PARTNERSHIP LIQUIDATION

I. MODIFIED TRUE OR FALSE. Write True if the statement is correct.

Otherwise, explain why it is wrong.
1. The creditors of the partnership shall have priority in payments over those of the
partners' separate creditors as regards the
partnership properties. TRUE
2. The loss absorption balances represent the maximum loss that the partners could
absorb without reducing their equity below zero.
TRUE
3. Gains and losses on the sale of assets in liquidation are divided equally among
partners. FALSE, it is divided among the partners’
capital accounts on the basis of their capital balances.
4. A partnership may be dissolved without being liquidated but liquidation is always
preceded by dissolution. TRUE
FALSE 5. A partner's inability to meet his obligations at the time of liquidation relieves that
individual of his liabilities to the other partners. TRUE

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6. A partner's unrestricted interest represents the portion of a partner's interest

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which should remain available to absorb possible future

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losses. FALSE, it is the partner’s restricted interest.

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7. In partnership liquidation, one partner may have to make up for the deficit in
another partner's account. TRUE

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8. When a partnership goes out of business, all the remaining non-cash assets will
be declared as a total loss. This loss on liquidation
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shall be divided among the partners in their profit and loss ratio. FALSE, it will be
converted into cash which refers to realization.
9. Liquidation of a partnership is the winding up of its business activities
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characterized by sale of all non-cash assets, settlement of all

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liabilities and distribution of the remaining cash to the partners. TRUE

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FALSE 10. Partnership creditors shall have priority in payments than those of the partners'
separate creditors as regards the separate properties
of the partners. TRUE
FALSE 11. When cash is insufficient to fully satisfy the cash requirements in a particular
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priority, then the available cash will be distributed using

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the Profit and loss ratio. TRUE

12. The entry to record the exercise of offset will debit the Partner's loan account
and credit cash. FALSE, capital account should be
credited.
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FALSE 13. A partnership is said to be dissolved when the business is terminated. TRUE
14. Under the installment method of partnership liquidation, realization of non-cash
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assets is accomplished over an extended period of

time. When cash is available, creditors may be partially or fully paid. Any excess
may be distributed to the partners in accordance
with a program of safe payments or a cash priority program. This process persists
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until all the non-cash assets are sold. TRUE

15. Restricted interests are provided for assumed non-sale of remaining non-cash
assets and for assumed insolvency of deficient
partners. TRUE
16. The creditors of each partner shall be preferred to those of the partnership as
regards the partnership property. FALSE, it is preferred

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 with respect to the separate or personal properties of the partners.
17. Liquidation of a partnership is the process of ending the business. TRUE
18. The cash settlement of all liabilities is referred to as realization. FALSE,
realization refers to the conversion of non-cash assets into
cash.
19. In liquidation, partners are given back the assets that they originally invested.
FALSE, it will be sold.
20. Cash payments may be made in the profit and loss ratio only when installment
payments have caused the ratio of the partners'
capital account balances to be the same as the profit and loss ratio. TRUE
21. Partnership creditors will be prioritized next to the inside creditors as to
partnership assets in case of liquidation. TRUE
22. A partner's interest can be obtained by simply adding the partner's capital
account, loans to and from the partnership. FALSE, it is
the sum of the capital and loans account of the partner.
TRUE 23. If liquidation of a partnership results in a negative balance in a partner's
account, the partner must pay into the partnership the

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amount of the negative balance. FALSE, they may have capital deficiency.

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TRUE 24. The use of safe payments schedule and cash priority program are alternatives

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which will yield the same ultimate cash distributions

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to the partners. FALSE, it is not an alternative. It is the method used.
25. Partnership liquidation is the same as partnership dissolution. FALSE, dissolution

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terminates the partnership, but they may continue
with a new agreement.
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FALSE 26. The creditors of the partnership are preferred with respect to the separate or
personal properties of the partners. TRUE
27. The right of offset is the legal right of a partner to apply part or all of his loan
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account balance against a capital deficiency resulting

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from losses in the realization of the partnership assets. TRUE

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FALSE 28. Liquidation expenses which are incurred in the realization of non-cash assets
affect cash but not partners’ capital. TRUE
29. The use of schedule of safe payments and cash priority program are methods
that will yield at the same amount of distributed cash
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to the partners. TRUE

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December 23, 2020

TRUE 30. The partnership is said to be dissolved when business is terminated. FALSE, it
refers to the liquidation of the partnership.
I Lump-Sum Liquidation A. Gold, Titanium, and Silver decided to
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I liquidate their partnership on June 30, 2020. The partners

. shared profits and losses in the ratio of 2:2:1, respectively. The firm's
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post- closing trial balance follows:

Gold, Titanium, and

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Silver
Post-Closing Trial
Balance
June 30, 2020
Cash P 419,170
Merchandise Inventory 612,300
Other Assets 472,680

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 Accounts Payable P 131,350
Gold, Capital 561,600
Titanium, Capital 436,800
Silver, Capital 374,400
The merchandise inventory and the other assets were sold for P582,800 and
P550,900, respectively.
Required:
1. Prepare the liquidation journal entries.
Realization 1,084,980
Merchandise
621,300
Inventory
472,680
Other Assets

Cash 1,133,700
Realizatio
1,133,700
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Realization 48,720

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Gold, Capital 19,488

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Titanium, Capital 19,488
Silver, Capital 9,744

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581,08rs e
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Gold, Capital
8
Titanium, 456,28
Capital 8
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Silver, Capital 1,42

384,14
aC s

1,52
4
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Cash 0
2. Prepare the statement of liquidation.
Gold, Titanium, Silver
Statement of Liquidation
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June 30, 2020

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Gold Titanium Silver

374,40
Balance before Liquidation 561,600 436,800
0
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Allocation of Realization 19,488 19,488 9,744

384,14
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581,088 456,288 4
Balances
(581,088) (456,288) (384,14
Amount/Assets Repaid
0 0 4)
0
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December 23, 2020

III. Lump-Sum Liquidation B. Apple, Banana and Lemon have decided to
liquidate their partnership on Dec. 1, 2020. The
statement of financial position is shown below:

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 ABL Partnership
Statement of Financial
Position
Dec 01, 2020
Assets
P 25,000
75,000
Cash 100,000
300,000
P 500,000
Accounts Receivable
(net)
Inventories
Property and Equipment
(net)
Total Assets

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Liabilities and Capital

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Accounts Payable P240,000

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Loan Payable-Bantilles 30,000

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Apple, Capital 120,000

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Banana, Capital 50,000
Lemon, Capital
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60,000
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Total Liabilities and
P500,000
Capital
Additional information:
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a) The personal assets (excluding partnership capital and loan interests) and
personal liabilities of each partner as of Dec. 1,
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2020, are presented below:

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Apple Banana Lemon

Personal assets P250,000 P300,000 P350,000
Personal liabilities (230,000) (240,000) (325,000)
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Personal net worth P 20,000 P 60,000 P 25,000

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a. Apple, Banana, and Lemon share profits and losses in the ratio 20:40:40,
respectively.
b. In the partnership agreement, interest will not accrue on partners' loan balances
during the liquidation process.
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c. All of the non-cash assets were sold on Dec. 10, 2020 for P260,000.
Required:
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1. Prepare the liquidation entries.

260
Cash ,00
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0
Loss on 215 475
Realization ,00 ,00
Non-Cash Assets 0 0

Apple, Capital 43,000

Banana, Capital 86,000

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 Lemon, Capital 86,000
215,00
Loss on Realization
0

Liabilities 240,000
Cash 240,000

30,
Loans, Banana 30,
00
Banana, Capital 000
0

31,
Cash
000
Banana, 6,0
Capital 00

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December 23, 2020

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Lemon, Capital 25,000

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Apple, Capital 1,000

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Lemon, Capital 1,000
Apple, Capital 76,000

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Cash 76,000
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2. Prepare the Statement of Liquidation.
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IV. Installment Liquidation: Schedule of Safe Payment.
The statement of financial position for Pop and Loli Partnership on June 1, 2020
before liquidation is as follows:
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Partners Pop and Loli share profits and losses 60:40, respectively. In June, assets
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with a book value of P220,000 were sold for

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P180,000 creditors were paid in full, and P20,000 was paid to partners. In July,
assets with book value of P 100,000 were sold
for P120,000, liquidation expenses of P5,000 were paid and cash of P125,000 was
paid to partners. In August, the remaining
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assets were sold for P225,000.

Required:
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a. Prepare a schedule of safe payments on every cash distribution made.

Other Pop Loli
Particular Cash (in Liabilitie
Date Assets Capital Capital
s P) s (in P)
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(in P) (in P) (in P)

43,983 Balance 50,000 550,000 200,000 225,000 175,000
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Sale of
June 180,000 (180,000)
Asset
Loss on
Sale Of (40,000) (24,000) (16,000)
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Asset
Payment
to (200,000) (200,000)
Creditors
Cash Paid (20,000) (12,000) (8,000)
to

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 Partners
Sale of
July 100,000 (100,000)
Asset
Profit on
Sale of 20,000 12,000 8,000
Asset
Paid
Liquidatio
(5,000) (3,000) (2,000)
n
Expense

ABL
Partnersh
ip
Stateme
nt of
Liquidati

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on
Decembe

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r 31,
2020

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Merchandi Titaniu
Cash se rs e Other
Assets
Liabilitie
s
Gold,
Capital
m,
Silver,
Capital
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Inventory Capital
P/L Ratio 2/5 2/5 1/5
Balance
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P P P
before P P P
aC s

P 419,170 561,60 436,80 374,40

Liquidati 612,300 472,680 131,350
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0 0 0
on
Sale of
Non-Cash
Assets
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(612,30 (472,68
and 1,133,700 19,488 19,488 9,744
0) 0)
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Distributi
on of
Losses
Balances 1,552,870 581,088 456,288 384,144
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Payment
(131,35
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of (131,350)
0)
Liabilities
Balances 1,421,520
Payment
(1,421,52 (581,08 (456,28 (384,14
sh

to
0) 8) 8) 4)
Partners

December 23, 2020

Cash Paid (125,000) (75,000) (50,000)
to

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 Partners
Sale of
August 225,000 (225,000)
Asset
Loss on
Sale of (5,000) (3,000) (2,000)
Asset
44,074 Balance 225,000 - - 120,000 105,000
Available
Cash
Distributed (225,000) (135,000) (90,000)
to
Partners
b. How much cash should Loli receive in June?
P 8,000.00
c. How much cash should Pop receive in July?
P 75,000.00
d. How much cash should Loli and Pop receive in August?

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Loli – P 135,000
Pop – P 90,000

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V. Installment Liquidation: Cash Priority Program

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Pepsi and Coke decided to dissolve and liquidate their partnership on Sept. 23,

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2020. On that date, the statement of financial
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position of the partnership is as follows:
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On Sept. 23, 2020, non-cash assets with a carrying amount of P 70,000 realized
P60,000, and P64,000 was paid to creditors
and partners, P 1,000 being retained to cover possible liquidation costs. On Oct. 1,
2020, the remaining non-cash assets realized
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P 18,000 (net of liquidation costs), and all available cash was distributed to partners
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Pepsi and Coke who share profits and

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losses 40% and 60%, respectively.

Required:
A. Prepare the cash priority program.
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Pepsi Coke
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Total Liabilities of partners

60,000 20,000
Capital
Loan Payable 10,000
Total
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Less: Distribution of Cash

1st priority – loan
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Remaining Liabilty 60,000 30,000

Less: Loss on sale of other assets
(10,000 + 12,000) – 40:60
Total Capital
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(10,000)
20,000
60,000
(8,800) (13,200)
51,200 6,800
Partner Pepsi (22,800)

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 (34,200)
Partner Coke 37,200
27,400
Excess distribution to coke, transfer
(27,400)
to Pepsi 0
9,800
Remaining Liabilty
B. Prepare the liquidation journal entries and the statement of liquidation.
2020
60,00
September 23 Cash
0
Loss on sale of
70,00
asset 10,000
0
Other Asset
15,00
September 23 Accounts Payable
0

December 23, 2020

10,0

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Loans Payable

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00
Cash

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18,0
Cash
00

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Loss on sale of
asset 12,0 rs e
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Other Assets 00
Pepsi, Capital
8,800
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13,2
Coke, Capital
aC s

00
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25,000
October 1 30,000
October 1 Loss on sale of assets
Pepsi and Coke
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Statement of Liquidation
October 30, 2020
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Other Accounts Loan - Pepsi, Coke,

Cash
Assets Payable Pepsi Capital Capital
Balance
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before 5,000 100,000 15,000 10,000 60,000 20,000

Liquidation
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Sale of
Other 78,000 (100,000)
Assets
Allocation
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of loss on (8,800) (13,200)

sale
Balance 83,000 15,000 10,000 51,200 6,800
Liquidation
(1,000)
Expenses
Payment of (25,000) (15,000) (10,000)

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 Liabilities
Balance 57,000
Distributio
n of Cash
Partner
(22,000)
Pepsi
Partner
(34,200)
Coke
Balances 37,200 (27,400)
Transfer to
27,400
Pepsi
Remaining
9,800
Liability

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er as
co
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o.
rs e
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o
aC s
vi y re
ed d
ar stu
is
Th
sh

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