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La Salle University

College of Accountancy
ACADEMIC COUNCIL’s THE FORUM
ADVANCED FINANCIAL ACCOUNTING AND REPORTING

PARTNERSHIP ACCOUNTING
Part 5: Liquidation (Installment)
1. What is a cash distribution plan? 7. In a schedule of assumed loss absorptions
a. A guideline for the cash distributions made to a. the partner with lowest loss absorption is
partners during a liquidation. eliminated last.
b. A list of the procedures to be performed during a b. it is necessary to have a cash distribution plan
liquidation. first.
c. A determination of the final distribution to be c. the least vulnerable partner is eliminated first.
made to the partners on the settlement date. d. the most vulnerable partner is eliminated first.
d. A detailed list of the transactions that will
transpire in the reorganization of a partnership. 8. Which partner is considered the most vulnerable as a
result of a computation of vulnerability rankings?
2. In the installment liquidation of a partnership, each a. The partner with the lowest vulnerability ranking,
installment of cash is distributed: who also has the lowest loss absorption potential.
a. In the partners’ profit and loss ratio. b. The partner with the lowest vulnerability ranking,
b. In the ratio of partner’s capital account balances. who also has the highest loss absorption potential.
c. As agreed to by the partners. c. The partner with the highest vulnerability ratio,
d. As if no more cash would be forthcoming. who also has the lowest loss absorption potential.
d. In a schedule of assumed loss absorptions.
3. In calculating the safe payment, you assume:
a. Partnership liabilities have been paid. 9. In accounting for partnership liquidation, cash
b. No liquidation expenses will be paid. payments to partners after all nonpartner creditors’
c. All non-cash assets are worthless. claims have been satisfied, but before the final cash
d. Cash on Hand can be fully distributed. distribution, should be according to:
a. The partners’ relative profit and loss ratios.
4. In the preparation of schedule of safe payment to b. The final balances in partner capital accounts.
partners, cash withheld for future liquidation c. The partners’ relative share of the gain or loss on
expenses and unrecorded liabilities that may be liquidations.
discovered is treated as: d. Safe payments computation.
a. Operating expenses.
b. Liabilities. 10. In a partnership liquidation, the final cash distribution
c. Loss on realization. to the partners should be made in accordance with
d. Possible loss. the:
a. Partners’ profit and loss ratio.
5. In the cash distribution plan, how is the amount of b. Balances of the partners’ loan and capital
cash distribution determined? accounts.
a. By multiplying a partners’ profit and loss ratio by c. Ratio of the capital contributions by the partners.
his pre-liquidation capital balance. d. Ratio of the capital contributions less withdrawals
b. By subtracting a partner’s loss absorption by the partners.
potential from the loss absorption potential of the
next strongest partner. 11. Potato and Carrot are partners of PC Partnership
c. By subtracting a partners’ loss absorption sharing profits and losses equally. They decided to
potential from the loss absoption potential to the terminate the partnership when their capital balances
next strogest partner and dividing this difference are: Potato, Php750,000; Carrot, Php500,000. At this
by his profit and loss ratio. time, the partnership owes Carrot Php200,000, as
d. By multiplying a partners’ profit and loss ratio by evidenced by a promissory note. Upon liquidation,
the difference between his loss absorption cash of Php300,000 becomes available for distribution
potential and the loss absorption potential of the to the partners. In the final cash distribution, what
next strongest partner. would be the respective share of Potato and Carrot?
Potato Carrot
6. What is the largest possible loss from the realization of a. Php150,000 Php150,000
partnership assets that the accountant estimates when b. Php175,000 Php125,000
preparing a safe payment schedule? c. Php200,000 Php100,000
a. Book value of recorded assets d. Php275,000 Php 25,000
b. Book value of recorded non-cash assets
c. Fair value of recorded assets 12. The condensed balance sheet of Pencil, Paper, and
d. Fair value of recorded non-cash assets Calculator as of March 31, 2017 follows:

AFAR 1 – PARTNERSHIP ACCOUNTING Page 1 of 3


Cash Php 28,000 Down 10,000 30,000
Other assets 265,000 Right Php4,500 15,000
Total assets Php293,000 Left 2,500 25,000

Liabilities Php 48,000 At this point Php18,000 is available for distribution to


Pencil, capital 95,000 the partners. How much cash is to be distributed to
Paper, capital 80,000 Left?
Calculator, capital 70,000 a. Php0
Total liabilities and equity Php293,000 b. Php 6,625
c. Php11,375
The income and loss ratio is 50:25:25, respectively.
d. Php12,375
The partners voted to dissolve their partnership and
liquidate by selling other assets in installments.
Use the following information to answer the next three
Php70,000 was realized on the first cash sale of other
questions:
assets with a book value of Php150,000. After
The following balance sheet was prepared for the
settlement with creditors, all cash available was
Clint, Cecille, and Jessa Partnership on March 31, 2017:
distributed to the partners. How much cash was
Assets
received by Calculator? Cash Php 25,000
a. Php10,500 Other assets 180,000
b. Php20,000 Total assets Php205,000
c. Php21,250
d. Php32,500 Liabilities and Capital
Liabilities Php 52,000
13. The balance sheet of the firm of Princess, Claris, and Clint, capital (40%) 40,000
Grace just before liquidation shows the following: Cecille, capital (40%) 65,000
Assets Php120,000 Jessa, capital (20%) 48,000
Total liabilities and equity Php205,000
Liabilities Php 50,000
Princess, loan 10,000 The partnership is being liquidated by the sale of
Princess, capital 22,000 assets in installments. The first sale of non-cash assets
Claris, capital 30,000 having a book value of Php90,000 realizes Php50,000.
Grace, capital 8,000
Total Php120,000 16. The amount of cash each partner should receive in the
first installment is:
Princess, Claris, and Grace share profits 5:3:2 Clint Cecille Jessa _
respectively. Certain assets are sold for Php80,000. a. Php0 Php 5,000 Php18,000
Creditors are paid in full, partners are paid Php20,000, b. Php12,000 Php13,000 Php22,000
and cash of Php10,000 is withheld pending future c. Php27,000 Php 5,000 Php18,000
developments. How much cash is to be distributed to d. Php0 Php 5,000 Php22,000
the partners?
Princess Claris Grace 17. If Php3,000 cash is withheld for possible liquidation
a. Php7,000 Php13,000 Php0 expenses, how much cash should Jessa receive?
b. Php5,750 Php14,250 Php0 a. Php 3,000
c. Php5,250 Php14,750 Php0 b. Php15,000
d. Php7,550 Php12,450 Php0 c. Php17,000
d. Php21,000
14. The balance sheet of the firm of North, East, West, and
South, just prior to liquidation shows: 18. As a separate case, assume that each partner properly
North, loan Php1,000 receive some cash after the second sale of assets. The
North, capital 5,500 cash to be distributed amounted to Php14,000 from
East, capital 5,150 the third sale of assets, and unsold assetes with a
West, capital 6,850 Php6,000 book value remain. How much the
South, capital 4,500 Php14,000 be distributed to Clint, Cecille, and Jessa,
respectively?
North, East, West, and South share profits 4:3:2:1
a. Php5,600; Php6,500; Php2,800
respectively. Certain assets are sold for Php6,000 and
b. Php5,000; Php5,000; Php4,000
this is distributed to partners. How much cash should
c. Php0 ; Php11,200; Php2,800
South receive?
d. Php5,600; Php5,600; Php2,800
a. Php0 North&East
b. Php2,717 South
19. The year-end balance sheet and residual profit and
c. Php3,283 West
loss sharing percentages for the Lang, Maas, and Neal
d. Php6,000
partnership on December 31, 2017, are as follows:
Cash Php 30,000
15. Partners Up, Down, Right, and Left share profits 50%, Loan to Lang 40,000
30%, 10%, and 10%. Accounts maintained with Other assets 480,000
partners just prior to liquidation follow: Total assets Php550,000
Advances Loans Capital
(DR balances) (CR balances) (CR balances) Accounts payable Php200,000
Up Php 5,000 Php40,000
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Loan from Maas 50,000 22. The amount of cash withheld for anticipated
Lang, capital (25%) 70,000 liquidation expenses and unpaid liabilities is:
Maas, capital (25%) 80,000 a. Php2,000
Neal, capital (50%) 150,000 b. Php14,600
Total liabilities and equity Php550,000 c. Php16,600
d. Php17,600
The partners agree to liquidate the business and
distribute cash when it becomes available. A cash Use the following information to answer the next three
distribution plan for the Lang, Maas, and Neal questions:
partnership will show that cash available, after outside The balance sheet for Jose and Rexy Partnership on
creditors are paid, will initially go to June 1, 2017 before liquidation is as follows:
a. Lang in the amount of Php20,000. Cash Php 5,000
b. Maas in the amount of Php45,000. Other assets 55,000
c. Maas in the amount of Php55,000. Total assets Php60,000
d. Neal in the amount of Php90,000.
Liabilities Php20,000
20. Hara, Ives, and Jack are in the process of liquidating Jose, capital (60%) 22,500
their partnership. Since it may take several months to Rexy, capital (40%) 17,500
convert the other assets into cash, the partners agree Total liabilities and equity Php60,000
to distribute all available cash immediately, except for
Php10,000 that is set aside for contingent expenses. In June, assets with book value of Php22,000 are sold
The balance sheet and residual profit and loss sharing for Php18,000, creditor are paid in full, and Php2,000
percentages are as follows: is paid to partners. In July, assets with book value of
Cash Php400,000 Php10,000 are sold for Php12,000, liquidation
Other assets 200,000 expenses of Php500 are paid and cash of Php12,500 is
Total assets Php600,000 paid to partners. In August, the remaining assets are
sold for Php22,500.
Accounts payable Php200,000
Hara, capital (40%) 135,000 23. In June, Jose should receive:
Ives, capital (30%) 216,000 a. Php0
Jack, capital (30%) 49,000 b. Php1,000
Total liabilities and equity Php600,000 c. Php1,500
d. Php2,000
How much cash should Ives receive in the first
distribution?
24. In July, Rexy should receive:
a. Php146,000
a. Php0
b. Php147,000
b. Php5,300
c. Php153,000
c. Php7,200
d. Php156,000
d. Php12,000
Use the following information to answer the next two
25. In August, Jose and Rexy should receive:
questions:
Jose Rexy _
A balance sheet for the partnership of Leo, Poldo, and
a. Php0 Php9,000
Datird, who share profits in the ratio of 2:1:1, shows
b. Php13,500 Php9,000
the following balances just before liquidation:
c. Php13,500 Php0
Cash Php12,000
d. Php20,700 Php16,300
Other assets 59,500
Liabilities 20,000
Leo, capital 22,000
Poldo, capital 15,500
Datird, capital 14,000

On the first month of the liquidation, certain assets are


sold for Php32,000. Liquidation expenses of Php1,000
are paid, and additional liquidation expenses are
anticipated. Liabilities are paid amounting to
Php5,400, and sufficient cash is retained to insure the
payment to creditors before making payments to
partners. On the first payment to partners, Leo
receives Php6,250.

21. The total cash distributed to the partners in the first


installment is:
a. Php10,000
b. Php12,500
c. Php20,000
d. Php25,000

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