NATIONAL COLLEGE OF BUSINESS ADMINISTRATION

Accounting for Business Organization

Chapter 14 - Partnership Liquidation
Assignment

Use the following Information for the next six independent cases:

Fact pattern

The partners of ABC Co. decided to liquidate their partnership. ABC Co.'s
statement of Financial position is shown below:

Cash 40,000 Account Balance

A/R 200,000 Loan Balance

Inventory 300,000 Total

Equipment 800,000 Collection of AR
Total Assets 1,340,000 Sale of Inventory
Sale of Equipment
A/P 100,000 Payment of LE
Payable to A 50,000 Payment of AP
A, Capital (50%) Net Cast Available to Partners
600,000 Payment to Partners
B, Capital (40%) 420,000
C, Capital (10%) 170,000
Total 1,340,000

1. Informationon the conversion of non-cash assets is as follows:

> P130,000 was collected on the account receivable; the balance

is uncollectible
> P200,000 was received for the entire inventory
> the equipment was sold for P590,000
>P5,000 liquidation expenses were paid

Requirement: Determine the amount of cash distributed to the partners in the final settlement
of their interests.

2. Use the fact pattern above but assume that the partnership will be liquidated over a prolonged
period of time. Distributions to the partners will be made as cash becomes available. Information on
the conversion of noncash assets is as follows;

> 80% of the account receivable was collected for only P60,000
> 90% of the inventory was sold for P40,000
> Equipment with carrying amount of P600,000 was sold for 220,000
 > Actual Liquidation expenses of P2,000 were paid
> Estimated future liquidation expenses totaled P3,000
> P10,000 cash was retained in the business for potential unrecorded
liabilities and anticipated expenses.

Requirement: Determine the amount of cash distributed to the partners from the partial realization
of partnership assets.

3. Use the fact pattern above . All partners are solvent. Information on the conversion
of non-cash assets is as follows:

> 80% of the account receivable was collected for only P40,000
> 75% of the inventory was sold for P70,000
> Equipment with carrying amount of P500,000 was sold for 130,000
> Actual Liquidation expenses of P2,000 were paid
> Estimated future liquidation expenses totaled P3,000
> P10,000 cash was retained in the business for potential unrecorded
liabilities and anticipated expenses.

Requirement: Determine the amount of cash distributed to the partners from the partial realization
of partnership assets.

4. Use the fact pattern above . All partners are Insolvent. Information on the conversion
of non-cash assets is as follows:

> 80% of the account receivable was collected for only P40,000
> 75% of the inventory was sold for P70,000
> Equipment with carrying amount of P500,000 was sold for 130,000
> Actual Liquidation expenses of P2,000 were paid
> Estimated future liquidation expenses totaled P3,000
> P10,000 cash was retained in the business for potential unrecorded
liabilities and anticipated expenses.

Requirement: Determine the amount of cash distributed to the partners from the partial realization
of partnership assets.

5. Requirement: prepare a cash priority program prior to the sale of any non cash assets
to determine which partners will be paid first before the others, and the amounts of those payments.

6. information on the conversion of noncash assets is as follows:

a. 80% of the account receivable was collected for only P60,000

b. 90% of the inventory was sold for P40,000
 c. Equipment with carrying amount of P600,000 was sold for P220,000
d. Actual Liquidation expenses of P2,000 were paid
E. Estimated future liquidation expenses totaled P3,000
f. P10,000 cash was retained in the business for potential unrecorded
liabilities and anticipated expenses.

Requirement: Determine the amount of cash distributed to the partners using the cash priority
program in # item#5 above.
 CASH
40,000.00

40,000
130,000
200,000
590,000
-5,000
-100,000
855,000
( 855,000 )

50%
A Capital
Capital Balance 600,000
Partners Loan 50,000
Total Partners Interest 650,000
Loss on Collection of A/R -50,000
Loss on sale of Inventory -115,000
Loss on sale of Equipment -190,000
Payment of Liquidation expense -1,000
Restricted Interest: Possible loss on remaining A/R -20,000
Restricted Interest: Possible loss on remaining Inventory -15,000
Restricted Interest: Possible loss on remaining Equipment -100,000
Cash set aside for future liquidation expense -1,500
Cash set aside for potential unrecorded liabilities and anticipated expenses -5,000
Amount safe for payment to partners 152,000

Amount safe for payment to partners 152,000

Partial Sale of: BV
A/R 200,000
Inventory 300,000
Equipment 800,000

50%
A Capital
Capital Balance 600,000
Partners Loan 50,000
Total Partners Interest 650,000
Loss on Collection of A/R -60,000
Loss on sale of Inventory -77,000
Loss on sale of Equipment -185,000
Payment of Liquidation expense -1,000
Restricted Interest: Possible loss on remaining A/R -20,000
Restricted Interest: Possible loss on remaining Inventory -37,000
Restricted Interest: Possible loss on remaining Equipment -150,000
Cash set aside for future liquidation expense -1,500
Cash set aside for potential unrecorded liabilities and anticipated expenses -5,000
Net Balances 112,000

Amount safe for payment to partners 112,500

Partial Sale of: BV

A/R 200,000
Inventory 300,000
Equipment 800,000

50%
A Capital
Capital Balance 600,000
Partners Loan 50,000
Total Partners Interest 650,000
Loss on Collection of A/R -60,000
Loss on sale of Inventory -77,000
Loss on sale of Equipment -185,000
Payment of Liquidation expense -1,000
Restricted Interest: Possible loss on remaining A/R -20,000
Restricted Interest: Possible loss on remaining Inventory -37,000
Restricted Interest: Possible loss on remaining Equipment -150,000
Cash set aside for future liquidation expense -1,500
Cash set aside for potential unrecorded liabilities and anticipated expenses -5,000
Net Balances 112,000
Additional restriction for possible deficiency of B ( insolvent ) -8,333.33
104,166.67

Amount safe for payment to partners 104,166.67

Partial Sale of: BV

A/R 200,000
Inventory 300,000
Equipment 800,000

CASH PRIORITY PROGRAM

50%
A Capital
Capital Balances 600,000
Loan Balances 50,000
Partners Total Interest 650,000
Divide by: P/L ratio 50%
Loan Absorption Balance 1,300,000
Priority 1: to C
1,300,000
Priority 2: to A and C -250,000
1,050,000
Priority 3: Amount in Excess of 190,000 based on P/L ratio
50%
A
Priority 1: to C ( First 40,000 )
Priority 2: to A and C at 80:20 ratio, capped at 125,000 and 25,000 respectively 125,000
Priority 3: Amount in Excess of 190,000 based on P/L ratio 50%

Cash Available
Cash Balance 40,000
From Collection of A/R 60,000
From sale of Inventory 40,000
From sale of Equipment 220,000
Payment of Liquidation expense -2,000
Payment of Accounts Payable -100,000
Cash set aside for future liquidation expense -3,000
Cash set aside for potential unrecorded liabilities and anticipated expenses -10,000
Net Cash Available for distribution to partners 245,000

50%
A
Priority 1: to C ( First 40,000 )
Priority 2: to A and C at 80:20 ratio, capped at 125,000 and 25,000 respectively 125,000
Priority 3: Amount in Excess of 190,000 based on P/L ratio 27,500
Cash Distributed to partners 152,500
 50%
A/R Inventory Equipment Account Payable A Capital
200,000.00 300,000.00 800,000.00 100,000 600,000
50,000

200,000 300,000 800,000 100,000 650,000

-200,000 -35,000
-300,000 -50,000
-800,000 -105,000
-2,500
-100,000

457,500 ( 457,500 )

40% 10%
B Capital B Capital
420,000 170,000

420,000 170,000
-40,000 -10,000
-92,000 -23,000
-152,000 -38,000
-800 -200
-16,000 -4,000
-12,000 -3,000
-80,000 -30,000
-1,200 -300
-4,000 -1,000
22,000 70,500

22,000 70,500
 PS JBV
160,000 40,000
270,000 30,000
600,000 200,000

40% 10%
B Capital B Capital
420,000 170,000

420,000 170,000
-48,000 -12,000
-62,000 -15,000
-148,000 -37,000
-800 -200
-16,000 -4,000
-30,000 -7,500
-120,000 -30,000
-1,200 -300
-4,000 -1,000
10,000 62,000

62,500

PS JBV
160,000 40,000
225,000 75,000
500,000 300,000

40% 10%
B Capital B Capital
420,000 170,000

420,000 170,000
-48,000 -12,000
-62,000 -15,000
-148,000 -37,000
-800 -200
-16,000 -4,000
-30,000 -7,500
-120,000 -30,000
-1,200 -300
 -4,000 -1,000
10,000 62,000
10,000.00 -1,666.67
60,833.33

60,833.33

PS JBV
160,000 40,000
225,000 75,000
500,000 300,000

40% 10%
B Capital B Capital A B C
420,000 170,000

420,000 170,000
40% 10%
1,050,000 1,700,000
-400,000 40,000
1,050,000 1,300,000
-250,000 125,000 25,000
1,050,000 1,050,000

40% 10%
B C
40,000
25,000
40%
40% 10%
B C
40,000
25,000
22,000 5,500
22,000 70,500 245,000
 40% 10%
B Capital C Capital
420,000 170,000

420,000 170,000
-28,000 -7,000
-40,000 -10,000
-84,000 -21,000
-2,000 -500

266,000 ( 266,000) 131,500 ( 131,500 )

Total

40,000

150,000
190,000