquidation Suggested Answers 18 19 20 D Initial investment Purchases Sales Interest Dividends Cash held Equal share Cash received (paid) Urbe P 137,500,000 ( 1,237,500,000) 1,339,250,000 ( 2,200,000) 1,100,000 P 238,150,000 172,012,500 (P 66,137,500) Capital balances before liquidation Loss on liquidation (P180,000) Cash to be received by Delia Delia P480,000 ( 72,000) P408,000 Erma P135,000 ( 90,000) Flora P165,000 ( 18,000) Delia P480,000 ( 216,000) P264,000 ( 108,000) Erma P135,000 ( 270,000) (P135,000) 135,000 Delia P480,000 ( 72,000) P408,000 Erma P135,000 ( 90,000) P 45,000 Flora P165,000 ( 54,000) P111,000 ( 27,000) P 84,000 Flora P165,000 ( 18,000) P147,000 (192,000) P216,000 ( 156,000) P 60,000 ( 240,000) (P 195,000) 195,000 - ( P ( P C A Capital balances before liquidation Loss on liquidation (P540,000) Add’l loss to Delia & Flora Cash to be received by Flora 21 D Capital balances before liquidation Loss on liquidation (P180,000) Balances Possible loss if remaining inventories are not sold Balances Add’ loss to Delia & Flora Distribution of cash to partners 22 23 24 D B A 25 B 26 D page Viray P 137,500,000 ( 495,000,000) 462,000,000 ( 1.375,000) 2,750,000 P 105,875,000 172,012,500 P 66,137,500 48,000) 99,000 39,000) 60,000 Estrada Fortuna Gener Balances before liquidation P 40,000 P 65,000 P 48,000 Loss on sale of assets - P40,000 ( 16,000) (16,000) ( 8,000) Possible loss if nothing is realized on remaining assets - P90,000 ( 36,000) (36,000) (18,000) Balances P( 12,000) P 13,000 P 22,000 Add’l possible loss to Fortuna and Gener for deficiency of Estrada 12,000 ( 8,000) ( 4,000) Balances - cash to be distributed P P 5,000 P 18,000 Capital balance of Gener before distribution of cash P 18,000 Share in the cash to be withheld for possible liquidation expenses - P3,000 x 20%/60% (shared by Fortuna & Gener) ( 1,000) Cash to be received by Gener P 17,000 The remaining cash will be distributed according to profit and loss ratio AA1 -Chapter – Partnership Liquidation Suggested Answers 27 C 28 C page Thus the P14,000 will be distributed as follows: Estrada - P14,000 x 40% = P5,600 Fortuna - P14,000 x 40% = P5,600 Gener - P14,000 x 20% = P2,800 Total capital before drawing and net loss Drawing Net loss for the year Total liabilities Total assets Cash on hand Amount of noncash assets before liquidation Capital balance of Aguila before dist of net loss Share in net loss (P20,000 x 60%) Capital balance of Aguila before liquidation Cash to be received by Aguila Share of Aguila in the gain on sale of other assets Percentage share of Aguila Total gain on sale of other assets Book value of other assets Cash to be realized from sale of other assets P 135,000 ( 10,000) ( 20,000) 5,000 P 110,000 ( 700) P 109,300 P 25,000 ( 12,000) P 13,000 19,000 P 6,000 ÷ 60% P 10,000 109,300 P 119,300 PAYMEN TS 29 D Capital balances Drawing Net loss Total partners’ interest Profit and loss ratio Loss absorption bal Alloc I - Cash to Corpuz Balances Alloc II -Cash to Balweg and Corpuz Balances Alloc III - Based on P & L ratio Aguila P 25,000 Balweg P 50,000 ( 12,000) P 13,000 ÷ 60% P 21,667 ( 5,000) P 45,000 ÷ 25% P180,000 P 21,667 P180,000 Corpuz P 60,000 (10,000) ( 3,000) P 47,000 ÷ 15% P313,333 (133,333) P180,000 P 21,667 (158,333) P 21,667 (158,333) P 21,667 Cash received by Corpuz Cash received from Allocation I Cash received from Allocation Ii Fractional share (B – 25% and C -15%) Total cash distributed Fractional share of Balingit Cash received by Balingit 30 31 D - P450,000 / 30% = P150,000 - P250,000 / 50% = P 50,000 - P250,000 / 20% = P125,000 Priority Nera Balweg Ochoa Corpuz P 20,000 P 39,583 P 39,583 P 33,000 ( 20,000) P 13,000 ÷ 15/40 P 34,667 x 25/40 P 21,667 Vulnerability Ranking B Nera Ochoa Perez Aguila Perez Perez 23,750 P43,750 AA1 -Chapter – Partnership Liquidation Suggested Answers 1st P500,000 next P75,000 next P375,000 Remainder 32 A page Creditors 100% Capital Capital 100% 60% 30% 50% Loan Capital 26.67% 13.33% 20.00% Nera Ochoa Perez Total P450,000 P250,000 P250,000 P950,000 ( 150,000) ( 250,000) ( 100,000) ( 500,000) P300,000 -P150,000 P450,000 ( 225,000) (150,000) ( 375,000) P 75,000 P 75,000 Reyes (20%) Santos (40%) Torres (40%) Net capital balances P100,000 P440,000 P310,000 Possible loss of P700,000 ( 140,000) (280,000) ( 280,000) Balances (P 40,000) P160,000 P 30,000 Possible loss from Reyes debit balance 40,000 ( 20,000) ( 20,000)` Cash distribution -P140,000 P 10,000 Equities Loss to absorb Ochoa Balances Loss to absorb Perez Balance 33 C 34 35 D C Capital balances Add Loan Total partners’ interest Divided by P & L ratio Loss absorption capacity Allocation Balances Allocation II Roger P108,000 P108,000 30% P360,000 P360,000 ( 60,000) P300,000 Sergio P120,000 30,000 P150,000 50% P300,000 P300,000 P300,000 Tito P129,000 P129,000 20% P645,000 ( 285,000) P360,000 ( 60,000) P300,000 Roger Sergio P57,000 P18,000 P18,000 - Allocation III – P & L ratio 36 37 38 B Roger Amount available Allocation to Tito Allocation II – 30%, 20% P72,000 57,000 P15,000 Amount available Allocation II – Balance Allocation III P120,000 15,000 P105,000 A D Capital balances Revaluation of assets Adjusted capital Par of capital stock Sergio Tito P57,000 6,000 P63,000 P9,000 P9,000 Roger Sergio Tito P 9,000 31,500 P40,500 P52,500 P52,500 P 6,000 21,000 P27,000 Jacinto P400,000 200,000 P600,000 ÷ P100 Tito Mapa P600,000 200,000 P800,000 ÷ P100 Magno P1,000,000 200,000 P1,200,000 ÷ P100 12,000 P69,000 AA1 -Chapter – Partnership Liquidation Suggested Answers Shares of stock to be rec’d by partners page 6,000 sh 8,000 sh 12,000 sh 39 C Capital balances Adjustment in assets (P20,000 – P10,000 – P3,000) Adjusted capital P260,000 7,000 P267,000 40 B Total capital (P94,800 + P214,200) Adjustments in assets (P6,600 – P20,000 – P22,000) Adjusted capital Ordinary Share Capital (720 x x P10) Preference Share Capital P309,000 ( 35,400) P273,600 14,400 P259,200 Ordinary shares (P14,400 / P10) Preference shares (P259,200 / P100) 1,440 sh 2,592 sh 41 C Capital balances before incorporation Adjustment in assets Adjusted capital Ordinary Share Capital (720 @P10) Preference Share Capital Roldan P94,800 ( 11,800) P83,000 7,200 P75,800 Moises P214,200 ( 23,600) P190,600 7,200 P183,400 Preference shares Ordinary shares 758 720 1,834 720 ... P3,000 x 20%/60% (shared by Fortuna & Gener) ( 1,000) Cash to be received by Gener P 17,000 The remaining cash will be distributed according to profit and loss ratio AA1 -Chapter – Partnership... Allocation II – Cash to Julian & Lagman reducing LAB to an amount reported for Magno (P40,000 x 3/10) Balances Allocation III – Further cash distributions may be made in the P & L ratio 40% P125,000... (21,000) P 19,600 6,000 P 7,400 P 3,000 P 3,000 AA1 - Chapter (2008 edition) page Allocation III - Further cash distribution may be made in the P & L ratio Book value of assets Loss on realization: