Lump-sum Liquidation

Exercise 1:

The partners of ABC Partnership have agreed to liquidate their partnership as of December 31, 2020. The
partnership has cash of P80,000, non-cash assets of P810,000, and liabilities of P270,000. The capital accounts of the
partners are: A, P60,000; B, P290,000; C, P270,000. The partners share profits and losses in the ratio of 3:3:4,
respectively. The partnership was able to sell all the non-cash assets for P634,000 and paid P24,000 of liquidation
expenses.

Requirements:
a. Prepare a Statement of Liquidation and its journal entries assuming all partners are solvent.

ABC Partnership
Statement of Liquidation
December 1-31, 2020

Other Capital
Cash Assets Liabilities A B C
Profit or loss ratio 3 3 4
Balances before liquidation 80,000 810,000 270,000 60,000 290,000 270,000
Sale of assets and distribution of gain 634,000 -810,000 -52,800 -52,800 -70,400
Balances 714,000 0 270,000 7,200 237,200 199,600
Expenses -24,000 -7,200 -7,200 -9,600
Balances 690, 000 0 270, 000 0 230, 000 190, 000
Payment of liabilities -270, 000 -270, 000
Balances 420, 000 0 0 0 230, 000 190, 000
Payment to partners -420, 000 -230, 000 -190, 000

Cash 634,000
A, Capital 52,800 176*3/10
B, Capital 52,800 176*3/10
C, Capital 70,400 176*4/10
Other Assets 810,000

A, Capital 7,200 24,000*3/10

B, Capital 7,200 24,000*3/10
C, Capital 9,600 24,000*4/10
Cash 24,000

Liabilities 270, 000

Cash 270, 000

B, Capital 230, 000

C, Capital 190, 000
Cash 420, 000
 b. Prepare a Statement of Liquidation and its journal entries assuming the liabilities of P270,000 include a P70,000
note payable to A. all partners are solvent.

ABC Partnership
Statement of Liquidation
December 1-31, 2020

Other Capital
Cash Assets Liabilities A, Loan A B C
Profit or loss ratio 3 3 4
Balances before liquidation 80,000 810,000 200,000 70,000 60,000 290,000 270,000
Sale of assets and distribution of gain 634,000 -810,000 -52,800 -52,800 -70,400
Balances 714,000 0 200,000 70,000 7,200 237,200 199,600
Expenses -24,000 -7,200 -7,200 -9,600
Balances 690, 000 0 200, 000 70,000 0 230, 000 190, 000
Payment of liabilities -200, 000 -200, 000
Balances 490, 000 0 0 70,000 0 230, 000 190, 000
Payment to partners -490, 000 0 0 -70,000 0 -230, 000 -190, 000

Cash 634,000
A, Capital 52,800 810-634*3/10
B, Capital 52,800 810-634*3/10
C, Capital 70,400 810-634*4/10
Other Assets 810,000

A, Capital 7,200 24,000*3/10

B, Capital 7,200 24,000*3/10
C, Capital 9,600 24,000*4/10
Cash 24,000

Liabilities 200, 000

Cash 200, 000

A, Loan 70,000
B, Capital 230, 000
C, Capital 190, 000
Cash 490, 000
 c. Prepare a Statement of Liquidation and its journal entries assuming the non-cash assets of P810,000 include a
note receivable from B in the amount of P110,000. The liabilities include a P70,000 note payable. All partners are
solvent except partner A.

ABC Partnership
Statement of Liquidation
December 1-31, 2020

Receivable Other Loan Capital

Cash B Assets Liabilities A A B C
P/L ratio 3 3 4
Balances before liq. 80,000 110,000 700,000 200,000 70,000 60,000 290,000 270,000
Sale of A and distri. 610,000 -700,000 -27, 000 -27, 000 -36,000
Balances 690,000 110,000 0 200,000 70,000 33,000 263,000 234,000
Liquidation expenses -24,000 -7,200 -7,200 -9,600
Balances 666,000 110,000 200,000 70,000 25,800 255,800 224,400
Payment of liabilities -200,000 -200,000
Balances 466,000 110,000 0 70,000 25,800 255,800 224,400
Offsetting -110,000 -110,000
Balances 466,000 0 70,000 25,800 145,800 224,400
Payment to Partners -466,000 -70,000 -25,800 -145,800 -224,400

Cash 610,000
A, Capital 27, 000 700-610*3/10
B, Capital 27, 000 700-610*3/10
C, Capital 36, 000 700-610*4/10
Other Assets 700,000

A, Capital 7,200 24,000*3/10

B, Capital 7,200 24,000*3/10
C, Capital 9,600 24,000*4/10
Cash 24,000

Liabilities 200, 000

Cash 200, 000

B, Capital 110,000
B, Receivable 110,000

A, Loan 70,000
A, Capital 25,800
B, Capital 145,800
C, Capital 224,400
Cash 466, 000
Exercise 2:
The Statement of Financial Position of the DE Partnership as of December 31,2020 is shown below:

DE Partnership
Statement of Financial Position
December 31, 2020

Cash P 40,000 Liabilities P 264,000

Other Assets 400,000 D, Loan 36,000
E, Loan 40,000
D, Capital 80,000
E, Capital 20,000
Total Assets P 440,000 Total Liabilities and Capital P 440,000

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

Requirements:
Prepare the partnership liquidation statement and journal entries to record the liquidation for each case
Case 1
DE Partnership
Statement of Liquidation
December 31, 2020

Other Loan Capital

Cash Assets Liabilities D E D E
Profit or loss ratio 90% 10%
Balances before liquidation 40,000 400,000 264,000 36,000 40,000 80,000 20,000
Sale of assets and distribution of gain 268,000 -400,000 -118,800 -13,200
Balances 308,000 0 264,000 36,000 40,000 -38,800 6,800
Payment of liabilities -264,000 -264,000
Balances 44,000 0 36,000 40,000 -38,800 6,800
Offset of loan against debit balances -36,000 36,000
Balances 44,000 0 40,000 -2,800 6,800
Offset by other partner 2,800 -2,800
Balances 44,000 40,000 0 4,000
Payment to partners -44,000 -40,000 -4,000

Cash 268,000
D, Capital 118,800 400-268*.9
E, Capital 13,200 400-268*.1
Other Assets 400,000

Liabilities 264,000
Cash 264,000

D, Loan 36,000
D, Capital 36,000

E, Capital 2,800
D, Capital 2,800

E, Loan 40,000
E, Capital 4,000
Cash 44,000
Case 2
DE Partnership
Statement of Liquidation
December 31, 2020

Other Loan Capital

Cash Assets Liabilities D E D E
Profit or loss ratio 70% 30%
Balances before liquidation 40,000 400,000 264,000 36,000 40,000 80,000 20,000
Sale of assets and distribution of gain 268,000 -400,000 -92,400 -39,600
Balances 308,000 0 264,000 36,000 40,000 -12,400 -19,600
Payment of liabilities -264,000 -264,000
Balances 44,000 0 36,000 40,000 -12,400 -19,600
Offset of loan against debit balances -12,400 -19,600 12,400 19,600
Balances 44,000 23,600 20,400 0 0
Payment to partners -44,000 -23,600 -20,400

Cash 268,000
D, Capital 92,400 400-268*.7
E, Capital 39,600 400-268*.3
Other Assets 400,000

Liabilities 264,000
Cash 264,000

D, Loan 12,400
E, Loan 19,600
D, Capital 12,400
E, Capital 19,600

D, Loan 23,600
E, Loan 20,400
Cash 44,000
Case 3

DE Partnership
Statement of Liquidation
December 31, 2020

Other Loan Capital

Cash Assets Liabilities D E D E
Profit or loss ratio 50% 50%
Balances before liquidation 40,000 400,000 264,000 36,000 40,000 80,000 20,000
Sale of assets and distribution of gain 268,000 -400,000 -66,000 -66,000
Balances 308,000 0 264,000 36,000 40,000 14,000 -46,000
Payment of liabilities -264,000 -264,000
Balances 44,000 0 36,000 40,000 14,000 -46,000
Offset of loan against debit balances -40,000 40,000
Balances 44,000 36,000 0 14,000 -6,000
Additional Investment -6,000 6,000
Balances 44,000 36,000 8,000 0
Payment to partners -44,000 -36,000 -8,000

Cash 268,000
D, Capital 66,000
E, Capital 66,000
Other Assets 400,000

Liabilities 264,000
Cash 264,000

E, Loan 40,000
E, Capital 40,000

D, Capital 6,000
E, Capital 6,000

D, Loan 36,000
D, Capital 8,000
Cash 44,000
Exercise 3:
The partnership accounts of F, G, and H, who share earnings in a 5:3:2 ratio, are as follows on December 31,
2020:
F, Drawing (debit balance) P 32,000
H, Drawing (credit balance) 12,000
G, Loan 40,000
F, Capital 164,000
G, Capital 134,000
H, Capital 144,000

Total assets amounted to P638,000, including P70,000 cash, and liabilities total P200,000. The partnership
was liquidated in January 2021, and G received P110,000 cash pursuant to the liquidation.

Total assets 638,000 Total Liabilities 240,000 Total Equity=? (Assets-liab) 398,000
Cash 70,000 G, Loan 40,000 Loss 24,000
Non-Cash 568,000 Liabilities 200,000 Total Capital after 422,000
F, Capital 164,000 – 32,000 = 132,000
G, Capital 134,000
H, Capital 144,000 + 12,000 = 156,000

Requirements:

a. Compute the total loss from the liquidation of the partnership.

G, Capital ₱ 126,800.00
Cash received by G pursuant to Liquidation (70,000.00)
Share in loss on liquidation 56,800.00
Divide: Ratio of G 30%
Total loss on Liquidation 189,333.33

b. Prepare a Statement of Liquidation.

Net Loss = Total Asset = Total Liab + Total Equity Capital Balance = 422,000 – 398,000
638,000 = 240,000 + 398,000 = 24,000
 FGH Partnership
Statement of Liquidation
January 1-31, 2020

Other Loan Capital

Cash Assets Liabilities G F G H
Profit or loss ratio 5 3 2
Balances before liquidation 70,000 568,000 200,000 40,000 132,000 134,000 156,000
Net loss -12,000 -7,200 4,800
Balances 70,000 568,000 200,000 40,000 120,000 126,800 151,200
Sale of assets and distribution of gain 378,666 -568,000 -94,667 -56,800 -37,867
Balances 448,666 0 200,000 40,000 25,333 70,000 113,333
Payment of liabilities -200,000 -200,000
Balances 248,666 0 0 40,000 25,333 70,000 113,333
Payment to partners -248,666 -40,000 -25,333 -70,000 -113,333

c. Prepare the journal entries for the accounting records of the partnership to account for the liquidation.

F, Capital 32,000
F, Drawing 32,000

H, Drawing 12,000
H, Capital 12,000

Cash 378,666
F, Capital 94,667
G, Capital 56,800
H, Capital 37,867
Other Assets 568,000

Liabilities 200,000
Cash 200,000

G, Loan 40,000
F, Capital 25,333
G, Capital 70,000
H, Capital 113,333
Cash 248,666
Exercise 4:
The IJ Partnership has just completed a very unprofitable year. The partners agree to liquidate. The financial
statements of the partnership have been prepared for the fiscal year ending December 31, 2020, and the year-end
Statement of Financial Position is shown below:

Assets
Cash P1,000
Accounts Receivable P 80,000
Less: Allowance for Bad Debts 20,000 60,000
Merchandise Inventory 50,000
Prepaid Advertising 2,000
Machinery and Equipment P 100,000
Less: accumulated Depreciation 60,000 40,000
Total Assets P 153,000

IJ Partnership
Statement of Financial Position

Other Loan Capital

Cash Assets Liabilities G F G H
Profit or loss ratio 5 3 2
Balances before liquidation 70,000 568,000 200,000 40,000 132,000 134,000 156,000