QUIZ 2 – Partnership Liquidation - Installment

1. If all partners are included in the first installment of an installment liquidation, then in subsequent installments:
a. Cash should not be distributed until all non-cash assets are converted into cash
b. A safe payments schedule must always be prepared before each cash distribution to avoid excessive
payments to partners
c. A cash distribution plan will now be prepared so that partners will know when they will be included in
subsequent cash distributions
d. Cash will be distributed according to the residual profit/loss sharing ratio

2. The equity section of the statement of financial position of the partnership of A, B and C shows the following
information (SEE PICTURE BELOW):

Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes
available. In the second sale of non-cash assets, the partners received the same amount of cash in the
distribution. In the third sale of non-cash assets, the amount of cash available for distribution is ₱100,000. The
carrying amount of the remaining non-cash assets is ₱260,000. Under the cash priority program, how much
cash is distributed to B in the third installment payment?

A, Capital (40%) 64,000

B, Capital (40%) 104,000
C, Capital (20%) 76,800
244,800

a. 40,000
b. 38,400
c. 28,200
d. 0

3. The equity section of the statement of financial position of the partnership of A, B and C shows the following
informatioIn a cash distribution program, the following are the loss absorption abilities of A,B, and C in the ABC
partnership:
· Partner A: 350,000
· Partner B: 400,000
· Partner C: 180,000

Which of the following statements is correct?

a. In vulnerability rankings, B is the most vulnerable to losses; A is the next most vulnerable; C is the least
vulnerable. Payment has to be made for B first then to A & B then to A, B, & C.
b. In vulnerability rankings, B is the most vulnerable to losses; A is the next most vulnerable; C is the least
vulnerable. Payment has to be made for C first then to A & C then to A, B, & C.
c. In vulnerability rankings, C is the most vulnerable to losses; A is the next most vulnerable; B is
the least vulnerable. Payment has to be made for B first then to A & B then to A, B, & C.
d. In vulnerability rankings, C is the most vulnerable to losses; A is the next most vulnerable; B is the least
vulnerable. Payment has to be made for C first then to A & C then to A, B, & C.

4. In a cash distribution program, which partner is considered the most vulnerable to losses as a result of a
computation of loss absorption balances?
a. The partner who has the lowest loss absorption balance
b. The partner who has the highest loss absorption balance
c. The partner who has the lowest net capital interest
d. The partner who bears the highest profit/loss percentage

5. What is the purpose of preparing an advance cash distribution plan?

a. Prepared each time cash is distributed to partners in an installment liquidation.
b. Prepared each time a partnership asset is sold in an installment liquidation.
c. Determine the order and amount of cash each partner expects to receive as cash becomes
available
d. All of the above

6. The following statements are provided to you: Statement

1: A partnership installment liquidation occurs a very short time period Statement
2: A cash distribution plan is a guarantee to partners that distributions will occur during partnership liquidation.
o Only Statement 1 is true
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 o Only Statement 2 is true
o Both statements are true
 Both statements are false

7. In partnership liquidations made by installments, what are “safe payments”?

a. The amounts of distributions that can be made to the partners, after all creditors, have been paid in full.
b. The amounts of distributions that can be made to the partners with assurance that such
amounts will not have to be returned to the partnership.
c. The amounts of distributions that can be made to the partners, after all non-cash assets have been
adjusted to fair market value.
d. All of the above are examples of the safe payments’ concepts.

8. In relation to the Schedule of Safe Payments, which among the following is true?
a. In computing safe payments, partners with positive capital balances are assumed to absorb an equal share
of any debit balance.
b. Safe payments are equal to the recorded capital balances of partners with positive capital balances
c. The distribution of safe payments assumes that any deficit balance will prove to be a total loss
to the partnership
d. Distribution of safe payments after all liabilities have been paid.

9. The year-end balance sheet and residual profit and loss sharing percentages for the Ara, Belle, and Grace
partnership on December 31, 2005, are as follows:

Cash P 30,000
Accounts payable P 200,000
Loan to Ara 40,000
Loan from Belle 50,000
Other assets 480,000
Ara, capital (25%) 70,000
Belle, capital (25%) 80,000
Grace, capital (50%) 150,000

The partners agree to liquidate the business and distribute cash when it becomes available. A cash distribution
plan for the Ara, Belle, and Grace partnership will show that cash available, after outside creditors are paid, will
initially go to:
a. Ara in the amount of P20,000.
b. Belle in the amount of P45,000.
c. Belle in the amount of P55,000.
d. Grace in the amount of P90,000.

10. A schedule prepared each time cash is to be distributed is called a(n)

a. Advance cash distribution schedule
b. Marshalling of assets schedule
c. Loss absorption potential schedule
d. Schedule of Safe Payments Correct

11. Which of the following describes the partnership installment liquidation?

a. Keeping the partnership assets and liabilities separate from the partners’ personal assets and liabilities
b. Series of interim distributions to partners while the sale of noncash assets and the payment of
liabilities is occurring
c. Combining of a partner’s capital account with loans to/from the partnership.
d. Sale of all non-cash assets and payment of liabilities before a single distribution to partners

12. RR, SS and TT decided to dissolve the partnership on November 30, 2015. Their capital balances and profit
ratio on this date, follow (SEE PICTURE BELOW):

The income from January a to November 30, 2015 is P44,000. This is not yet closed in the capital accounts.
Also, on this date, cash and liabilities are P40,000 and P90,000, respectively. For RR to receive P55,200 in full
settlement of his interest in the firm, how much must be realized from the sale of the firm’s non-cash assets?

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 a. 196,000
b. 177,000
c. 193,000
d. 187,000

13. The balance sheet accounts of partners Coleen, Kim and Gerald before liquidation are the following: Cash,
P360,000; Non-Cash Assets, P1,790,000; Liabilities, P1,000,000; Coleen, Capital (50%), P460,000; Kim, Capital
(30%), P370,000 and Gerald, Capital (20%), P320,000.

On the first month of liquidation, assets with a book value of P1,400,000 are sold for P1,060,000. Liquidation
expenses of P40,000 are paid and additional expenses are anticipated. Liabilities are paid amounting to
P362,000, and sufficient cash is retained to insure the payment to creditors before making payment to
partners. In the first payment of cash to partners, Kim received P100,000.

The cash withheld for future liquidation expenses amounted to:

a. P130,000
b. P35,000
c. P118,000
d. P768,000

14. How much was distributed to Gerald?

a. P10,000
b. P66,667
c. P180,000
d. P140,000

15. On December 31, 2020, the Statement of Financial Position of ABC Partnership with profit/loss ratio of 2:3:5,
respectively for partners A, B, and C, showed the following information (SEE PICTURE):

On January 1, 2021, partners decided to wind up the partnership affairs. Liquidation expenses amounted to
P2,000,000 were paid. Noncash assets with book value of P30,000,000 were sold during January. 40% of total
liabilities were also paid during January. P3,000,000 cash was withheld during January for future liquidation
expenses. On January 31, 2021, partner A received P10,000,000.

What is the amount received by partner B on January 31, 2021?

a. 7,500,000
b. 5,000,000
c. 2,500,000
d. 3,000,000

16. What is the net proceeds from the sale of noncash assets during January 2021?
a. P20,000,000
b. P22,000,000
c. P25,000,000
d. P23,000,000
17. On December 31, 2020, the Statement of Financial Position of ABC Partnership with profit/loss ratio of 5:3:2,
respectively for partners A, B, and C, showed the following information (SEE PICTURE BELOW):

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 On January 1, 2021, the partners decided to liquidate the partnership in installment. All partners are legally
declared to be personally insolvent.

As of January 31, 2021, the following transactions occurred:

· Non-cash assets with carrying amount of P1,000,000 were sold at a gain of P100,000.
· Liquidation expenses for the month of January amounting to P50,000 were paid.
· It is estimated that liquidation expenses amounting to P150,000 will be incurred for the month of
February 2021.
· 20% of the liabilities to 3rd persons were settled.
· Available cash was distributed to the partners.

What is the amount of cash received by partner C on January 31, 2021?

a. P240,000
b. P350,000
c. P300,000
d. P260,000

18. In relation to Item 17: What is the amount of restricted interest/theoretical loss on January 31, 2021?
a. P1,600,000
b. P1,750,000
c. P550,000
d. P1,700,000

19. A, B, C are partners. On Jan 2, 2020, their capital balances and profit and loss ratio are (SEE PICTURE BELOW):

C withdrew 250,000 during the year, Net loss on Dec 31 is P500,000. Hence the partners decided to liquidate
the partnership on Dec. 31, 2020. It is uncertain how much the assets will ultimately yield but favorable
realization is expected. It is therefore agreed to distribute cash as it become available. There are unpaid
liabilities of P125,000 and cash P17,500 on Dec. 31, 2020. 19. What is the book value of the total non-cash
assets before liquidation?

a. 2,625,000
b. 2,607,500
c. 2,750,000
d. 2,732,500

20. In relation to Item 19: What is the amount to be realized by the partnership on the sale of its non-cash assets
so that A will receive a total of P475,000 in the final settlement of his interest?
a. 2,582,500
b. 2,982,500
c. 232,500
d. 150,000

21. For Items 21 - 26: AA, BB, and CC are partners sharing P/L in the ratio of 4:3:3 respectively. On January 1,
2019, they decided to liquidate the partnership and the balance sheet were prepared as follows (SEE PICTURE
BELOW): Transactions are presented below in the screenshot.

The amount to be received by BB for the month of January?

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 a. 0
b. 900
c. 2,000
d. 2,500

22. Refer to Item 21. The amount to be received by partner CC for the month of February
a. 0
b. 237.50
c. 937.50
d. 1,250

23. Refer to Item 21. The amount to be received by partner AA for the month of March:
a. 0
b. 1,500
c. 4,400
d. 7,225

24. Refer to Item 21. The amount to be received by partner BB for the month of April:
a. 0
b. 375
c. 500
d. 625

25. Refer to Item 21. The partner most vulnerable to losses on liquidation is:
a. AA
b. BB
c. CC
d. NONE

26. Refer to Item 21. Second payment to partner/s under a CPP:

a. To BB, 3,356.25
b. To AA, 558.33
c. To CC, 3,356.25
d. To AA, 558.33 and to BB, 418.75

27. FOR ITEMS 27-28: The partnership of JJ, KK, LL, and MM is preparing to liquidate. P/L sharing ratios are shown in
the summarized balance sheet at Dec. 31, 2019 as follows (SEE PICTURE BELOW): During January 2020, the
inventories are sold for P42,500. Other liabilities are paid, and 25,000 is set aside for contingencies. How much
is the total payment to partners in January?

a. 97,500
b. 102,500
c. 72,500
d. 67,500

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 28. REFER TO ITEM 27. How much is to be received by JJ and KK?
a. 11,666.50 ; 80,833.50
b. 15,000 ; 82,500
c. 0 ; 72,500
d. 0 ; 67,500

29. The partners of the XX & YY Partnership started liquidating their business on July 1, 2020, at which time the
partners were sharing profits and losses 40% to XX and 60% to YY. The balance sheet of the partnership
appeared as follows (SEE PICTURE BELOW):

During the month of July, the partners collected P600 of the receivables with no loss. The partners also sold
during the month the entire inventory on which they realized a total of P32,400. How much of the cash was
paid to XX’s capital on July 31, 2020?
a. 320
b. 25, 600
c. P5, 400
d. Zero

30. The following statements are provided to you:

Statement 1: The schedule of safe payments outlines how cash would be distributed to partners during
partnership liquidation if all remaining noncash assets are worthless, and any partner with a deficit capital
account cannot make additional contributions to the partnership.
Statement 2: A cash distribution plan is computed at the beginning of the partnership liquidation.
a. Only Statement 1 is true
b. Only Statement 1 is false
c. Both statements are true
d. Both statements are false

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