1. Differentiate dissolution from liquidation.

- Dissolution is the change in the capital structure and the closure of a business while liquidation is for the winding up of business affairs—paying all the liabilities of the
partnership and distributing all the remaining cash to respective partners as returns of their investment.
2. What are the causes of partnership liquidation?
- The causes of partnership dissolution with liquidation are:
 Accomplishment of the partnership’s purpose, which is the reason the partnership was organized.
 The termination of the period covered by the partnership contract.
 The bankruptcy of the firm
 The mutual agreement between the partners to close the business.

3. What are the types of liquidation? Differentiate one from the other.
- There are 2 types of liquidation; lump-sum liquidation (liquidation by totals) and installment liquidation (piece-meal).
 Lump-sum liquidation is the distribution of cash to the partners after the realization of non-cash asset, allocation of gains or loss on realization, and payment of all
the partnership’s liabilities.
 The Installment liquidation, however, is the distribution of cash to partners on a periodic basis as it becomes available, which even before the realization of all non-
cash asset.
4. Discuss the procedures in liquidation.
- The first thing to do when a partnership is to be liquidated is to close all the nominal accounts of the business. The total profit or loss of the business will then,
transferred to respective partners according to their profit or loss share. Advances and withdrawals are also to be closed to capital accounts. Next, is the selling of non-
cash asset to cash and distribute it according to the partner’s profit and loss ratio, if there is no liquidation ratio. Then, the partnership’s cash available for distribution is
to be paid to the outside creditors of the business. There are instances that the partnership may incur liquidation expenses from facilitating the immediate realization of
non-cash assets. If the realization resulted as loss, the loss is to be allocated to the partners as a deduction. There will be a situation where the partner will have a total
debit in his/her capital account after the distribution of the loss on realization. If that happens, the partner has the right to offset his loan balance to the partnership to
lower the amount of deficiency. Finally, the remaining cash available for distribution, after all paying all the liabilities of the partnership, is then paid to partners,
applying first on loan and then on capital accounts. Other instances that the business may encounter, is when the partner is deficient, if the partner is solvent, he can
make additional cash investment as a second cash distribution to the partners. However, if the partner is insolvent, the deficiency shall be absorbed by the other partners
according to their profit and loss ratio as additional loss.
5. What is a statement of liquidation?
- It is the summary of the liquidation process. It shows the realization of non-cash assets, allocation of gains or loss on realization, and distribution of cash to creditors
and partners. It will also be the supporting basis of the journal entries to be recorded.
6. Is it true that the column headings of the statement of liquidation follow the basic accounting equation? Why or why not?
- Yes, because just like in the accounting equation, what changes on one account will affect the other. And by doing this, we can clearly show and summarize the
deduction and addition in each account in a concise manner.
7. What is the basis of final cash distribution to partners?
- The basis of final cash is distribution is on partner’s capital balances.
8. What is the right of offset? When can it be exercised?
- The right of offset allows the partnership to take the partner’s loan as a deduction for partner’s capital deficiency. It can only be done if the partner has a loan to the
partnership and has capital deficiency.
9. What is the basis for dividing gains or losses on realization?
- The basis for allocating the gains or losses on realization is based on the profit and loss ratio of the partners, however, if there is a specific liquidation ratio, it will be
used thereof.
10. How may the capital deficiency of an insolvent partner be eliminated?
- If the partner has capital deficiency and also insolvent in that manner, the remaining partners will absorb the deficiency according to their profit/loss ration as additional
loss.
11. What is the order of payment of partnership liabilities?
- Generally, the order of payment of partnership liabilities, prioritized first the partnership’s outsidde creditors, second are the partners who are also creditors of the
partnership, and third, if there are remaining assets, the partners who have claims over capital to the partnership are entitled to the capital accounts.
12. What is a partner’s restricted interest? Free interest?
- Restricted interest is the possible loss of the partners if in case the deficient partner fails to pay his deficiency.
- Free interest is the amount to be paid to the partners.
13. What purpose is served by the schedule of cash distribution?
- The purpose of the schedule of cash distribution is to determine the sequence of the partner and the amount of cash that the partners will receive as cash becomes
available.
14. What are the rules to be applied in case of capital deficiency?
 - If a partner face capital deficiency he can make an additional cash investment to eliminate his deficiency or charge the deficiency to the remaining partners as additional
loss, if the partner is insolvent.
15. Describe how loans receivable from partners and loans payable to partners are treated in liquidation and why is that treatment necessary?
- If a partner withdraws a substantial amount of money with the intention of repaying it, the debit should be to Loans Receivable. It is treated as the expected payment
from the indebted partner, which will be included in total cash of the partnership for distribution. This account is classified separately from the other receivables of the
partnership. A partner may also lend asset to the partnership in excess of his intended permanent investment. These advances are called as Loans Payable and is
classified among the liabilities but separate from liabilities to outsiders. It is treated as the expected payment from the partnership to the partner. It is necessary to
distinct these two in case of liquidation. Loans payable to partners must be paid after the claims of outside creditors have been paid in full. These loans have priority

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.

over partners’ equity.

E2 Partnership
Statement of Liquidation
June 1-30 2014
Capital
Cash Non-Cash Liabilities Encabo Elorde
Asset
Profit and Loss ratio 225/500 275/500
Balances before Liquidation P 25,000 P 600,000 P 125,000 P 225,000 P275,000
Sale of non-cash assets and 350,000 (600,000) (112,500) (137,500)
distribution of loss
Balances P 375,000 - P 125,000 P 112,500 P 137,500
Payment of Liabilities (125,000) (125,000)
Balances P 250,000 - - P 112,500 P 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.Prepare a statement of liquidation assuming all partners are solvent.

Elias, Enrico, and Ever

Statement of Liquidation
January 1-31 2015
Capital
Cash Non-Cash Asset Liabilities Elias Enrico Ener
Profit and Loss ratio 3/8 3/8 2/8
Balances before Liquidation P 80,000 P 810,000 P 270,000 P 60,000 P290,000 P 270,000
Realization 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 P 690,000 - P 270,000 (P 15,000) P 215,000 P 220,000
Payment of Liabilities (270,000) (270,000)
Balances P 420,000 - - (P 15,000) P 215,000 P 220,000
Additional Investment of Elias 15,000 15,000
Balances P 435,000 - - - P 215,000 P 220,000
Payment to partners (435,000) (215,500) (220,000)
 2. Prepare a statement of liquidation assuming the liabilities of P270 000 include a P70 000 note payable to Elias. All partners are solvent.

Elias, Enrico, and Ever

Statement of Liquidation
January 1-31 2015

-------------------------------------------------------------------------------------------------------------------------Capital
Cash Non-Cash Asset Liabilities Note payable to Elias Enrico Ener
Elias
Profit and Loss ratio 3/8 3/8 2/8
Balances before Liquidation P 80,000 P 810,000 P 200,000 P 70,000 P 60,000 P290,000 P 270,000
Realization 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 P 690,000 - P 200,000 70,000 (P 15,000) P 215,000 P 220,000
Payment of Liabilities (200,000) (200,000)
Balances P 490,000 - - P 70,000 (P 15,000) P 215,000 P 220,000
Offset Elias, loan to Elias’s capital (15,000) 15,000
deficiency
Balances P 490,000 - - P 55,000 - P 215,000 P 220,000
Payment to partners (490,000) (55,000) (215,500) (220,000)
 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.
Elias, Enrico, and Ever
Statement of Liquidation
January 1-31 2015

-------------------------------------------------------------------------------------------------------------------------Capital
Cash Non-Cash Asset Note Liabilities Note payable to Elias Enrico Ener
receivable Elias
from Enrico
Profit and Loss ratio 3/8 3/8 2/8
Balances before Liquidation P 80,000 P 700,000 P 110,000 P 200,000 P 70,000 P 60,000 P290,000 P 270,000
Realization and distribution of loss 634,000 (700,000) (24,750) (24,750) (16,500)
Payment
Exerciseof 6 –liquidation expenses
3 (Statement (24,000)
of Liquidation under various cases) (9,000) (9,000) (6,000)
Balances
The other assets were realized for P268P000690,000 -
and cash was disbursed. P 110,000
Divisions P 200,000
of profits and losses are: 70,000 P 26,250 P 256,250 P 247,500
Payment of Liabilities Enteng(200,000) Estrel (200,000)
Case 1
Balances 90 % P 490,000 - 10 % P 110,000 - P 70,000 P 26,250 P 256,250 P 247,500
Case of
Offset 2 receivable against credit 70 % 30 % (110,000) (110,000)
Case 3
balance in Enrico’s capital 50 % 50 %
Balances P 490,000 - - - P 70,000 P 26,250 P 146,250 P 247,500
Instruction: Prepare the partnership liquidation statement and journal entries to record the liquidation for each case.
Payment to partners (490,000) (70,000) (26,250) (146,250) (247,500)

Case 1
Enteng and Estrel
Statement of Liquidation
January 1-31, 2015
Loans Capital
Cash Other Assets Liabilities Enteng Estrel Enteng 90% Estrel 10%
Balances before P 40,000 P 400,000 P 264,000 P 36,000 P 40,000 P 80,000 P 20,000
Liquidation
Realization and 268,000 (400,000) (118,800) (13,200)
distribution of loss
 Balances P 308,000 - P 264,000 P 36,000 P 40,000 (P 38,800) P 6,800
Payment of (264,000) (264,000)
Liabilities
Balances P 44,000 - - P 36,000 P 40,000 (P 38,800) P 6,800
Offset Enteng, loan (36,000) 36,000
to Enteng’s capital
deficiency
Balances P 44,000 - - - P 40,000 (P 2,800) P 6,800
Additional loss to 2,800 (2,800)
Estrel for Enteng’s
deficiency
Balances P 44,000 - - - P 40,000 - P 4,000
Payment to partners (44,000) (40,000) (4,000)

1. Sales of other assets and distribution of loss 4. Additional Loss to Estrel for Enteng’s deficiency
Cash 268,000 Estrel, Capital 2,800
Enteng, Capital 118,800 Enteng, Capital 2,800
Enteng, Capital 13,200
Other Assets 400,000 5. Payment to Partners
2. Payment of Liabilities Estrel, Loan 40,000
Liabilities 264,000 Estrel, Capital 4,000
Cash 264,000 Cash 44,000
3. Offset loan to capital deficiency
Enteng, Loan 36,000 JOURNAL ENTRIES
Enteng, Capital 36,000
Case 2
Enteng and Estrel
Statement of Liquidation
January 1-31, 2015
Loans Capital
Cash Other Assets Liabilities Enteng Estrel Enteng 70% Estrel 30%
Balances before P 40,000 P 400,000 P 264,000 P 36,000 P 40,000 P 80,000 P 20,000
Liquidation
Realization and 268,000 (400,000) (92,400) (39,600)
distribution of loss
Balances P 308,000 - P 264,000 P 36,000 P 40,000 (P 12,400) (P 19,600)
Payment of (264,000) (264,000)
Liabilities
Balances P 44,000 - - P 36,000 P 40,000 (P 12,400) (P 19,600)
Offset Enteng and (12,400) (19,600) 12,400 19,600
Estrel, loan to
Enteng’s and
Estrel’s capital
deficiency
Balances P 44,000 - - P 23,600 P 20,400 - -
Payment to partners (44,000) - - (23,600) (20,400) - -
1. Sales of other assets and distribution of loss 3. Offset loan to Capital Deficiency JOURNAL ENTRIES
Cash 268,000 Enteng, Loan 12,400
Enteng, Capital 92,400 Estrek, Loan 19,600
Enteng, Capital 39,600 Enteng, Capital 12,400
Other Assets 400,000 Estrel, Capital 19,600
2. Payment of Liabilities 5. Payment to Partners
Liabilities 264,000 Enteng, Loan 23,600
Cash 264,000 Estrel, Loan 20,400
Cash 44,000
Case 3
Enteng and Estrel
Statement of Liquidation
January 1-31, 2015
Loans Capital
Cash Other Assets Liabilities Enteng Estrel Enteng 50% Estrel 50%
Balances before P 40,000 P 400,000 P 264,000 P 36,000 P 40,000 P 80,000 P 20,000
Liquidation
Realization and 268,000 (400,000) (66,000) (66,000)
distribution of loss
Balances P 308,000 - P 264,000 P 36,000 P 40,000 P 14,000 (P 46,000)
Payment of (264,000) (264,000)
Liabilities
Balances P 44,000 - - P 36,000 P 40,000 P 14,000 (P 46,000)
Offset Estrel, loan (40,000) 40,000
to Estrel’s capital
deficiency
Balances P 44,000 - - P 36,000 - P 14,000 (P 6,000)
Additional loss to (6,000) 6,000
Estrel for Enteng’s
deficiency
Balances P 44,000 - - P 36,000 - P 8,000 -
Payment to partners (44,000) (36,000) (8,000)
1. Sales of other assets and distribution of loss 4. Additional Loss to Enteng for Estrel’s deficiency
Cash 268,000 Enteng, Capital 6,000
Enteng, Capital 66,000 Estrel, Capital 6,000
Enteng, Capital 66,000
Other Assets 400,000 5. Payment to Partners
2. Payment of Liabilities Enteng, Loan 36,000
Liabilities 264,000 Enteng, Capital 8,000
Cash 264,000 Cash 44,000
3. Offset loan to capital deficiency
Estrel, Loan 40,000 JOURNAL ENTRIES
Estrel, Capital 40,000
 Esguerra Esteban Estrada Eugenio
CashExercise
Balances6 before P 11,000
– 4 (Distribution of Cash to Partners) P 10,300 P 13,700 P 9,000
Liquidation
Esguerra,
Loan Esteban, Estrada and Eugenio are partners
from partners with capitals of P11,000; P10,300; P13,700; and P9,000 respectively. Esguerra has a loan balance of P2,000. Profits are
2,000
shared in the ratio of 4:3:2:1 by Esguerra, Esteban,
P 13,000 and Eugenio respectively.
Estrada Assets are sold, liabilities are paidPand cash of P12 000 remains.
Balances P 10,300 13,700 P 9,000
LossInstructions:
on Realization shared on th (13,600)
Show how the cash of P12 000 be distributed. (10,200) (6,800) (3,400)
ratio of 4:3:2:1
Balances (P 600) 100 6,900 5,600
Additional Loss to Partners for 600 (300) (200) 100
the deficiency of Esguerra
Balances in the ratio of 3:2:1 - (P 200) P 6,700 P 5,500
Additional Loss to Partners for 200 (133.33) (66.67)
the deficiency of Esteban 2:1
Cash Settlement - - P 6,566.67 P 5,433.33
Problem 6 -1 (Statement of liquidation with Schedule of cash payments; journal entries to record liquidation)
The statement of financial position shown below was prepared just prior to the liquidation of the partnership of Ester, Edna, Emma, and Eva. Partners shared in the profits and losses
in the ratio of 4:2:1:1.
Instructions:
1. Prepare a statement of liquidation, together with a supporting schedule if necessary.
2. Give the entries that would be made to record the liquidation of the partnership.

Ester, Edna, Emma, and Eva

Statement of Liquidation
October 1-31, 2014
Loan CAPITAL
Cash Other Assets Receivable from Ester Liabilities Eva Ester 50% Edna 25% Emma 12.5% Eva 12.5%
Balance before liquidation P 50,000 P 950,000 P 62,500 P 450,000 P 37,500 P 381,250 P 93,750 P 50,000 P 50,000
Realization and distribution of loss 500,000 (950,000) (225,000) (112,500) (56,250) (56,250)
Balances P 550,000 - P 62,500 P 450,000 P 37,500 P 156,250 (P 18,750) (P 6,250) (P 6,250)
Payment of Liabilities (450,000) (450,000)
Balances P 100,000 - P 62,500 - P 37,500 P 156,250, (P 18,750) (P 6,250) (P 6,250)
Offset of receivable in Ester’s (62,500) (62,500)
capital
Balances P 100,000 - - - P 37,500 P 93,750 (P 18,750) (P 6,250) (P 6,250)
Additional loss to the partners for (12,500) 18,750 (3,125) (3,125)
Edna’s deficiency in the ratio of
4:1:1
Balances P 100,000 - - - P 37,500 P 81,250 - (P 9,375) (P 9,375)
Offset Eva, loan to Eva’s capital (9,375) 9,375
deficiency
Balances P 100,000 - - - P 28,125 P 81,250 - (P 9,375) -
Payment to Partners (see schedule) (100,000) (26,250) (73,750)
Balances - - - - P 1,875 P 7,500 - (P 9,375) -
Additional investment by Emma 9,375 9,375
Balances P 9,375 - - - P 1,875 P 7,500 - - -
Payment to Partners (9,375) (1,875) (7,500)

Ester, Edna, Emma, and Eva

Schedule to Accompany Statement of Liquidation Journal Entries:
October 1-31, 2014 1. Realization and Distribution of loss
Ester 50% Emma 12.5% Eva 12.5%
Capital Balance Before Cash P 81,250 (P 9,375) - Cash 500,000
Distribution Ester, Capital 225,000
Add: Loan Balance P 28,125 Edna, Capital 112,500
Total Partners’ Interest P 81,250 (P 9,375) P 28,125 Emma, Capital 56,250
Restricted Interest –possible loss of (7,500) 9,375 (1,875) Eva, Capital 56,250
P 9,375 to Ester and Eva in ratio of Other Assets 950,000
4:1 if Emma fails to pay her 2. Payment of Liabilities
deficiency Liabilities 450,000
Free interest –amount to be paid to P 73,750 - P 26,250 Cash 450,000
Partners 3. Offset of receivable in Ester’s capital
Payment to apply on: Ester, Capital 62,500
Loan P26,250 Receivable from Ester 62,500
Capital P 73,750 -
4. Additional loss to the partners for Edna’s deficiency
Cash Distributtion P 73,750 P 26,250
Ester, Capital 12,500
Emma, Capital 3,125
Eva, Capital 3,125
5. Offset Loan to Capital Deficiency Edna Capital 18,750
Eva, Loan 9,375
Eva, Capital 9,375
6. First Cash Distribution to Partners, per schedule
Eva, Loan 26,250
 1. Loss from the liquidation of the Partnership 3. Journal Entries
Esteban, Capital P 144,000
1. Realization and distribution of Loss 3. Cash distribution to Partners
Esteban, Drawing (12,000) Cash 463,000 Evaristo, Loan 40,000
Total Interest of Esteban P 132,000 Eugenio, Capital 52,500 Eugenio, Capital 79,500
Cash received by Esteban 111,000 Evaristo, Capital 31,500 Evaristo, Capital 102,500
Share of Esteban from the loss on Liquidation 21,000 Esteban Capital 21,000 Esteban, Capital 111,000
Esteban’s share ratio 20% Other Assets 568,000 Cash 333,000
2. Payment of Liabilities
Total loss on Liquidation –21,000 /20% P 105,000
Liabilities 200,000
Cash 200,000
2.

Eugenio, Evaristo, and Esteban

Statement of Liquidation
January 1-31 2015
Loan Capital
Cash Other Asset Liabilities Evaristo Eugenio 50% Evaristo 30% Esteban 20%
Balance Before Liquidation P 70,000 P 568,000 P 200,000 P 40,000 P 132,000 P 134,000 P 132,00
Realization and Distribution of 463,000 (568,000) (52,500) (31,500) (21,000)
Loss
Balances P 533,000 - P 200,000 P 40,000 P 79,500 P 102,500 P 111,000
Payment of Liabilities (200,000) (200,000)
Balances P 333,000 - - P 40,000 P 79,500 P 102,500 P 111,000
Payment to Partners (333,000) (40,000) (79,500) (102,500) (111,000)

Estrella, Espino, and Espiritu

Statement of Liquidation
January 1-31, 2015
Loan Capital
 Cash Other Assets Liabilities Espino Espiritu Estrella 40% Espino 40% Espiritu 20%
Balance Before Liquidation P 20,000 P 340,000 P 112,000 P 5,000 P 8,000 P 95,000 P 60,000 P 80,000
Realization & Distribution of loss 250,000 (340,000) (36,000) (36,000) (18,000)
Balances P270,000 - P 112,000 P 5,000 P 8,000 P 59,000 P 24,000 P 62,000
Payment of Liabilities (112,000) (112,000)
Balances P 158,000 - - P 5,000 P 8,000 P 59,000 P 24,000 P 62,000
Payment to Partners (158,000) (5,000) (8,000) (59,000) (24,000) (62,000)
Problem 6 – 3 (Statement of liquidation; journal entries to record liquidation)
Estrella, Espino, and Espiritu, who share profits and losses in the ratio of 2:2:1, decided to liquidate their partnership on December 31, 2014. Shown below is the
condensed statement of financial position prepared just prior to liquidation.
Instructions For each of the cases listed below, prepare a statement of liquidation assuming that cash is realized for the other assets as indicated in each case, and that all
available cash is immediately distributed to the proper parties. Assume as additional payment to the proper parties.
Case 1- P 250,000 Case 2 – P 185,000 Case 3 – P 170,000 Case 4 – P 125,000 Case 5 – P 90,000

CASE 1. P 250,000

CASE 2. P 185,000
Estrella, Espino, and Espiritu
Statement of Liquidation
January 1-31, 2015
Loan Capital
Cash Other Assets Liabilities Espino Espiritu Estrella 40% Espino 40% Espiritu 20%
Balance Before Liquidation P 20,000 P 340,000 P 112,000 P 5,000 P 8,000 P 95,000 P 60,000 P 80,000
Realization & Distribution of loss 185,000 (340,000) (62,000) (62,000) (31,000)
Balances P205,000 - P 112,000 P 5,000 P 8,000 P 33,000 (P 2,000) P 49,000
Payment of Liabilities (112,000) (112,000)
Balances P 93,000 - - P 5,000 P 8,000 P 33,000 (P 2,000) P 49,000
Offset Espino, loan to Espino’s (2,000) 2,000
deficiency
Balances P 93,000 - - P 3,000 P 8,000 P 33,000 - P 49,000
Payment to Partners (93,000) - - (3,000) (8,000) (33,000) - (49,000)

CASE 3. P 170,000
Estrella, Espino, and Espiritu
Statement of Liquidation
 January 1-31, 2015
Loan Capital
Cash Other Assets Liabilities Espino Espiritu Estrella 40% Espino 40% Espiritu 20%
Balance Before Liquidation P 20,000 P 340,000 P 112,000 P 5,000 P 8,000 P 95,000 P 60,000 P 80,000
Realization & Distribution of loss 170,000 (340,000) (68,000) (68,000) (34,000)
Balances P 190,000 - P 112,000 P 5,000 P 8,000 P 27,000 (P 8,000) P 46,000
Payment of Liabilities (112,000) (112,000)
Balances P 78,000 - - P 5,000 P 8,000 P 27,000 (P 8,000) P 46,000
Offset Espino, loan to Espino’s (5,000) 5,000
deficiency
Balances P 78,000 - - - P 8,000 P 27,000 (3,000) P 46,000
Payment to Partners, per schedule (78,000) (8,000) (25,000) (45,000)
Balances - - - - - P 2,000 (3,000) P 1,000
Additional investment by Espino 3,000 3,000
Balances P 3,000 - - - P 2,000 - P 1,000
Payment to Partners (3,000) (2,000) (1,000)

Estrella, Espino, and Espiritu

Schedule to Accompany Statement of Liquidation
January 1-31, 2015
Estrella Espino Espiritu
Capital Balance Before Cash P 27,000 (P 3,000) P 46,000
Distribution
Add: Loan Balance 8,000
Total Partners’ Interest P 27,000 (P 3,000) P 54,000
Restricted Interest –possible loss of (2,000) 3,000 (1,000)
P 3,000 to Estrella and Espiritu in
ratio of 2:1 if Espino fails to pay her
deficiency
Free interest –amount to be paid to P 25,000 - P 53,000
Partners
Payment to apply on:
Loan P 8,000
Capital P 25,000 45,000
Cash Distributtion P 25,000 P 53,000
CASE 4. P 125,000
Estrella, Espino, and Espiritu
Statement of Liquidation
January 1-31, 2015
Loan Capital
Cash Other Assets Liabilities Espino Espiritu Estrella 40% Espino 40% Espiritu 20%
Balance Before Liquidation P 20,000 P 340,000 P 112,000 P 5,000 P 8,000 P 95,000 P 60,000 P 80,000
Realization & Distribution of loss 125,000 (340,000) (86,000) (86,000) (43,000)
Balances P 145,000 - P 112,000 P 5,000 P 8,000 P 9,000 (P 26,000) P 37,000
Payment of Liabilities (112,000) (112,000)
Balances P 33,000 - - P 5,000 P 8,000 P 9,000 (P 26,000) P 37,000
Offset Espino, loan to Espino’s (5,000) 5,000
deficiency
Balances P 33,000 - - - P 8,000 P 9,000 (21,000) P 37,000
Payment to Partners (33,000) (8,000) (25,000)
Balances - - - - - P 9,000 (21,000) P 12,000
Additional investment by Espino 21,000 21,000
Balances P 21,000 - - - P 9,000 - P 12,000
Payment to Partners (21,000) (9,000) (12,000)
 Estrella, Espino, and Espiritu
Schedule to Accompany Statement of Liquidation
January 1-31, 2015
Estrella Espino Espiritu
Capital Balance Before Cash P 9,000 (P21,000) P 37,000
Distribution
Add: Loan Balance 8,000
Total Partners’ Interest P 9,000 (P 21,000) P 45,000
Restricted Interest –possible loss of (14,000) 21,000 (7,000)
P 21,000 to Estrella and Espiritu in
ratio of 2:1 if Espino fails to pay her
CASE 5. P 90,000
deficiency
Balances (P 5,000) - P 38,000
Estrella, Espino, and Espiritu
Restricted Interest –possible 5,000 (5,000)
Statement of Liquidation
additional loss of P 5,000 to Espiritu
January 1-31, 2015
if Estrella fails to pay her deficiency
Loan Capital
Free interest –amount to be paid to - - P 33,000
Cash Other Assets Liabilities Espino Espiritu Estrella 40% Espino 40% Espiritu 20%
Partners
Balance Before Liquidation P 20,000 P 340,000 P 112,000 P 5,000 P 8,000 P 95,000 P 60,000 P 80,000
Realization & Distribution of loss Payment
90,000 to apply on:
(340,000) (100,000) (100,000) (50,000)
Balances Loan
P 110,000 - P 112,000 P 5,000 P 8,000 P 8,000
(P 5,000) (P 40,000) P 30,000
Payment of Liabilities Capital
(110,000) (110,000) 25,000
Balances Cash
- Distribution - P 2,000 P 5,000 P 8,000 P 33,000
(P 5,000) (P 40,000) P 30,000
Offset Espino, loan to Espino’s (5,000) 5,000
deficiency
Balances - - P 2,000 - P 8,000 (P 5,000) (35,000) P 30,000
Additional investment by Estrella and 40,000 5,000 35,000
Espino
Balances P 40,000 - P 2,000 - P 8,000 - - P 30,000
Payment to Liabilities and Partners (40,000) (2,000) (8,000) (30,000)
 Problem 6 – 4 (Statement of liquidation; journal entries to record liquidation)
Instructions:
1. Prepare a schedule showing the net amount of liquidation gain or loss.
2. Prepare a statement of liquidation.
3. Give the entries to record the liquidation.

1.
Asset Book Value Realization Gain (Loss)

Accounts Receivable P 60,000 P 64,000 P 4,000

Merchandise Inventory 50,000 25,000 (25,000)
Prepaid Advertising 2,000 800 (1,200)
Machinery and Equipment 40,000 24,000 (16,000)
Total P 152,000 P 113,800 (P 38,200)
3. a. Cash 113,800 b, Evasco, Capital 1,200 e. Evasco, Capital 3,720
Evasco, Capital 15,280 Ellor, Capital 1,800 Ellor, Capital 3,720
Ellor, Capital 22,920 Accounts Payable 2,000
Evasco-Ellor Partnership
Allowance for Bad Debts 20,000 Notes Payable 1,000 f. Evasco, Capital 9,800
Statement of Liquidation
Accu. Depreciation 60,000 Cash 9,800
AccountsJanuary 1-31, 2015
Receivable 80,000 c. Accounts Payable 22,000
Merchandise Inventory 50,000 Notes Payable Capital 87,000
Cash Other Assets Accounts
Prepaid Advertising Notes Payable
2,000 Evasco
Cash 40% Ellor 6109,000
0%
Machinery and Equipment 100,000
d. Cash 4,000
Ellor, Capital 4,000
 Payable
Balance Before Liquidation P 1,000 P 152,000 P 20,000 P 86,000 P 30,000 P 17,000
Realization & Distribution of loss 113,800 (152,000) (15,280) (22,920)
Balances P 114,800 - P 20,000 P 86,000 P 14,720 (P 5,920)
Unrecorded Liabilities 2,000 1,000 (1,200) (1,800)
Balances P 114,800 - P 22,000 P 87,000 P 13,520 (P 7,720)
Payment of Liabilities (109,000) (22,000) (87,000)
Balances P 5,800 - - - P 13,520 (P 7,720)
Additional investment by Ellor 4,000 4,000
Balances P 9,800 - - - P 13,520 (P 3,720)
Additional loss to Evasco for Ellor’s (3,720) 3,720
deficiency
Balances P 9,800 - - - P 9,800 -
Payment to Evasco (9,800) (9,800)
2.
MULTIPLE CHOICE MC 6-1. P 60,800 Total Liabilities and Equity – Cash = Non-Cash Assets MC 6-2. B - P 7,200 BV of Non-cash asset – realization =
Loss
P 60,000 + 3,000 – (3,000 + 22,200 – 23,000) = Non-cash Assets P 60,800 – 23,000 = 37,800
63,000 – 2,200 = 60,800 Loss x share in ratio of Espinosa
37,800 x 4/21 = 7,200
MC 6-3. B- P 8,320 MC 6-4. C – P 42,000
Total capital – Cash left for Distribution = Loss on Realization
Espina Espinosa Esteban Estrelita
Cash before liquidation P 1,000 P 25,000 P 25,000 P 9,000 (P 40,000 + P 25,000 + P 5,000) – P 28,000 = Loss on Realization
Realization and Distribution of Loss (5,400) (7,200) (10,800) (14,400) 70,000 – 28,000 = 42,000
Balances (P 4,400) P 17,800 P 14,200 (P 5,400)
Added loss to Espinosa and Esteban 4,400 (3,920) (5,880) 5,400 MC 6-5. A – P 17,800
for Espina’s and Estrelita’s
deficiency E1 E2 E3
Payment to Espinosa and Esteban - P 13,880 P 8,320 - Cash before liquidation P 40,000 P 25,000 P 5,000
Realization and Distribution of (21,000) (14,000) (7,000)
MC 6-6. D- P 516,000 Loss
Total capital – Drawings + Profit + Liabilities = Loss on Realization Balances P 19,000 P 11,000 (P 2,000)
P 480,000 – 120,000 + 72,000 + 84,000 = P 516,000 Added loss to E1 and E2 for E3’s (1,200) (800) 2,000
deficiency
MC 6-7 A- P 78,000 Payment to Espinosa and Esteban P 17,800 P 10,200 -
Esper Elor Este MC 6-9. B – 26,000
Cash before liquidation P 100,000 P 80,000 P 300,000 Cash NC Asset Ender, Escano 4 Ender 3 Evelo 3
Less: Drawings (60,000) (40,000) (20,000) Loan
Add: Profit –72,000 divide equally 24,000 24,000 24,000 Cash before liquidation P 30,000 P 70,000 P 14,000 P 10,000 P 35,000 P 41,000
for all the Partners Realization and Distribution 25,000 (70,000) (18,000) (13,500) (13,500)
Realization and Distribution of Loss (172,000) (172,000) (172,000) of Loss
–516,000 divided equally. Balances P 55,000 - P 14,000 (P 8,000) P 21,500 P 27,500
Balances (P 108,000) (P 108,000) P 132,000 Add’tl investment of Escano 5,000 5,000
Added loss to Elor and Este for 108,000 (54,000) (54,000) Balances P 60,000 - P 14,000 (3,000) P 21,500 P 27,500
Esper’s deficiency Add’tl loss to Ender & Evelo 3,000 (1,500) (1,500)
Payment to Espinosa and Esteban - - P 78,000 for Escano’s deficiency
Payment to Espinosa and P 60,000 P 14,000 (20,000) (26,000)
MC 6-8 B – P 34,000 Esteban

Cash NC Asset Ender, Escano 4 Ender 3 Evelo 3

Loan MC 6-10. D – P 75,000
Cash before liquidation P 30,000 P 70,000 P 14,000 P 10,000 P 35,000 P 41,000 Cash to be received by Escano P 12,000
Realization and Distribution of 30,000 (70,000) (16,000) (12,000) (12,000) Escano’s capital before liquidation 10,000
Loss Escano’s share in gain on realization P 2,000
Balances P 60,000 - P 14,000 (P 6,000) P 23,000 P 29,000 Escano’s profit share ratio ÷ 40%
Added loss to Ender and Evelo for 6,000 (3,000) (3,000) Total gain on realization P 5,000
Escano’s deficiency Book value of NC Asset 70,000
Balances P 60,000 - P 14,000 - P 20,000 P 26,000 Amount of NC asset to be sold P 75,000
Payment to Espinosa and Esteban (60,000) (14,000) (20,000) (26,000)
MC 6-11. C – P 14,000
TEST MATERIAL # 21 TEST MATERIAL # 23
Echo 6 Egay 2 Elma 2
Cash before liquidation P 50,000 P 50,000 P 10,000
1. F 6. F 11. T 16. F 1. A 6. C 11. D 16. A
Realization and (36,000) (12,000) (12,000)
2. F 7. T 12. T 17. T 2. D 7. B 12. A 17. C
Distribution of Loss
3. T 8. T 13. F 18 F 3. D 8. A 13. B 18. A
Balances P 14,000 P 38,000 (P 2,000)
Add’tl investment of Elma 2,000 4. T 9. F 14. T 19. T 4. C 9. C 14. C 19. C
Amount to be receive by P 14,000 P 38,000 - 5. T 10. T 15. T 20. T 5. D 10. D 15. D 20. A
Echo and Egay
TEST MATERIAL # 22

MC 6-12. B – P 25,000 1. Loans Payable 11. Marshalling Assets

2. Lumpsum Liquidation 12. Capital Deficiency
Echo 2 Egay 2 Elma 6 3. Right of offset 13. Gain on Realization
Cash before liquidation P 50,000 P 50,000 P 10,000
4. Liquidation 14. Liquidation Expense
Realization and (12,000) (12,000) (36,000)
Distribution of Loss 5. Realization 15. Loss to other partners
Balances P 38,000 P 38,000 (P 26,000) 6. Loan receivable from partner 16. Capital balances
Add’tl loss of Echo&Egay (13,000) (13,000) 26,000 7. Installment Liquidation 17. Liabilities of the partnership
for Elma’s deficiency 8. Deficient Partner 18. Additional Investment
Amount to be received by P 25,000 P 25,000 - 9. Statement of Liquidation 19. Addition to capital
Egay and Echo 10. Insolvent Partner 20. Profit and loss ratio / liquidation ratio

MC 6-13. A – P 150,000
MC 6-14. A – P100,000
MC 6-15. B – P 217,500

Esmer 2 Estrel 1 Ellea1 Elmer 1

Cash before liquidation P 50,000 P 50,000 P 50,000 P 75,000
Realization and (112,000) (56,000) (56,000) (56,000)
Distribution of Loss
Balances (P 62,000) (P 6,000) (P 6,000) P 19,000
Add’tl loss for Estrel’s (3,000) 6,000 (1,500) (1,500)
deficiency
Balances (P 65,000) - (P 7,500) P 17,500

Personal Assets P 250,000 P 100,000 150,000 P 200,000

Remaining Personal P 185,000 P 100,000 P 142,500 P 217,500
assets to be paid to
Creditors
TEST MATERIAL # 24 PROBLEM A
EEE Partnership
Statement of Liquidation
January 1-31, 2015
CAPITAL
Cash Other Assets Accounts Loan Payable Estoy 20% Empoy 40% Eloy 40%
Payable to Empoy
Balance Before Liquidation P 25,000 P 475,000 P 240,000 P 30,000 P 120,000 P 50,000 P 60,000
Realization & Distribution of loss 260,000 (475,000) (43,000) (86,000) (86,000)
Balances P 285,000 - P 240,000 P 30,000 P 77,000 (P 36,000) (26,000)
Payment of Liabilities (240,000) (240,000)
Balances P 45,000 - - P 30,000 P 77,000 (P 36,000) (P 26,000)
Offset Empoy, loan to Empoy’s (30,000) (30,000)
capital deficiency
Balances P 45,000 - - - P 77,000 (P 6,000) (P 26,000)
Additional loss to Estoy&Empoy for (333.33) (666.67) 1,000
Eloy’s deficiency
Balances P 45,000 - - - P 76,666.67 (P 6,666.67) (P 25,000)
Additional Investment by Empoy 31,666.67 6,666.67 25,000
and Eloy
Balance P 76,666.67 - - - P 76,666.67 - -
Payment to Estoy (76,666.67) (76,666.67)

2) JOURNAL ENTRIES

a. Cash 260,000 c. Loan Payable to Empoy 30,000 f. Eloy, Capital 76,666.67

Estoy, Capital 43,000 Empoy, Capital 30,000 Cash 76,666.67
Empoy Capital 86,000
Eloy, Capital 86,000 d. Estoy, Capital 333.33
A/c Receivable 75,000 Empoy, Capital 666.67
Inventory 100,000 Eloy, Capital 1,000
Plant and Equipment 300,000
e. Cash 31,666.67
b. Accounts Payable 240,000 Empoy, Capital 6,666.67
Cash 240,000 Eloy, Capital 25,000
 3. Schedule of partner’ personal assets distribution PROBLEM B 1.A – Escobar – 0 ; Elloso – P 97,800 ; Echaves – P 73,900
Estoy Empoy Eloy
Personal Assets P 250,000 P 300,000 P 350,000 Escobar 2 Elloso 2 Echaves 1
Personal Liabilities (230,000) (240,000) (325,000) Cash before liquidation P 90,000 P 90,000 P 30,000
Partnership Liabilities (6,666.67) (25,000) Note receivable from Escobar (75,000)
Balances P 20,000 P 53,333.33 - Note payable to Elloso & Echaves 40,000 60,000
Balances P 15,000 P 130,000 P 90,000
Distribution of Loss (380,500- 300,000) in the ratio of 2:2:1 (32,200) (32,200) (16,100)
Balances (P 17,200) P 97,800 P 73,900
Additional investment of Escobar 17,200
Payment to Partners - P 97,800 P 73,900

1B. Escobar – 0 ; Elloso - P 69,000 ; Echaves – P 59,500

Escobar 2 Elloso 2 Echaves 1 2. If the partnership intended to accept the offer of P 140,000 for selling
Cash before liquidation P 90,000 P 90,000 P 30,000 the business, the partnership will only suffer P 7,000 loss— P 147,000 –
Note receivable from Escobar (75,000) 140,000; and None of them will have to use their personal assets for
Note payable to Elloso & Echaves 40,000 60,000
Balances P 15,000 P 130,000 P 90,000 paying their liabilities. However, the only asset that the partners will
Distribution of Loss (380,500- 270,000) in the ratio of 2:2:1 (44,200) (44,200) (22,100) have, at the end of the day, is the remaining cash amounting to P
Balances (P 29,200) P 85,800 P 67,900 63,000, which will decrease as they divide it according to their agreed
Additional investment of Escobar 4,000
ratio.
Balance (P 25,200) P 85,800 P 67,900
Additional loss to Elloso&Echaves for Escobar’s deficiency 25,200 (16,800) (8,400) In the condition in letter 1a, the partnership incurred a loss amounting
Balances: Payment to Partners - P 69,000 P 59,500 to P 80,500 for selling only the non-cash asset, not including all the
Liabilities. This indicates that not only will the partners suffers from
allocating the loss on realization to their capital, but will also need to
1C.
pay the partnership’s liabilities. However, despite all of these, by the
Escobar 2 Elloso 2 Echaves 1 end of the liquidation process, two partners will receive P 97,800 and P
Cash before liquidation P 90,000 P 90,000 P 30,000 73,900 respectively—P 171,700 in total. Thus, if we compare the
Note receivable from Escobar (75,000) outcomes from the given choices, the condition in 1a is more fructuous,
Note payable to Elloso & Echaves 40,000 60,000
securing P 171,700, than accepting the offer of P 140,000, which will
Balances P 15,000 P 130,000 P 90,000
Distribution of Loss (380,500- 270,000) in the ratio of 2:2:1 (44,200) (44,200) (22,100) only give them P 63,000.
Balances (P 29,200) P 85,800 P 67,900
Payment of Liquidation Expense (9,950) (9,950) (4,975)
Balance (P 39,150) P 75,850 P 62,925
Additional loss to Elloso&Echaves for Escobar’s deficiency 39,150 (26,100) (13,050)
Balances: Payment to Partners - P 49,750 P 49,875