2nd Flr, GF Partners Bldg, 139 H.V.

dela Costa, Salcedo Village, Makati City

3rd Flr. EPCIB Bldg. 2070 Claro M. Recto, Manila

Practical Accounting 2 Prof. Cecilla Mercado

PARTNERSHIP LIQUIDATION

A. Mandela, B. Clarion, C. Yamson, and D. Lobregat are partners sharing profits and
losses equally. The partnership is insolvent and is to be liquidated. The status of the partnership
and each partner is as follows:
Personal Personal
Assets Liabilities
Partnership (exclusive of (exclusive of
Capital partnership partnership
Balance interest) interest)
Mandela (P45,000) P300,000 P120,000
Clarion ( 30,000 90,000 180,000
Yamson 60,000* 240,000 15,000
Lobregat 90,000* 3,000 84,000
*Defecit

1. The partnership creditors

a. must first seek recovery against Yamson because he is personally solvent and
has a negative capital balance,
b. will not be paid in full regardless of how they proceed legally because the
partnership assets are less than the partnership liabilities.
c. Will have to share Clarion’s interesting the partnership on a pro rata basis with
Clarion’s personal creditors.
d. Have first claim to the partnership assets before any partner’s personal
creditors have rights to the partnership assets.

2. The partnership creditors may obtain recovery of their claims

a. in the amount of P18,750 from each partner
b. from the personal assets of either Mandela or Clarion
c. from the personal assets of either Yamson or Lobregat
d. from the personal assets of either Mandela or Yamson for all or some of their
claims.

L. Cachola, A. Asprec, V. Yu, and A. Lim are partners sharing profits and losses equally.
The partnership is insolvent and is to be liquidated. The status of the partnership and each partner
is presented on the next page.

L.Cachola A. Asprec V. Yu A. Lim

Partnership capital balance P150,000 P100,000 P(200,000) P(300,000)
Personal assets (exclusive of
Partnership interest) 1,000,000 300,000 800,000 10,000
Personal liabilities (exclusive
Of partnership interest 400,000 600,000 50,000 280,000

3. The partnership creditor’s

a. must first seek recovery against Yu because he is personally solvent and he
has a negative capital balances
b. will not be paid in full regardless of how they proceed legally because the
partnership assets are less than partnership liabilities
c. will have to share Asprec’s interest in the partnership on a pro rata basis with
Asprec’s personal creditors
d. have first claim to partnership assets before any partner’s personal creditors
have rights to the partnership assets
 4. The partnership creditors may obtain recovery of their claims
a. in the amount of P62,500 from each partner
b. from the personal assets of either Cachola or Asprec
c. from the personal assets of either Yu or Lim
d. from the personal assets of either Cachola or Yu for some or all of their claims

5. If Cachola pays the full amount owed to partnership creditors from his personal
assets, then
a. Cachola’s partnership loss will be increased by P250,000
b. Cachola’s partnership loss will be increased by P125,000
c. Cachola will have a P400,000 total partnership loss
d. Cachola’s partnership loss will be the same as if Yu had paid partnership
creditors from his personal assets

M. Diaz, L. Guevarra, and A. Miranda have capital balances of P90,000,P45,000, and

P15,000 respectively, in the DGM Partnership. The general partnership agreement is silent as to
the manner in which partnership losses are to be allocated but does provide that partnership
profits are to be allocated as follows: 40% to M. Diaz, 25% to L. Guevarra, and 35% to A.
Miranda. The partners have decided to dissolve and liquidate the partnership. After paying all
creditors, the amount available for distribution will be P60,000. M. Diaz, L. Guevarra, and A.
Miranda are individually solvent.

6. Using the preceding information, A. Miranda will

a. receive P21,000
b. receive P36,000
c. personally have to contribute an additional P16,500
d. personally have to contribute an additional P15,000

After all noncash assets have been converted into cash in the liquidation of the Guiron
and Horacio Partnership, the ledger contains the following accounts:

Cash P141,000
Accounts payable P96,000
Loan payable to Guiron 45,000
Guiron, capital 21,000
Horacio, capital 21,000

7. Available cash should be distributed with P96,000 going to accounts payable and
a. P45,000 to the loan payable to Guiron
b. P22,500 each to Guiron and Horacio
c. P24,000 to Guiron and P21,000 to Horacio
d. P21,000 to Guiron and P24,000 to Horacio

On December 31, the partnership accounts of I. Gabon, J. Hipolito and K. Imperial who
share profits and losses in the ratio of 5:3:2 follow:

I. Gabon, drawing – debit P12,000

K. Imperial, drawing – credit 4,800
Accounts receivable – Gabon 7,200
Loans payable – Hipolito 14,400
I.Gabon, capital 59,400
J.Hipolito, Capital 44,400
K. Imperial, capital 39,000

Total partnership assets on this day stands at P211,200, including cash of P64,200. The
partnership is liquidated and imperial ultimately receives P33,000 in final liquidation.

8. How much is the total loss on realization of the partnership?

a. P64,200 c.P54,000
b.P31,200 d.P10,800
 As of December 31, 2003, the books of GTB Partnership showed capital balances of
Gueco – P40,000; Tiongco – P25,000; Barcelona – P5,000. The partners’ profit and loss ratio
was 3:2:1, respectively. The partners decided to dissolve and liquidate. They sold all the noncash
assets for P37,000 cash. After settlement of all liabilities amounting to P12,000, they still have
P28,000 cash cash left for distribution.

9. The loss on realization of the noncash assets was:

a. P42,000 c.P45,000
b.P40,000 d.28,000

10. Assuming that any debit balance of partners’ capital is uncollectible, the share of
Gueco on P28,000 cash for distribution was
a. P19,000 c. P18,000
b.P17,800 d.P28,000

D. Alarcon, F. Barredo, G. Coronel, partners, are in textile distribution business sharing

profits and losses equally. On Dec. 31, 2003, the partnership capital and partners’ drawings are as
follows:

Alarcon Barredo Coronel Total

Capital P100,000 P80,000 P300,000 P480,000
Drawings 60,000 40,000 20,000 120,000

The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit in the year 2003 amounted to P72,000 which was all exhausted including the
partnership assets. Unsettled creditors’ claim at Dec. 31, 2003 totaled P84,000. Barredo and
Coronel have substantial private resources but alarcon has no personal assets.

11. Loss on liquidation was

a. P360,000 c. P480,000
b.P432,000 d. P516,000

12. Final cash distribution to Coronel was

a. P78,000 c. P108,000
b. P84,000 d. P162,000

G. Doria and H. Elima are partners with capital balances and profit and loss ratio as
follows:

Capital Profit and Loss Ratio

G. Doria P24,500 60%
H. Elima 15,500 40%
P40,000 100%

The partners decided to liquidate the partnership. The firm’s liabilities amount to P36,000,
including P4,000 owing to Doria and P3,500 owing to Elima on loans After realization of assets,
the cash on hand amounts to P37,500.

13. The loss on realization amounts to

a. P2,500 c. P38,500
b. P4,000 d. P37,500

14. In the settlement to partners. Doria and Elima would receive

a. P22,500 and P15,000, respectively
b. P 1,500 and P 1,000 respectively
c. P 5,400 and P 3,600 respectively
d. P 4,000 and P 3,500 respectively
 L. Jurado , M. Kabigting , N. Lacosta, and O. Marcelo are partners, sharing earnings in
the ratio of 3:4:6:8. The balance of their capital accounts on December 31, 2003 are as follows:

L. Jurado P1,000
M. Kabigting 25,000
N. Lacosta 25,000
O. Marcelo 9,000
P60,000

The partners decided to liquidate, and they accordingly convert the noncash assets into
P23,200 of cash. After paying the liabilities amounting to P3,000, they have P22,000 to divide.
Assume that a debit balance in any of the partner’s capital is uncollectible.

15. The book value of the noncash assets amounted to:

a. P25,200 c. P 61,000
b. P45,400 d.P63,000

16. The share of Jurado in the loss upon conversion of the noncash assets into cash was:
a. P4,792 c.P5,400
b.P5,257 d.P1,000

17. When the P22,200 was divided, Lacosta got

a. P6,342 c. P10,800
b. P8,320 d. P14,200

A. Rimorin, B. Simon and C. Toledo decided to dissolve the partnership on November

30, 2003. Their capital balances and profit ratio on this date, follow:

Capital Profit
Balances Ratio
A. Rimorin P50,000 40%
B. Simon 60,000 30%
C. Toledo 20,000 30%

The net income from January 1 to November 30, 2003 is P44,000. Also, on this date , cash and
liabilities are P40,000 and P90,000, respectively.

18. For Rimorin 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 noncash assets?
a. P196,000 c. P193,000
b. P177,000 d.P187,000

Capitalizing on alleged inside information, D. Urbe and E. Viray formed a partnership to

Purchase, sell or otherwise trade in Bre-X mining shares. Bre-X recently made a significant
finding of gold deposits in its property in Busang, Indonesia. They started cautiously by making
an initial but modest cash contribution of P137,500,000 each. They agree to divide earnings
equally and further agreed to settle and close the partnership after six months of furious but
ferocious (insider ) trading. Below is a synopsis of the transactions for six months:

ByUrbe By Viray
Purchase of shares P1,237,500,000 P495,000,000
Sales of shares 1,339,250,000 462,000,000
Interest charges paid 2,200,000 1,375,000
Dividend income received 1,100,000 2,750,000

19. How much will Viray receive (or pay) in final settlement of the partnership?
a. (P34,512,500) c.(P31,625,000
b. P 2,887,500 d. P66,137,500
 The balance sheet for the partnership of Delima, Endaya, and Florante, whose shares of
profits and losses are 40%, 50%, and 10%, is as follows:

Cash P150,000 Accounts payable P450,000

Inventory 1,080,000 G. Delima, capital 480,000
H. Endaya, capital 135,000
I. Florante, capital 165,000
Total assets P1,230,000 Total liabilities and capital P1,230,000

20. If the inventory is sold for P900,000, how much should Delima receive upon
liquidation of the partnership?
a. P104,000 c. P408,000
b. P300,000 d. P480,000

21. If the inventory is sold for P540,000, how much should Florante receive upon
liquidation of the partnership?
a. P84,000 c. P111,000
b. P97,500 d. P165,000

22. The partnership will be liquidated in installments. As cash becomes available, it will
be distributed to the partners. If inventory costing P600,000 is sold for P420,000, how
much cash should be distributed to each partner at this time?

Delima Endaya Florante

a. P168,000 P210,000 P42,000
b. P 48,000 P 60,000 P12,000
c. P 96,000 - P24,000
d. P 60,000 - P60,000

23. In accounting for the liquidation of a partnership, cash payments to partners after all
non partner creditors’ claims have been satisfied, but before the final cash
distribution, should be according to
a. the partners’ relative profit and loss sharing ratio
b. the final balances in partner capital accounts
c. the partners’ relative share of the gain or loss on liquidations
d. safe payments computations

24. In a partnership liquidation, the final cash distribution to the partners should be made
in accordance with the
a. partner profit and loss sharing ratios
b. balances of partner capital accounts
c. ratio of the capital contributions by partners
d. safe payment computations

The following balance sheet was prepared for the Estrada, Fontana, and Gener partnership on
March 31,2003:

Cash P25,000 Liabilities P52,000

Other Assets 180,000 E. Estrada, Capital (40%) 40,000
F. Fontana, Capital (40%) 65,000
G. Gener, Capital (20%) 48,000
P205,000 P205,000

The partnership is being liquidated by the sale of assets in installments. The first sale of
noncash assets having a book value of P90,000 realizes P50,000.

25. The amount of cash each partner should receive in the first installment is:

Estrada Fontana Gener

a. P0 P5,000 P18,000
b P12,000 P13,000 P22,000
c.P27,000 P 5,000 P18,000
d.P40,000 P65,000 P48,000
 26. If P3,000 is withheld for possible liquidation expenses, how much cash should Gener
receive?
a. P21,000 c. P3,000
b. P17,000 d. P18,000

27. As a separate case, assume that each partner properly receive the same amount of
cash in the distribution after the second sale of assets. The cash to be distributed
amounts to P14,000 from the third sale of assets, and unsold assets with a P6,000
book value remain. How should the P14,000 be distributed to Estrada, Fontana, and
Gener, respectively?
a. P5,600; P6,500; P2,800 c.P-0-; P11,200; P2,800
b. P5,000; P5,000; P4,000 d.P5,600; P5,600; P2,800

W. Aguila, R. Balingit, and J. Corpuz are partners. On January 3, 2003, their capital
balances and profit and loss ratio are as follows:

Capital Profit & loss Ratio

W. Aguila P25,000 60%
R. Balingit 50,000 25%
J. Corpuz 60,000 15%

Corpuz withdrew P10,000 during the year. Net loss on December 31, 2003 totaled P20,000.
Hence, the partners decided to liquidate the partnership. It is uncertain how much of the assets
will ultimately yield but favorable realization is expected. It is, therefore, agreed to distribute
cash as it becomes available. There are unpaid liabilities of P5,000 and cash on hand of P700.

28. The amount of noncash assets before liquidation is:

a. P110,000 c. P109,300
b. P104,300 d. P105,000

29. The amount to be realized by the partnership on the sale of its assets so that Aguila
will receive a total of P19,000 in the final settlement of his interest is
a. P103,300 c. P119,300
b. P 9,300 d. P 6,000

30. If Corpuz received a total ofP33,000, the amount that Balingit would have received at
this point is:
a. none c.P5,000
b. P2,000 d.P21,667

The assets and equities of the NOP Partnership at the end of its fiscal year on October 31,
2003 are as follows:

Cash P 150,000 Liabilities P500,000

Receivables- net 200,000 Loan from M. Perez 100,000
Inventory 400,000 E. Nera, capital (30%) 450,000
Plant assets- net 700,000 R. Oropesa, capital (50%) 300,000
Loan to F. Oropesa 50,000 M. Perez, capital (20%) 150,000
P1,500,000 P1,500,000

The partners decide to liquidate the partnership. They estimate that the noncash assets
other than the loan to Oropesa can be converted into P1,000,000 cash over the two- month period
ending December 31,2003. Cash is to be distributed to the appropriate parties as it becomes
available during the liquidation process.

31. The partner most vulnerable to partnership losses on liquidation is

a. E. Nera c. E. Nera and R. Oropesa equally
b. R. Oropesa d. M. Perez
 32. If P650,000 is available for the first distribution, it should be paid to

Priority creditors E. Nera F. Oropesa M. Peres

a. P600,000 P 50,000 P 0 P 0
b. P600,000 P15,000 P25,000 P 10,000
c. P500,000 P50,000 P 0 P100,000
d. P500,000 P120,00 P 0 P 30,000

33. If a total Amount of P75,000 is available for distribution to partners after all non-
partner liabilities are paid, it should be paid as follows

E. Nera F. Oropesa M. Perez

a. P75,000 P 0 P 0
b. 0 P37,500 P37,500
c.P22,500 P37,500 P15,000
d.P25,000 P25,000 P25,000

The following balance sheet summary, together with residual profit sharing ratios, was
developed on April1, 2003, when the RST partnership began its liquidation:

Cash P280,000 Liabilities P120,000

Accounts receivable 120,000 Loan from D. Santos 40,000
Inventories 170,000 A. Reyes, capital (20%) 150,000
Plant assets- net 400,000 D. Santos, capital (40%) 400,000
Loan to A. Reyes 50,000 A. Torres, capital (40%) 310,000
P1,020,000 P1,020,000

34. If available cash except for a P10,000 contingency fund is distributed immediately, A.
Reyes and D. Santos,and A.Torres, respectively, should receive
a. P0; P160,000; and P30,000 c. P 0, P140,000; and P10,000
b. P32,000; P64,000, and P64,000 d. P0, P145,000, and P15,000

Partners R. Romero, S. Segundo, and T. Tenorio, who share income and loss in the ratio
of 3:5:2, respectively, have decided to liquidate their partnership. At the time of liquidation, the
balance sheet of the partnership consisted of the following:

Assets Liabilities and Capital

Cash P120,000 Accounts payable P93,000
Other assets 360,000 Loan from Segundo 30,000
R, Romero, capital 108,000
S. Segundo, capital 120,000
T. Tenorio, capital 129,000
Total assets P480,000 Total liabilities and capital 480,000

The partners desire to prepare an installment distribution schedule showing how cash would be
distributed to partners as assets are realized.

35. In the schedule of maximum absorbable loss, the maximum absorbable loss for each
partner would be
Romero P360,000; Segundo, P240,000; Tenorio, P645,000
Romero P300,000; Segundo, P600,000; Tenorio, P225,000
Romero P450,000; Segundo, P525,000; Tenorio, P375,000
Romero P360,000; Segundo, P300,000; Tenorio, P645,000

The schedule of possible losses on capital balances would indicate that the first cash distributed,
after the payment of outside creditors, would be distributed to (and in the amount of)
Romero in the amount of P48,000
Segundo in the amount of P60,000
Tenorio in the amount of P57,000
Tenorio in the amount of P30,000
If the first sale of other assets having book value of P150,000 realized P45,000 and all available
cash is distributed, the respective partners would receive
a. Romero P –0-; Segundo, P18,000; Tenorio, P54,000
b. Romero P 9,000; Segundo, --- ; Tenorio, P63,000
c. Romero P24,000; Segundo, P24,000 Tenorio, P 24,000
d. RomeroP63, 000; Segundo, -----; Tenorio, P 9,000

36. If the second sale of other assets ( assume previous first sale facts ) having book value of
P90,000 realized P120,000 and all available cash is distributed the respective partners
would receive
a. Romero, P40,500; Segundo, P52,500; Tenorio, P27,000
b. Romero, P18,000; Segundo, --- ; Tenorio, P12,000
c. Romero, P 9,000; Segundo, P15,000; Tenorio, P 6,000
d. Romero, -- ; Segundo, P18,000; Tenorio, P12,000

Three partners who share profits and losses equally are to incorporated their
business. The capital accounts show the following: R. Jacinto, P400,000; D.Mapa,
P600,000, and B. Magno, P1,000,000.

It is agreed that the three will incorporated their business. Combined, the
net assets amount to P2 million which will be revalued at P2.6 million based on current market
value. The capital stock of the corporation will have a par value of P100.

37. Upon incorporation, the partners are to receive shares of stock as follows:
a. Jacinto, 8,667; Mapa, 8,666; and Magno, 8,666
b. Jacinto, 4,000, Mapa, 6,000; and Magno,10,000
c. Jacinto, 5,200, Mapa, 7,800; and Magno,13,000
d. Jacinto, 6,000, Mapa, 8,000; and Magno,12,000

Partners W. Riano and F. Cahayon who shared equally on the profits and losses had the
following balance sheet as of December 31, 2003:

Assets Liabilities and Capital

Cash P120,000 Accounts payable P172,000
Account receivable 100,000 W. Riano, capital 140,000
Merchandise inventory 140,000 F. Cahayon, capital 120,000
Equipment 80,000
Accumulated depreciation ( 8,000) ________
Total assets P432,000 Total liabilities and capital P432,000

Partners agreed to incorporate and have the new corporation absorb all the assets and
assume the liabilities of the partnership after effecting the following adjustment:
 Provision of allowance for bad debt of P10,000.
 Recording the merchandise inventory at fair market value of P160,000.
 Further depreciation of the equipment by P3,000.

38. The corporation’s capital stock has a par value of P100 and partner where issued the
corresponding shares of stock equivalent to their adjusted capital accounts in the
amount of
a. P273,000 c. P267,000
b. P280,000 d. P277,000
 N. Roldan and M. Granada are partners sharing profits and losses in the ratio
of 1:2 respectively. On July 1, 2003, they decided to form the R and G Corporation by
transferring the assets and liabilities from the partnership to the corporation in exchange of its
stocks. The post- closing trial balance of the partnership follows:

Debit Credit
Cash 45,000
Accounts receivable (net) 60,000
Inventory 90,000
Plant assets (net) 174,000
Liabilities 60,000
N. Roldan, capital 94,800
M. Granada, capital _________ 214,000
369,000 369,000

It was agreed that adjustment be made to the following assets to be transferred to the
corporation: Accounts receivable, P40,000; Inventory, P68,000; Plant assets, P180,600. The R
and G Corporation was authorized to issue P100 par preferred stock. Roldan and Granada agreed
to receive for their equity in the partnership, 720 shares of the common stock each, plus shares of
preferred stock for their remaining interest.

39. The total number of shares of preferred and common stock issued by the corporation
in exchange of assets and liabilities of the partnership are:
Preferred Common
a. 2,540 shares 1,500 shares
b. 2,592 shares 1,440 shares
c. 2,642 shares 1,440 shares
d. 2,462 shares 1,550 shares

40. The distribution of stocks of Roldan and Granada are

Roldan Granada
Preferred Common Preferred Common
a. 785 shares 720 shares 1,384 shares 720 shares
b. 773 shares 750 shares 1,843 shares 750 shares
c. 758 shares 720 shares 1,834 shares 720 shares
d. 738 shares 720 shares 1,758 shares 720 shares