Problem 5 5

AB, CD & EF Partnership

Statement of Partnership Realization and Liquidation

Capital
Able Other Accounts CD AB CD EF
Cash Loan Assets Payable Loan 50% 30% 20%
Balances before liquidation 18,000 30,000 307,000 53,000 20,000 118,000 90,000 74,000
January transactions:
1. Collection of accounts
receivable at loss
of 15,000 51,000 ( 66,000) ( 7,500) ( 4,500) ( 3,000)
2. Sale of inventory at
loss of 14,000 38,000 ( 52,000) ( 7,000) ( 4,200) ( 2,800)
3. Liquidation expenses paid ( 2,000) ( 1,000) ( 600) ( 400)
4. Share of credit memorandum ( 3,000) 1,500 900 600
5. Payments to creditors ( 50,000) _____ ______ (50,000) _____ ______ _____ ______
55,000 30,000 189,000 -0- 20,000 104,000 81,600 68,400
Sale payments to partners
(Schedule 1 ( 45,000) ______ _____ ______ (20,000) ______ ( 6,600) (18,400)
10,000 30,000 189,000 -0- -0- 104,000 75,000 50,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______ ______ ______ ______ ( 2,000) ( 1,200) ( 800)
6,000 30,000 189,000 -0- -0- 102,000 73,800 49,200
Safe payments to partners
(Schedule 2) -0- _____ ______ ______ ___ 0 0 0

6,000 30,000 189,000 -0- -0- 102,000 73,800 49,200

March transactions:
8. Sale of mac. & equip. at a
loss of 43,000 146,000 (189,000) ( 21,500) (12,900) ( 8,600)
9. Liquidation expenses paid ( 5,000) ______ _______ ______ ______ ( 2,500) ( 1,500) ( 1,000)
147,000 30,000 -0- -0- -0- 78,000 59,400 39,600
10. Offset AB's loan
receivable against capital (30,000) ( 30,000)
Payments to partners (147,000) ______ _______ ______ ______ ( 48,000) (59,400) (39,600)
Balances at end of liquidation 0 0 0 0 0 0 0 0

96 Chapter 5
Partnership
Schedules of Safe Payments to Partners

AB CD EF
Schedule 1: January 50% 30% 20%
Capital and loan balancesa P74,000 P101,600 P68,400
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000) ( 99,500) ( 59,700) ( 39,800)
Balances ( 25,500) 41,900 28,600
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) ______ _______ ( 10,200)
Safe payment P -0- P 26,600 P 18,400
a = (104,000) capital less 30,000 loan receivable
= (81,600) capital plus 20,000 loan payable
= (68,400) capital

Schedule 2: February
Capital and loan balancesb 72,000 73,800 49,200
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000) ( 97,500) ( 58,500) ( 39,000)
( 25,500) 15,300 10,200
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) _______ ________ ( 10,200)
Safe payment 0 0 0
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital

Problem 5 8
Part A
Balances Cash Payments
North South East West North South East West
Total Interest (capital and loan
balances P120,000 P 88,000 P109,000 P 60,000
Divided by P/L ratio 30% 10% 20% 40%
Loss absorption potential P400,000 P880,000 P545,000 P150,000
Priority II To South (335,000) ________ 33,500
Balances 400,000 545,000 545,000 150,000
Priority II To South and East, 10:20 (145,000) (145,000) 14,500 29,000
Balances 400,000 400,000 400,000 150,000
Priority III To North, South, and
east 30:10:20 (250,000) (250,000) (250,000) ______ 75,000 25,000 50,000 _____
Total 150,000 150,000 150,000 150,000 75,000 73,000 79,000

Further cash distribution P/L ratio

Part B
(1) Cash 65,600
North capital (30% of P16,400 loss) 4,920
South capital (10%) 1,640
East capital (20%) 3,280
West capital (40%) 6,560
Accounts receivable 82,000
To records collection of receivables with losses allocated to partners.

(2) Cash 150,000

North capital (30% x P103,000) 30,900
South capital (10%) 10,300
East capital (20%) 20,600
West capital (40%) 41,200
Property and equipment 253,000
To record sale of property and equipment.

(3) North capital 31,800

South capital 58,600
East capital 35,000
West capital 15,200
Cash 140,600
To record cash installment to partners of P230,600 based on the cash distribution plan in Part A.

First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)

(4) Liabilities 74,000

Cash 74,000
To record payment of liabilities.

100 Chapter 5

(5) Cash 71,000

North capital (30% of P30,000 loss) 9,000
South capital (10%) 3,000
East capital (20%) 6,000
West capital (40%) 12,000
Inventory 101,000
To record inventory sold.

(6) North capital 35,500

South capital 11,833
East capital 23,667
Cash 71,000
To record distribution of cash according to cash distribution plan. Although P87,000 cash is being
held, P16,000 must be retained to pay liquidation expenses. The Remaining P71,000 is divided
among North, South, and East on a 30:20 basis.
(7) North capital (30% of expenses) 3,300
South capital (10%) 1,100
East capital (20%) 2,200
West capital (40%) 4,400
Cash 11,000
To record liquidation expenses paid.

(8) North capital (30/60 of deficit) 2,080

South capital (10/60) 693
East capital (10/60) 1,387
West capital 4,160
To eliminate capital deficiency of West as computed below:

North South East West

Capital balances, beginning P120,000 P88,000 P109,000 P60,000
Loss on accounts receivable (4,920) ( 1,640) ( 3,280) ( 6,560)
Loss on property and equipment (30,900) (10,300) (20,600) (41,200)
Cash distribution (31,800) (58,600) (50,200) 0
Liquidation expenses ( 3,300) ( 1,100) ( 2,200) ( 4,400)
Subtotal 4,580 1,527 3,053 ( 4,160)
Elimination of West deficiency ( 2,090) ( 693) ( 1,666) 4,160
Capital balances P 2,500 P 834 P 1,666 P 0

(9) North capital 2,500

South capital 834
East capital 1,666
Cash 5,000
To record final cash distribution.
Problem 5 10

(1) Journal entry to record Jennys contribution:

Cash 40,000
Equipment 60,000
Jenny, capital 100,000

Journal entry to record Kennys contribution:

Cash 60,000
Inventory 10,000
Equipment 180,000
Notes payable 50,000
Kenny, capital 200,000

102 Chapter 5
(2) Capital balances of Jenny and Kenny before admission of Lenny:

Jenny Kenny
Beginning capital balance P100,000 P200,000
Interest on beginning capital balance 10,000 20,000
Annual salary 15,000 20,000
Remainder 48,000 72,000
Ending capital balance P173,000 P312,000

Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives her
respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed thus far is
P65,000. The remainder to be distributed is P120,000 (P185,000 30,000 35,000). Two-fifths
of this remainder of P129,000 (48,000) is allocated to Jenny; 3/5 x P120,000 (72,000) is allocated
to Kenny. The total income allocated to Jenny and Kenny is P73,000 and P112,000 respectively.

The admission of Lenny can now be recorded by the following entry:

Cash 175,000
Lenny, capital 110,000
Jenny, capital 26,000
Kenny, capital 39,000

Explanation:
The book value of the partnership after the income distribution in 2006 was P485,000
(P173,000 + P312,000). After Lennys contribution, the value of the partnership is P485,000 +
P175,000 = P660,000. A one-sixth interest in the partnership is P660,000 x 1/6 = P110,000. Using
the bonus method, we compute a bonus of P175,000 P110,000 = P65,000. Using the 2:3 profit
sharing ratio, the amount allocated to Jenny is P26,000 (2/5 x P65,000) and the amount allocated
to Kenny is P39,000 (3/5 x P65,000).

(3) Schedule of Safe Payments

Jenny Kenny Lenny
Capital balances P200,000 P400,000 P200,000
Partners loan (50,000)
Gain on realization 9,000 15,000 6,000
Possible loss (156,000) (260,000) (104,000)
Safe payments to partners P 53,000 P105,000 P102,000

Explanation:
The sale of assets realized a gain of P30,000 (P210,000 P180,000) which is distributed
to the partners on the new profit sharing ratio: 30% to Jenny, 50% to Kenny, and 20% to Lenny.
Liabilities are paid. A possible loss on the unsold assets (P520,000) is distributed to partners in
their profit and loss ratio of 30:50:20 to Jenny, Kenny and Lenny respectively.