– Problems Partnership Dissolution and Liquidation

Problem 1
A, B and C have capital balances of 112,000, 130,000 and 58,000, respectively, and share profits
in the ratio 3:2:1. D invests cash in the partnership for 25% interest.

1. D receives a 25% interest in the assets of the partnership, which includes credit for
25,000 of goodwill that is recognized upon admission. How much cash D invest?
TCC Change TAC

A 112,000 112,000
B 130,000 130,000
C 58,000 58,000
D 75,000 25,000 100,000
375,000 25,000 400,000

2. D receives a 25% interest in the assets of the partnership and B is credited with 15,000 of
the bonus from D, how much cash D invest?

TCC Change TAC

A 112,000 (11,250) 100,750

B 130,000 15,000 145,000
C 58,000 (3,750) 54,250
D 75,000 75,000
375,000 0 375,000

Problem 2
X and Y are partners who have capitals of 60,000 and 48,000 and who share profits in the ratio
of 3:2. Z is admitted as a partner upon investing cash of 50,000 with profits to be shared equally.

Required: How much is the capital of each partner?

1. Assume that Z is allowed a 25% interest in the firm. (Using bonus method)

TCC Change TAC

X 60,000 6,300 66,300
Y 48,000 4,200 52,200
Z 50,000 (10,500) 39,500
158,000 0 158,000

2. Assume that Z is allowed a 25% interest in the firm. (Using goodwill method)

TCC Change TAC

X 60,000 25,200 85,200
Y 48,000 16,800 64,800
Z 50,000 50,000
158,000 42,000 200,000
 3. Assume that Z is allowed a 40% interest in the firm. (Using bonus method)

TCC Change TAC

X 60,000 (7,920) 52,080
Y 48,000 (5,280) 42,720
Z 50,000 13,200 63,200
158,000 0 158,000

4. Assume that Z is allowed a 40% interest in the firm. (Using goodwill method)

TCC Change TAC

X 60,000 60,000
Y 48,000 48,000
Z 50,000 22,000 72,000
158,000 22,000 180,000

Problem 3
Francis, Leo and Marcos are partners sharing profits in the ratio of 3:2:1, respectively. Capital
accounts are 500,000, 300,000 and 200,000 on December 31, 2019, when Marcos decides to
withdraw. It is agreed to pay 300,000 for Marcos’s interest. Profits after the withdrawal of
Marcos are to be shared equally.
1. Using bonus method approach, how much are the capital balances of Francis and Leo
after Marcos’s withdrawal?
Francis - 440,000
Leo - 260,000
Marcos - 0
2. Using full goodwill method approach, how much are the capital balances of Francis and
Leo after Marcos’s withdrawal?
Francis – 800,000
Leo - 500,000
Marcos - 0
3. Using partial goodwill approach, how much are the capital balances of Francis and Leo
after Marcos’s withdrawal?
Francis – 500,000
Leo - 300,000
Marcos - 0

1. Bonus Method

Partners Adj. Capital Settlement Change End, Capital

Francis 500,000 (60,000) 440,000
Leo 300,000 (40,000) 260,000
Marcos 200,000 (300,000) 100,000
Total 1,000,000 (300,000) 0 700,000
 2. Full Goodwill Method

Partners Adj. Capital Settlement Change End, Capital

Francis 500,000 300,000 800,000
Leo 300,000 200,000 500,000
Marcos 200,000 (300,000) 100,000
Total 1,000,000 (300,000) 600,000 1,300,000

100,000 / 1/6 = 600,000

3. Partial Goodwill Method

Partners Adj. Capital Settlement Change End, Capital

Francis 500,000 500,000
Leo 300,000 300,000
Marcos 200,000 (300,000) 100,000
Total 1,000,000 (300,000) 100,000 800,000

Problem 4
ABC partnership balance sheet:
Cash 50,000 Liabilities 450,000
Other Assets 750,000 Alpha, capital 120,000
Beta, capital 170,000
Charlie, capital 60,000

The P&L ratio is 5:3:2 for Alpha, Beta and Charlie, respectively.

Sold all of the other assets for 500,000.

Requirements: Cash that will receive by each partner.

Alpha Beta Charlie Total

Total Interest 120,000 170,000 160,000 350,000
Possible Loss/Gain (125,000) (75,000) (50,000) (250,000)
Cash Available (5,000) 95,000 10,000 100,000
Eliminate Negative 5,000 (3,000) (2,000)
Cash Distributed 0 92,000 8,000 100,000

Cash Available = 50,000 + 500,000 – 450,000 = 100,000

Problem 5
XYZ Partnership
Balance Sheet
December 31, 2019
Cash 15,000 Liabilities 50,000
Non-cash Assets 265,000 Loan payable to Y 20,000
Loan payable to Z 10,000
X, capital 48,000
Y, capital 72,000
Z, capital 80,000

Profits and losses were shared as follows: X, 30%; Y, 30%; and Z, 40%. It was decided to
liquidate the business. The following is a summary of the realization and liquidation.

Month Book Value Cash Collected Expenses Paid Liabilities Paid

Of Assets
Realized

January 50,000 20,000 1,000 24,000

February 80,000 60,000 3,000 -
March 75,000 50,000 4,000 26,000
April 60,000 30,000 2,000 -

Requirements: Cash that will receive by each partner:

1. January 2. February 3. March 4. April
X–0 X–0 X – 2,100 X – 8,400
Y–0 Y – 38,429 Y – 7,671 Y – 8,400
Z–0 Z – 18,571 Z – 10,229 Z – 11,200

1. January
X Y Z Total
Total Interest 48,000 92,000 90,000 230,000
Possible Loss/Gain (69,000) (69,000) (92,000) (230,000)
Cash Available (21,000) 23,000 (2,000) 0
Eliminate Negative 21,000 (23,000) 2,000
Cash Distributed 0 0 0 0

Cash Available = 15,000 + 20,000 – 1,000 – 50,000 = (16,000) so, Zero

2. February
 X Y Z Total
Total Interest 48,000 92,000 90,000 230,000
Possible Loss/Gain (51,900) (51,900) (69,200) (173,000)
Cash Available (3,900) 40,100 20,800 57,000
Eliminate Negative 3,900 (1,671) (2,229)
Cash Distributed 0 38,429 18,571 57,000

Cash Available = 60,000 – 3,000 = 57,000

3. March
X Y Z Total
Total Interest 48,000 53,571 71,429 173,000
Possible Loss/Gain (45,900) (45,900) (61,200) (153,000)
Cash Available 2,100 7,671 10,229 20,000

Cash Available = 50,000 – 4,000 – 26,000 = 20,000

4. April
X Y Z Total
Total Interest 45,900 45,900 61,200 153,000
Possible Loss/Gain (37,500) (37,500) (50,000) (125,000)
Cash Available 8,400 8,400 11,200 28,000

Cash Available = 30,000 – 2,000 = 28,000