Exercise 6 – 1 (Statement of liquidation; Insolvent partner)

On June 1, 2014, Encabo and Elorde, partners of E2 Partnership, decided to liquidate their partnership. At the same time
of the liquidation, the statement of financial position accounts consisted of cash – P 25 000; non-cash assets – P 600 000;
liabilities – P125 000; Encabo, capital – P225 000; Elorde, capital – P275 000. Encabo and Alorde share profits and
losses in the capital ratio. Encabo is personally insolvent. Non-cash assets were sold for P 350 000.

Instructions: Prepare a statement of partnership liquidation.

E2 Partnership
Statement of Liquidation
June 1 - 30, 2014

NON-CASH
CASH LIABILITIES CAPITAL
ASSETS
Encabo Elorde
Profit and Loss Ratio 225/500 275/500
Balances before Liquidation 25,000 600,000 125,000 225,000 275,000
Sale of Non-cash Assets and
350,000 (600,000) (112,500) (137,500)
Distribution of Loss
Balances 375,000 125,000 112,500 137,500
Payment of Liabilities (125,000) (125,000)
Balances 250,000 112,500 137,500
Payment to Partners (250,000) (112,500) (137,500)
 Exercise 6 – 2 (Statement of liquidation under various assumptions)

The partner of Elias, Enrico and Ener Partnership have agreed to liquidate their partner as of December 31, 2014. The
partnership has cash of P80 000, non-cash assets of P810 000, and liabilities of P270 000. The capital accounts of the
partnership are: Elias, P60 000; Enrico, P290 000; Ener, P270 000. The partners share profits and losses in the ratio of
3:3:2, respectively. The partnership was able to sell all the non-cash assets for P634 000 and paid P24 000 of liquidation
expenses.

Instructions:

1. Prepare a statement of liquidation assuming all partners are solvent.

2. Prepare a statement of liquidation assuming the liabilities of P270 000 include a P70 000 note payable to Elias. All
partners are solvent.

3. Prepare a statement of liquidation assuming the non-cash assets of P810 000 include a note receivable from Enrico in
the amount of P110 000. The liabilities include a P70 000 note payable to Elias.

1. Elias, Enrico and Ener

Statement of Liquidation

January 1 – 31, 2015

Cash Assets Liabilities Elias Enrico Ener

Profit and loss ratio 3/8 3/8 2/8
Balances before liquidation P 80,000 P810,000 P270,000 P60,000 P290,000 P270,000
Sale of non-cash assets and distribution of loss 634,000 (810,000) (66,000) ( 66,000) ( 44,000)
Payment of liquidation expenses ( 24,000) ( 9,000) ( 9,000) ( 6,000)
Balances P690,000 P270,000 (P15,000) P215,000 P220,000
Payment of liabilities (270,000) (270,000)
Balances P420,000 (P15,000) P215,000 P220,000
Additional investment of Elias 15,000 15,000
Balances P435,000 P215,000 P220,000
Payment to partners ( 435,000) ( 215,000) ( 220,000)

Non Cash CAPITAL

2. Elias, Enrico and Ener

Statement of Liquidation

January 1 – 31, 2015

Non-cash Note Payable C APITAL

Cash Assets to Elias Liabilities Elias Enrico Ever
Profit and loss ratio 3/8 3/8 2/8
Balances before liquidation P 80,000 P810,000 P70,000 P200,000 P60,000 P290,000 P270,000
Sale of non-cash assets and distribution of 634,000 (810,000) (66,000) ( 66,000) ( 44,000)
loss
Payment of liquidation expenses (24,000) ( 9,000) ( 9,000) ( 6,000)
Balances P690,000 P70,000 P200,000 (P15,000) P215,000 P220,000
Payment of liabilities (200,000) (200,000)
Balances P490,000 P70,000 (P15,000) P215,000 P220,000
Offset of loan against debit balance in the
capital balance of Elias ( 15,000) 15,000
Balances P490,000 P55,000 P215,000 P220,000
Payment to partners (490,000) ( 55,000) ( 215,000) ( 220,000)
 3. Elias, Enrico and Ener

Statement of Liquidation

January 1 – 31, 2015

NR from Non-cash NP C APITAL

Cash Enrico Assets to Elias Liabilities Elias Enrico Ever
Profit and loss ratio 3/8 3/8 2/8
Balances before liquidation P 80,000 P110,000 P700,000 P70,000 P200,000 P60,00 P290,000 P270,000
0
Sale of non-cash assets and distribution of 634,000 (700,000) (24,750) ( 24,750) ( 16,500)
loss
Payment of liquidation expenses (24,000) ( 9,000) ( 9,000) ( 6,000)
Balances P690,000 P110,000 P70,000 P200,000 P26,250 P256,250 P247,500
Payment of liabilities (200,000) (200,000)
Balances P490,000 P110,000 P70,000 P26,250 P256,250 P247,500
Offset of receivable against credit balance
in (110,000) ( 110,000)
the capital of Enrico
Balances P490,000 P70,000 P26,250 P146,250 P247,500
Payment to partners (490,000) ( 70,000) ( 26,250) ( 146,250) ( 247,500)

Exercise 6 – 3 (Statement of Liquidation under various cases)

The statement of financial position of the partnership of Enteng and Estrel as of December 31, 2014 shown on the next
page.

Enteng and Estrel

Statement of Financial Position

December 31, 2014

Assets Liabilities and Equity

Cash P 40 000 Liabilities P 264 000
Other assets P 400 000 Enteng, loan 36 000
Estrel, loan 40 000
Enteng, Capital 80 000
Estrel, Capital 20 000
Total Assets P 440 000 Total Liabilities & Equity P 440 000

The other assets were realized for P268 000 and cash was disbursed. Divisions of profits and losses are:
 Enteng Estrel
Case 1 90 % 10 %
Case 2 70 % 30 %
Case 3 50 % 50 %

Intructions: Prepare the partnership liquidation statement and journal entries to record the liquidation for each case.

1. Enteng and Estrel

Statement of Liquidation

December 1 – 31, 2015

Other Loans Capital
Cash Assets Liabilities Enteng Estrel Enteng Estrel
Profit and loss ratio 90% 10%
Balances before liquidation P40,000 P400,000 P264,000 P36,000 P40,000 P80,000 P20,000
Sales of other assets and distribution of 268,000 (400,000) (118,800) (13,200)
loss
Balances P308,000 P264,000 P36,000 P40,000 (P38,800) P6,800
Payment of Liabilities (264,000) (264,000)
Balances P44,000 P36,000 P40,000 (P38,800) P6,800
Offset of loan against debit balance in (36,000) 36,000
the capital of Enteng
Balances P44,000 P40,000 (P2,800) P6,800
Additional loss to Estrel for deficiency of 2,800 (2,800)
Enteng
Balances P44,000 P40,000 P4,000
Payment to partners (44,000) (40,000) (4,000)

Journal Entries

1. Cash 268,000
Estrel, Capital (132,000 x .90) 118,800
Enteng, Capital (132,000 x .10) 13,200
Other Assets 400,000

2. Liabilities 264,000
Cash 264,000

3. Enteng, Loan 36,000

Enteng, Capital 36,000

4. Estrel, Capital 2,800

Enteng, Capital 2,800

5. Enteng, Loan 40,000

Estrel, Capital 4,000
Cash 44,000

2. Enteng and Estrel

Statement of Liquidation

December 1 – 31, 2015

 Cash Assets Liabilities Enteng Estrel Enteng Estrel

Balances before liquidation P 40,000 P 400,000 P 264,000 P 36,000 P 40,000 P 80,000 P 20,000

Sale of other assets and distribution of 268,000 (400,000) ( 92,400) ( 39,600)

loss
Balances P 308,000 P 264,000 P 36,000 P 40,000 (P 12,400) (P 19,600)
Payment of liabilities (264,000) ( 264,000)

Balances P 44,000 P 36,000 P 40,000 (P 12,400) (P 19,600)

Offset of loan against debit
balance in capital account (12,400) ( 19,600) 12,400 19,600

Balances P P 23,600 P 20,400

44,000
Payment to partners ( 44,000) ( 23,600) ( 20,400)

Journal Entries
1. Cash 268,000 3. Enteng, Loan 12,400
Enteng, Capital 92,400 Estrel, Loan 19,600
Estrel, Capital 39,600 Enteng, Capital 12,400
Other Assets 400,00 Estrel, Capital 19,600
0
2. Liabilities 264,000 4. Enteng, Loan 23,600

Cash 264,00 Estrel, 20,400

0 Loan 44,000
Cash

3. Enteng and Estrel

Statement of Liquidation

December 1 – 31, 2015

Cash Assets Liabilities Enten Estrel Enteng Estrel
g
Balances before liquidation P P 400,000 P 264,000 P 36,00 P 40,000 P 80,000 P 20,000
Sale of other assets & distribution of loss 40,000 (400,000) 0 ( 66,000) ( 66,000)
268,000
Balances P 308,000 P 264,000 P 36,00 P 40,000 P 14,000 (P 46,000)
Payment of liabilities (264,000) ( 264,000) 0
Balances P 44,000 P 36,00 P 40,000 P 14,000 (P 46,000)
Offset of loan against debit balance 0
in the capital of Estrel (40,000) 40,000
Balances P 44,000 P 36,00 P 14,000 P ( 6,000)
0
Additional loss to Enteng for the ( 6,000) 6,000
deficiency of Estrel
Balances P 44,000 P 36,00 P 8,000
0
Payment to partners ( 44,000) ( 36,000) ( 8,000)

Journal Entries

1. Cash 268,000 4, Enteng, Capital 6,000

Enteng, Capital 66,000 Estrel, Capital 6,000
Estrel, Capital 66,000
Other Assets 400,00
0
2. Liabilities 264,000 5. Enteng, Loan 36,000
 Cash 264,00 Enteng, Capital 8,000
0 Cash 44,000
3. 40,000
Estrel,
Loan
Estrel, Capital 40,000

Exercise 6 – 4 (Distribution of Cash to Partners)

Esguerra, Esteban, Estrada and Eugenio are partners with capitals of P11 000, P10 300, P13 700, and P9 000
respectively. Esguerra has a loan balance of P2 000. Profits are shared in the ratio of 4:3:2:1 by Esguerra, Esteban,
Estrada and Eugenio respectively. Assets are sold, liabilities are paid and cash of P12 000 remains.

Instructions: Show how the cash of P12 000 be distributed.

ESGUERRA ESTEBAN ESTRADA EUGENIO

Capital Balances before
11,000 10,300 13,700 9,000
Liquidation
Loan from Partners 2,000
Total Partners’ Interest 13,000 10,300 13,700 9,000
Loss on Realization
(13,600) (10,200) (6,800) (3,400)
(46,000-12,000)
Balances (600) 100 6,900 5,600
Additional Loss to Partners 600 (300) (200) (100)
Balances - (200) 6,700 5,500
Additional Loss to Partners 200 (133) (67)
Distribution of Cash to
- - 6,567 5,433
Partners