Installment liquidation
1. In dissolution by installment, final cash settlement among the partner’s
are based on the-
partner’s capital balance
2. The A, B, and C Partnership have not been successful. Hence, the partners
have sadly concluded that operations must be terminated and their
partnership liquidated. Profits and losses are shared as follows: A, 45
percent; B, 35 percent; and C, 20 percent. As the accountant placed in
charge of this partnership, you have responsibility for the liquidation and
distribution of assets. When you assume your responsibilities, the
partnership balance sheet is as follows:
Cash 180,000 Liabilities 120,000
Other assets 540,000 Loan from A 180,000
A, Capital 60,000
B, Capital 300,000
C, Capital 60,000
During the first two months of your duties, the following events occur:
1. Assets having a book value of 400,000 are sold for 120,000 cash.
2. Previously unrecorded liabilities of 10,000 are recognized.
3. Before distributing available cash balances to creditors and partners, you
conclude that a cash reserve of 10,000 should be set aside for future potential
expenses.
4. Remaining cash balances are distributed to creditors and partners.
How much cash A should receive? 26,250
A, B, and C Partnership
A B C Total
Partners' Interest 240,000 300,000 60,000 600,000
Allocation of actual and potential
loss (198,000) (154,000) (88,000) (440,000)
Balance 42,000 146,000 (28,000) 160,000
Absorption of Defit balance (15,750) (12,250) 28,000
Settlement 26,250 133,750 -
3. under liquidation by installment, the partner who receives cash when
there is cash available is the one-
who can absorb the greatest share of theoretical or possible loss
4. The ABC Partnership has assets with book value of P240,000 and a
market value of P195,000, outside liabilities of P70,000, loans payable to
Partner Able of P20,000, and capital balances for Partners Able, Baker,
and Chapman of P70,000, P30,000, and P50,000, respectively. The
partners share profits and losses equally.
If all outside creditors and loans to partners had been paid. How would be
balance of the asssets be distributed assuming Chapman has already received
assets with a value of P30,000?
Able: P55,000, Baker: P15,000, Chapman: P5,000.
5. Hara, Ives, and Jack are in the process of liquidating their partnership.
Since it may take several months to convert the other assets into cash,
the partners agree to distribute all available cash immediately, except for
10,000 that is set aside for contingent expenses. The balance sheet and
residual profit and loss sharing percentages are as follows:
Cash 400,000 Accounts payable 200,000
Other assets 200,000 Hara, capital (40%) 135,000
Ives, capital (30%) 216,000
Jack, capital (30%) 49,000
Total assets 600,000 Total liab./equity 600,000
How much cash should Ives receive in the first distribution?
147,000.
Hara (40%) Ives (30%)
Partners' Interest 135,000.00 216,000.00 49,000.00 400,000.00
Distribution of Estimated Loss (84,000.00) (63,000.00) (63,000.00) (210,000.00)
Balance after Estimated Loss 51,000.00 153,000.00 (14,000.00) 190,000.00
Absorption of Loss (8,000.00) (6,000.00) 14,000.00
First Distribution 43,000.00 147,000.00 - 190,000.00
**Distributable Asset
Computation
Total Cash 400,000.00
Cash Withheld for
Contingent
expenses (10,000.00)
Cash withheld/paid
for liabilities (200,000.00)
Distributable Asset 190,000.00
6. After incurring losses resulting from every unprofitable operations, the
Goh Kong Wie Partnership decided to liquidate when the partners’ capital
balances were:
Goh, capital (40%) P80,000
Kong, capital (40%) 130,000
Wei, capital (20%) 96,000
The non-cash assets were sold in installment. Available cash were distributed to
partners in every sale of non-cash assets. After the second sale of non-cash
assets, the partners received the same amount of cash in the distribution. And
from the third sale of non-cash assets, cash available for distribution amounts
to P28,000, and unsold non-cash assets has a book value of P12,500. Using cash
priority program, what amount did Wei received in the third installment of
cash?
5,600
7. In preparing a cash distribution plan, the partner’s capital and loan
accounts should be-
Combined
8. Jen, Nil, and Lyn are in the process of liquidating their partnership. Lyn
has agreed to accept the inventory, which has a fair value of 75,000, as
part of her settlement. A balance sheet and the residual profit and loss
sharing percentages are as follows:
Cash 198,000 Accounts payable 149,000
Inventory 80,000 Jen, capital (40%) 79,000
Plant assets 230,000 Nil, capital (40%) 140,000
Lyn, capital (20%) 140,000
Total assets 508,000 Total liab./equity 508,000
If the partners then distribute the available cash, Lyn will receive
11,000.
JenNilLyn
Partnership Jen Nil Lyn Total
Partners' Interest 79,000.00 140,000.00 140,000.00 359,000.00
Estimated Loss
(squeeze) (94,000.00) (94,000.00) (47,000.00) (235,000.00)
Balance after
Estimated Loss |
Distributable Asset (15,000.00) 46,000.00 93,000.00 124,000.00
Absorption of
Estimated
Deficiency 21,000.00 (14,000.00) (7,000.00)
Distribution after
est. Loss and
Deficiency 6,000.00 32,000.00 86,000.00
Non-cash payment
received (75,000.00)
Cash Distribution 12,000.00 32,000.00 11,000.00
9. Jade, Kahl, and Lane are in the process of liquidating their partnership.
Lane has agreed to accept the inventory, which has a fair value of 60,000,
as part of her settlement. A balance sheet and the residual profit and loss
sharing percentages are as follows:
Cash 198,000 Accounts payable 149,000
Inventory 80,000 Jade, capital (40%) 79,000
Plant assets 230,000 Kahl, capital (40%) 140,000
Lane, capital (20%) 140,000
Total assets 508,000 Total liab./equity 508,000
If the partners then distribute the available cash, Lane will receive
23,000
Jade Kahl Lane Total
Partners' Interest 79,000 140,000 140,000
359,000
Allocation of actual and potential loss (squeeze)
(100,000) (100,000) (50,000) (250,000)
Balance (21,000) 40,000 90,000
109,000
Distributable asset
Absorption of deficit 21,000 (14,000) (7,000)
Settlement - 26,000 83,000
Inventory (60,000)
Cash - 26,000
