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X, Y, and Z are partners liquidating their business with total assets of 5 million and liabilities of 1.85 million. If X and Y are insolvent while Z is solvent, Z will cover the capital deficiencies allowing for cash distribution to X and Y after settling liabilities. If all partners are insolvent, the available cash will be used to pay creditors, resulting in a loss for them as the cash is insufficient to cover all debts.

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FELIPE, GLAISEN PEARL M.
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9 views2 pages

Activity

X, Y, and Z are partners liquidating their business with total assets of 5 million and liabilities of 1.85 million. If X and Y are insolvent while Z is solvent, Z will cover the capital deficiencies allowing for cash distribution to X and Y after settling liabilities. If all partners are insolvent, the available cash will be used to pay creditors, resulting in a loss for them as the cash is insufficient to cover all debts.

Uploaded by

FELIPE, GLAISEN PEARL M.
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

X, Y and Z are partners and share profits and losses in the ratio of 1:1:2.

On January 1, 2026, the partners decided


to liquidate their business. Their statement of financial position showed the following on this date:

Cash 200,000 Accounts Payable 850,000


Other Assets 4,700,000 Notes Payable 1,000,000
Loan to X 100,000 Loan from Z 250,000

X, Capital 1,000,000
Y, Capital 1,200,000
Z, Capital 700,000
Total Assets 5,000,000 Total Liabilities and Capital 5,000,000

The other assets were sold for 1.5 million. Liquidation expenses amounted to 50,000. Determine the cash distributed
to the partners if:
a. X and Y are insolvent and Z is solvent
b. All partners are insolvent

a. X and Y are insolvent and Z is solvent

Cash OA Liabilities X Cap Y Cap Z Cap


Balances 200,000.00 4,700,000.00 1,850,000.00 900,000.00 1,200,000.00 950,000.00
Sale of NCA 1,500,000.00 (4,700,000.00) (800,000.00) (800,000.00) (1,600,000.00)
Liq expenses (50,000.00) (12,500.00) (12,500.00) (25,000.00)
Balances 1,650,000.00 - 1,850,000.00 87,500.00 387,500.00 (675,000.00)
Pay of Liab (1,650,000.00) (1,650,000.00)
Balances - - 200,000.00 87,500.00 387,500.00 (675,000.00)
Additional Inv 675,000.00 675,000.00
Balances 675,000.00 - 200,000.00 87,500.00 387,500.00 -
Pay of Liab (200,000.00) (200,000.00)
Balances 475,000.00 - - 87,500.00 387,500.00 -

- Z will invest additional cash to eliminate his capital deficiency. By doing so, sufficient cash will be
available to cover the unpaid creditors. Any remaining cash will be distributed to X and Y

b. All partners are insolvent

Cash OA Liab X Cap Y Cap Z Cap


Balances 200,000.00 4,700,000.00 1,850,000.00 900,000.00 1,200,000.00 950,000.00
Sale of NCA 1,500,000.00 (4,700,000.00) (800,000.00) (800,000.00) (1,600,000.00)
Liq expenses (50,000.00) (12,500.00) (12,500.00) (25,000.00)
Balances 1,650,000.00 - 1,850,000.00 87,500.00 387,500.00 (675,000.00)
Pay of Liab (1,650,000.00) (1,650,000.00)
Balances - - 200,000.00 87,500.00 387,500.00 (675,000.00)
Elim of Def (337,500.00) (337,500.00) 675,000.00
Balances - - 200,000.00 (250,000.00) 50,000.00 -
Elim of Def 50,000.00 (50,000.00)
Balances - - 200,000.00 (200,000.00) - -
- All partners are insolvent so they cannot contribute additional cash. All available cash (1,650,000) will
go to the outside creditors. Nevertheless, it is insufficient. Thus the outside creditors also suffer a
200,000 loss.
-

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