Partnership Liquidation by Installment

THEORIES

1. In the cash distribution plan which partner gets the first cash distribution?

a. The partner with the largest loan balance.

b. The partner with the largest absorption potential.

c. The partner with the largest capital balance.

d. The partner with the largest profit and loss ratio.

2. In the installment liquidation of a partnership, each installment of cash is distributed:

a. In the partners' profit and loss ratio.

b. In the ratio of partner's capital account balances.

c. As agreed to by the partners.

d. As if no more cash would be forthcoming.

3. In calculating the safe payment, you assume:

a. Partnership liabilities have been paid.

b. No liquidation expenses will be paid.

c. All non-cash assets are worthless.

d. Cash on hand can be fully distributed.

4. What is the largest possible loss resulting from the realization of partnership assets that the
accountant estimates when preparing a safe payment schedule?

a. Book value of recorded assets.

b. Book value of recorded non-cash assets.

c. Fair value of recorded assets.

d. Fair value of recorded non-cash assets,

PROBLEMS

1. A balance sheet for the partnership of Sanjoe, Bea, and Piolo, who share profits and losses in
the ratio 50:25:25, respectively, shows the following balances before liquidation:

Cash P72,000

Other Assets 357,000

Liabilities 120,000

Sanjoe Capital 132,000

Bea Capital 93,000

Piolo Capital 84,000

In the first month of liquidation, certain assets were sold for P192,000. Liquidation expenses of
P6,000 were paid, liabilities amounting to P32,400 were paid. The partners distributed the cash
available after setting aside enough cash for future liquidation expenses. Sanjoe received
P37,500 in the first month.

How much cash did the partners set aside for future liquidation expenses?

a. P18,000

b. P105,600

c. P87,600

d. P0

2. The statement of financial position of the firm of RJ, SJ, and TJ just before liquidation shows
the following:

Assets P120,000

Liabilities 50,000

RJ, loan 10,000

RJ, capital 22,000

 SJ, capital 30,000

TJ, capital 8,000

Total P120,000

RJ, SJ, and TJ share profits 5:3:2 respectively. Certain assets are sold for P80,000. Creditors
are paid in full, partners are paid P20,000, and cash of P10,000 is withheld pending future
developments. How much cash is to be distributed to the partners?

RJ SJ TJ

a. P7,000 P13,000 -

b. P5,750 P14,250 -

c. P5,250 P14,750 -

d. P7,550 P12,450 -

3. A statement of financial position for the partnership of Dy, Sy and Lee, who share profits in
the ration of 2:1:1, shows the following balances just before liquidation:

Cash P12,000

Other Assets 59,500

Liabilities 20,000

Dy, Capital 22,000

Sy, Capital 15,500

Lee, Capital 14,000

On the first month of the liquidation, certain assets are sold for P32,000. Liquidation expenses
of P1,000 are paid, and additional liquidation expenses are anticipated. Liabilities are paid
amounting to P5,400, and sufficient cash is retained to insure the payment to creditors before
making payments to partners. On the first payment to partners, Dy receives P6,250.

The total cash distributed to the partners in the first installment is:
a. P20,000

b. P12,500

c. P25,000

d. P10,000

The amount of cash withheld for anticipated liquidation expenses and unpaid liabilities is:

a. P14,600

b. P 2,000

c. P16,600

d. P17,600