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Chapter 4
Partnership Liquidation

NAME: Date:
Professor: Section: Score:

QUIZ:
1. On January 1, 20x1, the partners of ABC Co. decided to liquidate their partnership. The
following information was made available:
Cash 80,000
Accounts receivable 240,000
Inventory 480,000
Equipment 1,200,000
Total 2,000,000
Accounts payable 120,000
Payable to B 80,000
A, Capital (20%) 400,000
B, Capital (30%) 600,000
C, Capital (50%) 800,000
Total 2,000,000

Information on the conversion of non-cash assets is as follows:

 ₱40,000 was collected on accounts receivable; the balance is uncollectible.
 ₱20,000 was received for the entire inventory.
 The equipment was sold for ₱200,000.
 ₱8,000 liquidation expenses were paid.
 ₱108,000 was paid to outside creditors, after offset of a ₱12,000 credit memorandum received on
January 2, 20x1.
 C is personally insolvent.

How much did B receive from the settlement of his interest in the partnership?
a. 86,400
b. 166,400
c. 183,200
d. 0

Use the following information for the next four questions:

On January 1, 20x1, A and B, who share profits and losses on a 60:40 ratio, decided to liquidate their
partnership. As of this date, their capital balances were ₱1,200,000 and ₱600,000, respectively. Before
liquidation, the partnership had total assets of ₱2,000,000. Net proceeds received from the sale of
non-cash assets amounted to ₱1,200,000. A received ₱768,000 in the settlement of the partners’
capital balances.

2. How much is the total loss on the sale of partnership assets?

a. 432,000
b. 720,000
b. 868,000
d. 0
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3. How much did B receive in the settlement of his capital balance?

a. 218,000
b. 280,000
c. 312,000
d. 0

4. How much were the total liabilities of the partnership?

a. 320,000
b. 200,000
c. 180,000
d. 50,000

5. How much was the balance of cash before the sale of non-cash assets?
a. 80,000
b. 60,000
c. 40,000
d. 0

6. On January 1, 20x1, the partners of ABC Co. decided to liquidate their partnership on
installment basis. Distributions to partners shall be made as cash becomes available. The
following information was made available:
Dr. Cr.
Cash 80,000
Accounts receivable 240,000
Receivable from C 40,000
Inventory 480,000
Equipment 1,200,000
Accounts payable 120,000
Payable to B 80,000
A, Capital (20%) 400,000
A, Drawing 80,000
B, Capital (30%) 600,000
C, Capital (50%) 800,000
C, Drawings 120,000
Totals 2,120,000 2,120,000

During January, non-cash assets with carrying amount of ₱520,000 was sold for ₱240,000. Cost of
disposing the assets amounted to ₱80,000. All of the partners are personally insolvent. How much
did B receive in the partial settlement of his capital account?
a. 32,000
b. 120,000
c. 140,000
d. 0

Use the following information for the next three questions:

On January 1, 20x1, A and B decided to liquidate their partnership. As of this date, their capital
balances were ₱400,000 and ₱800,000, respectively. The partners share in profits and losses on a 60:40
ratio. Before liquidation, the partnership had ₱80,000 cash and ₱120,000 liabilities. The partnership
incurred loss of ₱480,000 on the sale of non-cash assets. A is solvent but B is insolvent.
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7. How much was the carrying amount of the non-cash assets?

a. 1,420,000
b. 1,360,000
c. 1,240,000
d. 920,000

8. How much was the net proceeds from the sale of non-cash assets?
a. 760,000
b. 1,720,000
c. 1,480,00
d. 680,000

9. How much did A receive from the settlement of his capital balance?
a. 608,000
b. 112,000
c. 806,000
d. 0

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 600,000 Total Liab. & Equity 600,000

The total cash distributed to the partners after the first and second sales of noncash assets were
₱12,000 and ₱30,000, respectively. How much cash did A receive in the second cash distribution?
a. 2,400
b. 3,600
c. 6,000
d. 0

“The heart of the discerning acquires knowledge, for the ears of the wise seek it out.” (Proverbs 18:15)
- END –
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ANSWERS:
1. B
Solution:
The total loss on the sale is computed as follows:
Sale of assets (40K + 20K + 200K) 260,000
Liquidation expenses (8,000)
Gain on settlement of liability 12,000
Net cash proceeds – (net of all costs) 264,000
Carrying amount of all non-cash assets (2M – 80K) (1,920,000)
Total loss on sale (1,656,000)

The partial settlement to partners is computed as follows:

A B C Totals
Capital balances before
liquidation 400,000 600,000 800,000 1,800,000
Payable to partner 80,000 80,000
Allocation of loss
[1.656M x (20%; 30% & 50%)] (331,200) (496,800) (828,000) (1,656,000)
Total 68,800 183,200 (28,000) 224,000
Absorption of loss (11,200) (16,800) 28,000 -
Payments to partners 57,600 166,400 - 224,000

2. B
Solution:
A, Capital
Capital balance before liquidation 1,200,000
Allocation of loss: (432,000) (squeeze)
Amount received by partner A 768,000

A's share in loss (432,000)

Divide by: A's profit or loss ratio 60%
Total loss on sale (720,000)

3. C
Solution:
B, Capital
Capital balance before liquidation 600,000
Allocation of loss: (720K x 40%) (288,000)
Amount received by partner B 312,000

4. B
Solution:
Assets = Liabilities + Equity
2,000,000 = ? + 1,800,000

Liabilities = (2,000,000 – 1,800,000) = 200,000

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5. A
Solution:

Beginning balance of cash 80,000 (squeeze)

Net proceeds from sale of non-cash assets 1,200,000
Payment to outside creditors (200,000)
Cash available for distribution to partners (768K + 312K) 1,080,000 (start)

6. B
Solution:
The total loss on the sale is computed as follows:
Sale of non-cash assets 240,000
Disposal cost (80,000)
Net cash proceeds 160,000
Carrying amount of all non-cash assets (240K+480K + 1.2M) (1,920,000)
Total loss on sale (1,760,000)

The distribution to owners is computed as follows:

A (20%) B (30%) C (50%) Total
Capital balances 400,000 600,000 800,000 1,800,000
Drawing accounts (80,000) 120,000 40,000
Receivable from C (40,000) (40,000)
Payable to B 80,000 80,000
Total 320,000 680,000 880,000 1,880,000
Allocation of loss [1.76M x (20%; 30% &
50%)] (352,000) (528,000) (880,000) (1,760,000)
Total (32,000) 152,000 - 120,000
Allocation of capital deficiency of A b 32,000 (32,000) - -
Payments to the partners - 120,000 - 120,000

7. C
Solution:
Assets = Liabilities + Equity
Cash + Others = Payables + Partners' capital
80,000 + ? = 120,000 + 1,200,000

Non-cash assets = (120K + 1.200M – 80K) = 1,240,000

8. A
Solution:
(squeeze
Net proceeds 760,000 )
(1,240,000
Carrying amount )
Loss on sale (480,000) (start)

9. B
A (60%) B (40%) Totals
Capital balances before liquidation 400,000 800,000 1,200,000
Allocation of loss (288,000) (192,000) (480,000)
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[480K x (60% & 40%)]

Amounts received by partners 112,000 608,000 720,000

10. C
Solution:
A (50%) B (30%) C (20%)
Capital balance 250,000 150,000 100,000
Payable to (Receivable from) (10,000) 20,000 -
Total interest in partnership 240,000 170,000 100,000
Divide by: P/L ratio 50% 30% 20%
MLAC 480,000 566,667 500,000

Rank of payment 3rd 1st 2nd

A (50%) B (30%) C (20%)

Rank of payment 3rd 1st 2nd
Maximum loss absorption capacity 480,000 566,667 500,000
Difference of 1st and 2nd (66,667)
Balance 480,000 500,000 500,000
Difference between 1st, 2nd and 3rd (20,000) (20,000)
Equal balance of MLAC 480,000 480,000 480,000

Cash priority program

A (50%) B (30%) C (20%)
Rank of payment 3rd 1st 2nd
1st priority (66,667 x 30%) 20,000
2nd priority (20K x 30% & 20%) 6,000 4,000
Totals - 26,000 4,000

A (50%) B (30%) C (20%) Total

Available Cash – 1st 12,000
Allocation:
1st priority 12,000 (12,000)
2nd priority - - -
Balance -
Payment after priorities - - - -
First distribution - 12,000 - -

A (50%) B (30%) C (20%) Total

Available Cash – 2nd 30,000
Allocation:
1st priority 8,000* (8,000)
2nd priority - 6,000 4,000 (10,000)
Balance 12,000
Payment after priorities
12K x 50%; 30% & 20% 6,000 3,600 2,400 (12,000)
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Second distribution 6,000 17,600 6,400 -

st
* 20K 1 priority – 12K from first distribution = 8,000