Nation’s Foremost CPA Review Inc.

: AFAR – Partnership Dissolution and Liquidation

NATION’S FOREMOST CPA REVIEW INC.
409 & 412 Pelizloy Centrum, Lower Session Road, Baguio City
Telephone: (074) 620-4877; TNT: 09503203087
: nfcpar@gmail.com
: nationsforemostcpareview@facebook.com

PARTNERSHIP DISSOLUTION
EXERCISE 1
Tarlac and Victoria sells inventory through their partnership. They expand their business and decide to admit
Gerona to the partnership. Before the admission of Gerona, the statement of financial position of Tarlac and
Victoria are as follows:
Cash ₱ 40,000 Accounts payable ₱70,000
Accounts receivable 60,000 Loan from Victoria 50,000
Inventory 140,000 Tarlac, capital (60%) 300,000
Plant assets-net 360,000 Victoria, capital (40%) 240,000
Loan to Tarlac 60,000 .
Total assets ₱660,000 Total liab. & equity ₱660,000
Required: Record the admission of Gerona for each of the following situations:
1) Gerona invests ₱139,500 for half of Victoria’s capital. The money goes to Victoria.
2) Gerona directly purchases a one-fourth interest from Tarlac and Victoria by paying Tarlac, ₱96,000 and
Victoria, ₱108,000. The equipment account is undervalued before Gerona’ admission.
3) Gerona invests the amount needed to give him one-third interest in the capital of the partnership. No
goodwill or bonus is recorded.
4) Gerona invests ₱156,000 for a one-fourth interest. Tarlac and Victoria agree that some of the inventory is
obsolete before Gerona’ admission.
5) Gerona invests ₱168,000 for a one-fourth interest. Unidentifiable asset is to be recorded.
6) Gerona invests ₱180,000 for a one-fifth interest. Profits and loss are to be shared by Tarlac, Victoria and
Gerona 45:30:25. Goodwill is not recorded.
7) Gerona invests ₱300,000 for a 1/3 interest. Profits and loss are to be shared by Tarlac, Victoria and
Gerona equally. Capital of the partnership after Gerona’s admission is to be ₱900,000.

EXERCISE 2
Pura and Ramos are partners who have capital balances of ₱300,000 and ₱240,000 and shares profits in the
ratio of 6:4. Anao is admitted as a partner upon investing ₱250,000 for a 20% interest in the firm. Profits and
loss are to be shared 3:3:2. Given the choice between goodwill and bonus method, Anao will
1. Prefer goodwill or bonus method, and
2. By what amount?
This files has expired at 12/29/2020
EXERCISE 3
The partnership of Cuyapo, Rosales and Villasis has been in business for 25 years. On December 31, Villasis
decided to retire from the partnership. The statement of financial position before the retirement of Villasis is
presented below:
Cash ₱ 40,000 Accounts payable ₱ 70,000
Accounts receivable 60,000 Notes payable 80,000
Inventory 140,000 Loan from Rosales 50,000
Plant assets-net 400,000 Cuyapo, capital (20%) 150,000
Loan to Cuyapo 30,000 Rosales, capital (30%) 200,000
Loan to Villasis 40,000 Villasis, capital (50%) 160,000
Total assets ₱710,000 Total liab. & equity ₱710,000
Required: Record the withdrawal of Villasis under each of the following independent cases:
1) Villasis was paid ₱100,000 cash upon retirement. Capital of the partnership after Villasis’ retirement was
to be ₱400,000.
2) Villasis was paid ₱180,000 cash upon retirement. Capital of the partnership after Villasis’ retirement was
to be ₱290,000.
3) Villasis was paid ₱150,000 cash upon his retirement. The portion of goodwill attributable to Villasis was
recorded by the partnership.
4) Assume the same facts as in (3) above except that partnership goodwill attributable to all the partners
were recorded.
5) Due to the limited cash of the partnership, Villasis was paid merchandise with a fair value of ₱100,000 and
a note payable for ₱50,000. The carrying amount of the merchandise was ₱60,000. Capital of the
partnership after Villasis’ retirement was ₱360,000.

EXERCISE 4
The statement of financial position of R and S, a partnership appears as follows:
R AND S PARTNERSHIP
Statement of Financial Position
October 31, 2019
ASSETS
Current Assets:
Cash ₱ 41,100
Accounts Receivable ₱212,160
Allowance for bad debts 8,000 204,160
Inventories 241,100
Prepaid expenses 10,140
Knowledge Engineer: Mark Alyson Ngina, CMA, CPA Page 1 of 9
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Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
₱496,500
Plant Assets:
Furniture and Fixtures ₱ 241,000
Accumulated Depreciation 68,200 172,800
Total assets ₱669,300
LIABILITIES AND CAPITAL
Current Liabilities:
Accounts payable ₱161,400
Accrued expenses 20,000 ₱182,200
Partner’s capital:
R, capital ₱260,350
S, capital 226,750 487,100
Total Liabilities and capital ₱669,300
Additional information:
• R and S share profits and losses equally.
• The partners incorporate as Urdaneta Corporation with an authorized capital of 5,000 shares at ₱100 par
stock, of which 4,400 are issued to the partners in exchange for their interest in the net assets of R and S,
and the remainder are issued at ₱120 per share for cash. The partners agree that the following
adjustment should be recorded:
Allowance for bad debts decreased by ₱ 4,000
Inventories increased by 12,000
Accumulated depreciation decreased by 6,200
• Goodwill is to be recognized in an amount which will cause the net assets of the partnership to equal the
cash issuance price of the shares to be issued.
Required:
a. How much is the share premium contributed by R and S to the new corporation? 69,300
b. How much goodwill is to be recognized in the corporation’s books? 0. 18,700
c. How many shares R will receive? 2,340

EXERCISE 5
On January 1, 2020, the partnership of D, E and F started with an initial contribution from the partners of
₱100,000, ₱200,000 and ₱300,000, respectively. The partners stipulated that in case of death of any partner,
the parties will compute profits up to the nearest month and to provide for 20% annual interest for the
deceased partner interest prior to its settlement.
On July 1, 2020, D was heart-attacked and instantly died. The newly hired accountant of the partnership
prepared the following entries during the year:
7/1/2020
D, capital 100,000
This files
Payable to D’shas
estate expired100,000 at 12/29/2020
To set-up D’s capital as a liability
12/31/2020Interest expense 10,000
Payable to D’s estate 10,000
To recognize interest on D’s estate
12/31/2020Sales 700,000
Inventory, end 50,000
Purchases 300,000
Operating expenses 160,000
Interest expense 10,000
Profit and loss summary 280,000
To close nominal accounts
12/31/2020Profit and loss summary 280,000
E, capital (40%) 160,000
F, capital (30%) 120,000
To close profit and loss to E and F’s remaining P&L sharing ratio.
Profits were evenly earned throughout the year.
Required: What are correct capital balances of E and F as of December 31, 2020, respectively.
PARTNERSHIP LIQUIDATION
EXERCISE 1
The partnership of Urdaneta, Binalonan, and Pozorrubio was dissolved. By August 1, 2020, all assets had been
converted into cash and all partnership liabilities were paid. The partnership statement of financial position on
August 1, 2020 (with partner residual profit and loss sharing percentages) was as follows:
Cash ₱ 50,000 Urdaneta, capital (30%) ₱ 4,000
Binalonan, capital (20%) (60,000)
. Pozorrubio, capital (50%) 106,000
Total assets ₱ 50,000 Total equity ₱ 50,000
The value of partners' personal assets and liabilities on August 1, 2020 were as follows:
Urdaneta Binalonan Pozorrubio
Personal assets ₱ 74,000 ₱ 120,000 ₱ 56,000
Personal liabilities 72,000 80,000 60,000
Required:
Prepare the final statement of liquidation
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Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
EXERCISE 2
On December 31, the accounting records of Sison, Rosario and Pugo Partnership included the following
information:
Sison, drawings (debit balance) ₱( 24,000)
Pugo, drawings (debit balance) ( 9,000)
Rosario, loan 30,000
Sison, capital 123,000
Rosario, capital 100,500
Pugo, capital 108,000
Total assets amounted to ₱478,500, including ₱52,500 cash and liabilities totaled ₱150,000. The partnership
was liquidated on December 31 and Pugo received ₱83,250 cash pursuant to the liquidation. Sison, Rosario
and Pugo share net income and losses in a 5:3:2, respectively.
Required: Compute for the following:
3. The loss on realization 3. The amount realized from sale of non-cash assets
4. The cash balance after payment of liabilities 4. Cash distributed to each partner

EXERCISE 3
D, E and F are partners sharing profits in the ratio of 40:35:25, respectively. On December 31, they agree to
liquidate. The statement of financial position prepared on this date follows:
Cash ₱ 20,000 Liabilities ₱ 60,000
Other Assets 460,000 E, Loan 50,000
F, Loan 25,000
D, capital (40%) 144,500
E, capital (35%) 125,500
. F, capital (25%) 75,000
Total assets ₱480,000 Total liab./equity ₱480,000
The results of liquidation are summarized below:
Cash W/held at
Cash Expenses of end of month for
Realizations Book Value Realized Realization estd. Future exps. Liability paid
January ₱120,000 ₱105,000 ₱5,000 ₱20,000 ₱40,000
February 70,000 60,000 7,500 12,500 20,000
March 150,000 100,000 6,000 5,000 ---
April 120,000 40,000 4,000 --- ---
All cash available, except the amount withheld for future expenses and any unpaid liabilities, is distributed at
the end of each month.
This files has expired at 12/29/2020
Required:
1. Compute for the partner’s equity/partner’s interest
2. Prepare a
a. Partnership liquidation schedule
b. Safe payments schedule
c. Cash priority program
3. Determine the share of each partner every month of distribution.
D E F Total
January 0 38,125 1,875 40,000
February 16,500 25,375 18,125 60,000
March 40,600 35,525 25,375 101,500
April 16,400 14,350 10,250 41,000

EXERCISE 4
The following is the condensed statement of financial position of Darnasuncion Company.
Cash ₱ 180,000 Accounts payable ₱ 220,000
Other assets ? Due to A 20,000
Due from C 30,000 Due to B 30,000
A, Capital (4) 200,000
B, Capital (4) 250,000
C, Capital (2) 300,000
C is an insolvent and limited partner.
Based from the information given, determine the following
a. The partner with first priority is C
b. If the partner with least priority received ₱150,000 as total settlement of his interest and liquidation
expenses of ₱15,000 was incurred, how much is the selling price of the non-cash asset?
c. If the partner with first priority received ₱150,000 as total settlement of his interest, how much did
the partner with second priority received? B = ₱40,000
d. If the partnership was able to sell non-cash assets with a book value of ₱365,000, how much is the
gain or loss realized from the sale if the partner with least priority received ₱20,000? ₱55,000 loss

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Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
REVIEW QUESTIONS:
1. This is caused by change in agreements of the partners or change in relations of the partners
a. Love quarrel b. Break-up c. Cool-off d. Dissolution
2. R. Costelo, a partner in BRC Partnership, assigns its partnership interest to R. Serapion, who is not made
a partner. After the assignment, R. Serapion asserts the right to
I. Participate in the management of BRC
II. R. Costelo’s partnership profits
R. Serapion is correct as to which of these rights?
a. I only b. II only c. I and II d. Neither I nor II
3. When Nana retired from the partnership of Nana, Nina, and Nona, the final settlement of Nana’s interest
exceeded her capital balance. Under the bonus method, the excess is [RPCPA]
a. Recorded as goodwill.
b. Recorded as an expense.
c. Of no effect to the capital accounts of Nina and Nona.
d. Deducted from the capital account balances of Nina and Nona.
4. Capital balances and profit and loss sharing ratios of the partners in the O-2-10 Partnership are as follows:
Roma, capital (50%), ₱140,000; Amor, capital (30%), ₱160,000 and Grabby, capital (20%), ₱100,000.
Roma needs money and agrees to assign half of her interest in the partnership to Yessir for ₱90,000 cash.
Yessir pays directly to Roma. Yessir does not become a partner. What is the total capital of the partnership
immediately after the assignment of the interest to Yessir?
a. ₱310,000 b. ₱420,000 c. ₱490,000 d. ₱400,000
5. The capital accounts of Van, Hou, and Ten are presented below with their respective profit and loss ratios.
Van, capital (50.00%) ₱ 139,000
Hou, capital (33.33%) 209,000
Ten, capital (16.67%) 96,000
100.00% ₱ 444,000
Choko was admitted to the partnership when he purchased directly for ₱132,000 a proportionate interest
from Van and Hou in the net assets and profits of the partnership. As a result, Choko acquired a one-fifth
interest in the net assets and profits of the firm. No revaluation of assets is to be recorded. What is the
combined gain realized by Van and Hou upon the sale of a portion of their interests in the partnership to
Choko?
a. ₱ 0 b. ₱43,200 c. ₱62,400 d. ₱82,000
6. Red and White are partners who share profits and losses in the ratio of 6:4 respectively. On August 31,
their capital accounts were as follows:
Red ₱280,000
White 240,000
This files has expired at 12/29/2020
On that date, they agreed to admit Blue as a partner with a 1/3 interest in the capital, for an investment
of ₱200,000. Assuming goodwill or revaluation of asset is not to be recorded, what are the capital
balances of the partners after the admission of Blue.
a. Red, ₱240,000; White, ₱240,000; Blue, ₱200,000
b. Red, ₱280,000; White, ₱240,000; Blue, ₱260,000
c. Red, ₱256,000; White, ₱224,000; Blue, ₱240,000
d. Red, ₱316,000; White, ₱252,000; Blue, ₱200,000
7. Nick and Carter are partners who share profits and losses in the ratio of 7:3, respectively. Their
respective capital accounts are as follows:
Nick ₱350,000 Carter ₱300,000
They agreed to admit Brian as a partner with a one-third interest in the capital and profits and losses,
upon an investment of ₱250,000. The new partnership will begin with a total capital of ₱900,000.
Immediately after Brian’s admission, what are the capital balances of Nick, Carter, and Brian,
respectively?
a. ₱300,000; ₱300,000; ₱300,000 c. ₱316,667; ₱283,333; ₱300,000
b. ₱315,000; ₱285,000; ₱300,000 d. ₱350,000; ₱300,000; ₱250,000
8. O and P are partners who share profits and losses in the ration of 8:2, respectively. Their respective
capital accounts are as follows:
O ₱1,260,000
P 1,080,000
They agreed to admit Q as a partner with a one-third interest in the capital and profits and losses, upon
an investment of ₱900,000. The new partnership will begin with a total capital of ₱3,600,000. Immediately
after Q’s admission, what are the capital balances of O, P and Q, respectively?
a. ₱1,260,000; ₱1,080,000; ₱ 900,000
b. ₱1,212,000; ₱1,068,000; ₱1,200,000
c. ₱1,308,000; ₱1,092,000; ₱1,200,000
d. ₱1,308,000; ₱1,092,000; ₱ 900,000
9. Pura and Ramos are partners who have capital balances of ₱300,000 and ₱240,000 and shares profits in
the ratio of 6:4. Anao is admitted as a partner upon investing ₱250,000 for a 20% interest in the firm.
Profits and loss are to be shared 3:3:2. Given the choice between goodwill and bonus method, Anao will
a. Prefer goodwill method due to Anao’s gain of ₱92,000.
b. Prefer bonus method due to Anao’s gain of ₱23,000.
c. Prefer goodwill method due to Anao’s gain of ₱52,500.
d. Be indifferent for the goodwill and bonus method are the same.

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Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
10. MM and NN are partners who have capitals of ₱6,000,000 and ₱4,800,000 and share profits in the ration
of 3:2. OO is admitted as a partner upon investing cash of ₱5,000,000, with profits to be shared equally.
Assume that OO is allowed a 25% interest in the firm (1) the capital balance of MM after the admission of
OO using goodwill method and (2) how much will NN gain or lose by the use of bonus method over
goodwill method.
a. ₱7,120,000, NN will lose ₱140,000 c. ₱7,120,000, NN will gain ₱1,260,000
b. ₱8,520,000, NN will lose ₱1,260,000 d. ₱8,520,000, NN will gain ₱140,000
11. The statement of financial position as of September 30, 2020, for the partnership of D, E and F shows the
following information:

Assets ₱360,000 D, loan ₱ 20,000

D, capital 83,000
E, capital 77,000
. F, capital 180,000
Total ₱360,000 Total P360,000

It was agreed among the partners that D retires from the partnership, and it was also further agreed that
the assets should be adjusted to their fair value of ₱345,000 as of September 30, 2020. Net loss prior to
the retirement of D amount to ₱70,000. The partnership is to pay D ₱62,000 cash for D’s partnership
interest, which would include the payment of his loan. No goodwill is to be recorded. D, E and F share
profit 40%, 15% and 45% respectively. After D’s retirement, how much would F’s capital balance be?
a. ₱66,000 b. ₱147,000 c. ₱136,500 d. ₱185,250
12. Dansalan, Evangelista and Floresca share partnership profits in the ratio of 2:3:5. On September 30,
Floresca opted to retire from the partnership. The capital balances on this date follow:
Dansalan, capital ₱2,050,000
Evangelista, capital ₱4,000,000
Floresca, capital ₱3,500,000
How much is to be debited from Dansalan, assuming Floresca is paid ₱3,900,000 in full settlement of his
partnership interest?
a. ₱240,000 b. ₱80,000 c. ₱300,000 d. ₱160,000
13. Dante, Elli and Fanny are partners with capital credit balances as at June 30 of ₱3,000,000, ₱2,000,000
and ₱1,000,000, respectively. Dante is allowed to withdraw, and it is agreed that he is to take certain
furniture items at the second value of ₱180,000, plus a promissory note for the balance of his interest.
The furniture items are carried on the books as a fully depreciated. Brand-new, however, they would cost
₱300,000. If profits and losses are shared equally, the acquisition of furniture items by Dante would result
in
a. Increase in capital of ₱60,000 for Dante, Elli and Fanny
b. Increase in capital of ₱90,000 for Elli and Fanny
This files has expired at 12/29/2020
c. Decrease in capital of ₱90,000 for Elli and Fanny
d. Decrease in capital of ₱120,000 for Dante
14. The partners’ capital account (income-sharing ratio in parentheses) of Nunn, Owen, Park and Quan, LLP
on May 31 was as follows: Nunn (20%), ₱600,000; Owen (20%), ₱800,000; Park (20%), ₱700,000 and
Quann (40%), ₱400,000. On May 31, 2020, with the consent of Nunn, Owen and Quan: (1) Sam Park
retired from the partnership and was paid ₱500,000 cash in full settlement of his interest in the
partnership and (2) Lois Reed was admitted to the partnership with a ₱200,000 cash investment for a
10% interest in the net assets of Nunn, Owen, Quan and Reed, LLP. The capital account to be credited to
Reed:
a. ₱220,000 b. ₱270,000 c. ₱200,000 d. ₱250,000
15. JJ and KK partnership balances at December 31, 2019 are as follows: Total Assets, ₱1,000,000; Total
Liabilities, ₱200,000; JJ, capital, ₱400,000; KK, capital, ₱400,000. On January 1, 2020, the partners
dissolved their partnership and created a corporation instead. At the date of incorporation, the fair values
of the net assets was ₱120,000 greater than the book balances, of which ₱70,000 was assigned to
tangible assets and the remainder to the goodwill. Both partners were issued with five thousand shares of
the firm’s ₱10 par, common. Immediately following the incorporation, share premium should be credited
for:
a. ₱680,000 b. ₱700,000 c. ₱370,000 d. ₱820,000
16. Three partners who share profits and losses equally are to incorporate their business. The capital accounts
show the following: R. Jacinto, ₱400,000; D. Mapa, ₱600,000, and B. Magno, ₱1,000,000. It is agreed
that the three will incorporate their business. Combined, the net assets amount to ₱2 million which will be
revalued at ₱2.6 million based on current market value. The capital stock of the corporation will have a
par value of ₱100.
Upon incorporation, the partners are to receive shares of stock as follows:
a. Jacinto, 8,667; Mapa, 8,666; and Magno, 8,666
b. Jacinto, 4,000, Mapa, 6,000; and Magno,10,000
c. Jacinto, 5,200, Mapa, 7,800; and Magno,13,000
d. Jacinto, 6,000, Mapa, 8,000; and Magno,12,000
17. The CRT partnership has decided to terminate operations and to liquidate the partnership assets. There
are no partner loans, and all partners have positive capital balances. Gains and losses on liquidation and
cash distributions to partners should be allocated as follows:
Gains and losses Cash Distribution
a. In profit and loss ratio Based on capital balances
b. Based on capital balances In profit and loss ratio

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Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
c. In profit and loss ratio In profit and loss ratio
d. Based on capital balances Based on capital balances
18. The capital balances, prior to the liquidation of the XYZ partnership, were as follows
X, Capital ₱130,000
Y, Capital ₱130,000
Z, Capital ₱100,000
X, Y, and Z share profits and losses in the ratio of 5:3:2. As a result of a loan, the partnership owes Y
₱80,000. Using the information above, which partner has the highest Loss Absorption Power (LAP) prior to
liquidation?
a. X b. Y c. Z d. Both X and Y
19. Cash, ₱150,000; Receivables, net – ₱200,000; Inventory, ₱400,000; Plant assets – net, ₱700,000; Loan
to Jun, ₱50,000; Liabilities, ₱500,000; Loan from Jul, ₱100,000; Jan, capital (30%), ₱450,000; Jun,
capital (50%), ₱300,000 and Jul, capital (20%), ₱150,000. Liquidation arises; they estimate that noncash
assets other than the to/from loans can be converted into ₱1,000,000 over the two-month period ending
December 31. Cash is to be distributed to the appropriate parties as it becomes available during the
liquidation process. The partner most vulnerable to partnership losses on liquidation is:
a. Jan c. Jun
b. Jun and Jan equally d. Jul
20. R. Duterte, L. Robredo, N. Aquino, and J. Binay are partners sharing profits and losses equally. The
partnership is insolvent and is to be liquidated. The status of the partnership and each partner is
presented below.
R. Duterte L. Robredo N. Aquino J. Binay
Partnership capital balance ₱ 150,000 ₱ 100,000 ₱(200,000) ₱(300,000)
Personal assets (exclusive of
partnership interest) 1,000,000 300,000 800,000 10,000
Personal liabilities (exclusive
of partnership interest 400,000 600,000 50,000 280,000
The partnership creditors
a. Must first seek recovery against Aquino because he is personally solvent and he has a negative capital
balances
b. Will not be paid in full regardless of how they proceed legally because the partnership assets are less
than partnership liabilities
c. Will have to share Robredo’s interest in the partnership on a pro rata basis with Robredo’s personal
creditors
d. Have first claim to partnership assets before any partner’s personal creditors have rights to the
partnership assets
21. The partnership creditors may obtain recovery of their claims
This files has expired at 12/29/2020
a. In the amount of ₱62,500 from each partner
b. From the personal assets of either Duterte or Robredo
c. From the personal assets of either Aquino or Binay
d. From the personal assets of either Duterte or Aquino for some or all of their claims
22. If Duterte pays the full amount owed to partnership creditors from his personal assets, then
a. Duterte’s partnership loss will be increased by ₱250,000
b. Duterte’s partnership loss will be increased by ₱125,000
c. Duterte will have a ₱400,000 total partnership loss
d. Duterte’s partnership loss will be the same as if Aquino had paid partnership creditors from his
personal assets
23. The partnership of Hot, Tot, and Tay is liquidating, and the ledger shows the following:
Cash ₱ 80,000
Inventories 100,000
Accounts payable 60,000
Hot, capital (50%) 40,000
Tot, capital (25%) 45,000
Tay, capital (25%) 35,000
If all cash available is distributed immediately:
a. Each partner gets ₱26,667 c. Hot gets ₱10,000, Tot and Tay, ₱5,000 each
b. Each partner gets ₱6,667 d. Tot gets ₱15,000 and Tay gets ₱5,000
24. On December 1, the partners of Tim, Williams, and Levin, who share profits and losses in the ratio of
4:4:2, decided to liquidate their partnership. On this date the partnership condensed statement of
financial position was as follows:
Cash ₱100,000 Liabilities ₱ 90,000
Other Assets 300,000 Tim, Capital 100,000
William, Capital 120,000
. Levin, Capital 90,000
Total ₱400,000 Total ₱400,000
On December 11, the first cash sale of other assets with a carrying amount of ₱200,000 realized
₱140,000. Safe installment payments to the partners were made on the same date. How much cash
should be distributed to each partner?
Tim William Levin
a. ₱40,000 ₱48,000 ₱18,000

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Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
b. ₱40,000 ₱40,000 ₱20,000
c. ₱36,000 ₱56,000 ₱58,000
d. ₱24,000 ₱24,000 ₱12,000
25. Tom, Dick, and Harry are partners in an equipment leasing business that has not been able to generate
the type of revenue expected by the partners. They share profits and losses in a ratio of 5:3:2. They have
decided to liquidate the business and have sold all the assets except for one piece of heavy machinery. All
partnership liabilities have been settled to the extent of available cash and all the partners are personally
insolvent. The machinery has a book value of ₱85,000, and the partners have capital account balances as
follows:
Tom, Capital ₱40,000
Dick, Capital 10,000
Harry, Capital 15,000
Refer to the information given above. What amount of cash will each partner receive as a liquidating
distribution if the machinery is sold for ₱65,000?
Tom Dick Harry
a. ₱40,000 ₱10,000 ₱15,000
b. ₱30,000 ₱ 4,000 ₱11,000
c. ₱10,000 ₱16,000 ₱19,000
d. ₱40,000 ₱ 9,000 ₱16,000
26. Refer to the information given above. What amount of cash will each partner receive as a liquidating
distribution if the machinery is sold for ₱33,000?
Tom Dick Harry
a. ₱14,000 ₱5,600 ₱3,400
b. ₱16,000 ₱8,400 ₱8,600
c. ₱10,000 ₱ 0 ₱3,000
d. ₱11,200 ₱ 0 ₱2,800
27. Refer to the information given above. What amount of cash will each partner receive as a liquidating
distribution if the machinery is sold for ₱21,100?
Tom Dick Harry
a. ₱1,100 ₱ 0 ₱ 0
b. ₱8,050 ₱9,170 ₱2,220
c. ₱ 900 ₱ 0 ₱ 400
d. ₱1,000 ₱ 100 ₱ 0
28. Hara, Ives, and Jack are in the process of liquidating their partnership. Since it may take several months
to convert the other assets into cash, the partners agree to distribute all available cash immediately,
except for ₱10,000 that is set aside for contingent expenses. The statement of financial position and
residual profit and loss sharing percentages are as follows:
Cash This files
₱ hasAccounts
400,000 expired
payable ₱at 12/29/2020
200,000
Other assets 200,000 Hara, capital (40%) 135,000
Ives, capital (30%) 216,000
Jack, capital (30%) 49,000
Total assets ₱ 600,000 Total liab./equity ₱ 600,000

How much cash should Ives receive in the first distribution?

a. ₱146,000. b. ₱147,000. c. ₱153,000. d. ₱156,000
29. Ma, Ka, and Tea are in the process of liquidating their partnership. Tea has agreed to accept the
inventory, which has a fair value of ₱60,000, as part of her settlement. A statement of financial position
and the residual profit and loss sharing percentages are as follows:
Cash ₱198,000
P Accounts payable ₱149,000
P
Inventory 80,000 Ma, capital (40%) 79,000
Plant assets 230,000 Ka, capital (40%) 140,000
Tea, capital (20%) 140,000
Total assets ₱508,000
P Total liab./equity ₱508,000
P
If the partners then distribute the available cash, Tea will receive
a. ₱26,000. b. ₱29,000 c. ₱30,000. d. ₱23,000.
30. Katie, Lenie and Minnie decided to liquidate their partnership on July 31, 2020. Their capital balances and
profit and loss ratios on this date, before liquidation are: Katie, ₱224,000 (25%); Lenie, ₱288,000 (30%)
and Minnie, ₱128,000 (45%). The net loss from January 1 to July 31, 2020 is ₱48,000. Also, on this date,
cash and liabilities are ₱136,000 and ₱232,000, respectively. Which of the following is inconsistent with
the result of liquidation if Lenie received ₱247,200 in full settlement of her interest in the firm?
a. Minnie received ₱66,800 c. Total cash paid to partners, ₱736,000
b. Katie’s share in loss, ₱34,000 d. Non-cash assets were sold for ₱600,000
31. A. Rimorin, B. Simon and C. Toledo decided to dissolve the partnership on November 30, 2020. Their
capital balances and profit ratio on this date, follow:
Capital Balances Profit Ratio
A. Rimorin ₱50,000 40%
B. Simon 60,000 30%
C. Toledo 20,000 30%
The net income from January 1 to November 30, 2020 is ₱44,000. Also, on this date, cash and liabilities
are ₱40,000 and ₱90,000, respectively.
Knowledge Engineer: Mark Alyson Ngina, CMA, CPA Page 7 of 9
NCPAR…driven for real excellence! AFAR – 24 th
Batch – HQ02
Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
For Rimorin to receive ₱55,200 in full settlement of his interest in the firm, how much must be realized
from the sale of the firm’s noncash assets?
a. ₱196,000 b. ₱193,000 c. ₱177,000 d. ₱187,000
32. On September 21, 2020, Tina, Dinna and Gina formed a partnership investing cash of ₱189,000, ₱170,100
and ₱52,920, respectively. The partners share profits 3:2:2 and on October 17, 2020, they have cash of
₱12,600, and other assets of ₱598,500; liabilities are ₱322,560. On this date they decided to go out of
business and sell all the assets for ₱378,000. Gina has personal assets of ₱18,900 that may, if necessary,
be used to meet partnership obligations. How much should be distributed to Dinna upon liquidation of the
partnership?
a. ₱25,704 b. ₱61,236 c. ₱0 d. ₱50,400
33. A cash distribution plan for the Matthew, Norell and Reams partnership appears below:
Priority Creditors Matthew Norell Reams
First ₱300,000 100%
Next ₱80,000 70% 30%
Next ₱70,000 3/7 4/7
Remainder 0.22 0.34 0.44
If ₱550,000 of cash is to be distributed, how much will be received by the priority creditors, Matthew,
Norell and Reams?
Priority Matthew Norell Reams
Creditors
a. ₱0 ₱0 ₱0 ₱0
b. 0 121,000 187,000 242,000
c. 300,000 55,000 85,000 110,000
d. 300,000 108,000 58,000 84,000
34. The August, Albert and Gerry partnership became insolvent on January 1 and the partnership is being
liquidated as soon as practicable. In this report, the following information for the partners has been
marshaled:
Capital Balances Personal Assets Personal Liabilities
August ₱ 70,000 ₱ 80,000 ₱ 40,000
Albert (60,000) 30,000 50,000
Gerry (30,000) 70,000 30,000
Total (₱20,000)
Assume that residual profits and losses are shared equally among the three partners. Based on this
information, calculate the maximum amount that August can expect to receive from the partnership
liquidation?
a. ₱20,000 b. ₱40,000 c. ₱70,000 d. ₱110,000
35. Partners Dado, Etoy, Fapo, and Gaga share profits 50%, 30%, 10%, and 10%. Accounts maintained with
This files has expired at 12/29/2020
partners just prior to liquidation follow:
Advances (Dr) Loans (Cr) Capitals (Cr)
Dado ₱ 5,000 ₱40,000
Etoy 10,000 30,000
Fapo ₱4,500 15,000
Gaga 2,500 25,000
At this point ₱18,000 is available for distribution to the partners. How much cash is to be distributed to
Gaga?
a. ₱6,625 b. ₱0 c. ₱11,375 d. ₱12,375
36. The statement of financial position for Chou, Enn, and Lai Partnership, who share profits and losses in the
ratio of 50%, 25%, and 25%, respectively, shows the following balances just before liquidation.
Cash ₱ 24,000
Other assets 119,000
Liabilities 40,000
Chou, capital 44,000
Enn, capital 31,000
Lai, capital 28,000
On the first month of liquidation, certain assets are sold for ₱64,000. Liquidation expenses of ₱2,000 are
paid, and additional liquidation expenses are anticipated. Liabilities are paid amounting to ₱10,800 and
sufficient cash is retained to insure the payment to creditors before making payments to partners. On the
first payment to partners, Chou receives ₱12,500. Determine the amount of cash withheld for anticipated
liquidation expenses.
a. ₱35,200 b. ₱29,200 c. ₱33,200 d. ₱ 6,000
37. If on the first payment to partners, Chou receives ₱12,500. Determine the amount of cash withheld for
anticipated liquidation expenses and unpaid liabilities.
a. ₱35,200 b. ₱29,200 c. ₱33,200 d. ₱ 6,000
38. If on the first payment to partners, Chou receives ₱12,500. Determine the amount of cash withheld for
unpaid liabilities.
a. ₱35,200 b. ₱29,200 c. ₱33,200 d. ₱ 6,000
39. Gardo and Gordo formed a partnership on July 1 to operate two stores to be managed by each of them.
They invested ₱300,000 and ₱200,000 and agreed to share earnings 60% and 40%, respectively. All their
transactions were for cash, and all their subsequent transactions were handled through their respective
bank accounts as summarized below:
Gardo Gordo

Knowledge Engineer: Mark Alyson Ngina, CMA, CPA Page 8 of 9

NCPAR…driven for real excellence! AFAR – 24 th
Batch – HQ02
Nation’s Foremost CPA Review Inc.: AFAR – Partnership Dissolution and Liquidation
Cash receipts ……………………………………₱791,000 ₱652,450
Cash disbursements………………………… 622,750 706,950
On October 31, all remaining noncash assets in the two stores were sold for cash of ₱600,000. The
partnership was dissolved, and cash settlement was effected. In the distribution of the ₱600,000 cash,
Gardo received:
a. ₱240,000 b. ₱260,000 c. ₱340,000 d. ₱360,000
Solution: Gardo Gordo Total
Investment 300,000 200,000 500,000
Add: Cash disbursement (add’l investment) 622,750 706,950 1,329,700
Less: Cash receipts (withdrawal) 791,000 652,450 1,443,450
Balance before sale 131,750 254,500 386,250
Gain on sale 128,250 85,550 213,750
Cash distribution to partners 260,000 340,000 600,000

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