FINALS PRETEST 03

PARTNERSHIP LIQUIDATION

RR, MM and NN have decided to liquidate their partnership on May 31,2021. The statement of
financial position is shown below:

Assets
Cash 125,000
Accounts receivable 90,000
Allowance for bad debts (15,000) 75,000
Inventories 100,000
Property and Equipment 400,000
Accumulated depreciation (100,000) 300,000
Total Assets P600,000
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Liabilities and Capital

Accounts payable 80,000
Loan payable- NN 35,000
Loan payable-MM 30,000
RR, capital ( 40%) 465,000
MM, capital (30%) 150,000
NN, capital (30%) (160,000)
Total liabilities and Capital P 600,000
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The noncash assets were realized as follows:

June 1 80 % of the accounts receivable was collected. After payment of liabilities all cash
was distributed to partners

August 1 Merchandise inventory was sold for P 88,000 and all available cash was distributed
to partners.

October1 Property and Equipment was sold for P 700,000.

Required:

Assuming deficient partner/s is/are insolvent, prepare the following:

 1. Statement of partnership liquidation (20 pts)

2. Schedule of cash payment (5 pts each)

3. Schedule of cash distribution under cash priority program (10 pts)
4. Prepare journal entries to record the liquidation process (4 pts)
A. Realization and loss on realization of Accounts Receivable

Cash 72,000
RR, CAPITAL 1,200
MM, CAPITAL 900
NN, CAPITAL 900
Accounts Receivable 75,000

B. Payment of Liabilities
Liabilities 80,000
Cash 80,000
C. Payment to RR
RR, CAPITAL 117,000
Cash 117,000
D. Realization and loss on sale of inventory
Cash 88,000
RR, CAPITAL 4,800
MM, CAPITAL 3,600
NN, CAPITAL 3,600
Inventories 100,000
E. Payment to RR

RR, CAPITAL 88,000

Cash 88,000
F. Realization and gain on sale of property and equipment

Cash 700,000
RR, CAPITAL 160,000
MM, CAPITAL 120,000
NN, CAPITAL 120,000
Property & Equipment 300,000
G. Right of offset

NN, LOAN 35,000

NN, CAPITAL 35,000
H. Absorption of NN’s deficiency by RR & MM

RR, CAPITAL 5,429

MM, CAPITAL 4,071
NN, CAPITAL 9,500
I. Distribution of Cash to partners

RR, CAPITAL 408,571

MM, CAPITAL 261,429
MM, LOAN 30,000
Cash 700,000