BENITEZ, Jewel Ann Q.

Block 6

Problems

I – STATEMENT OF LIQUIDATION; INSTALLMENT SCHEDULE OF SAFE PAYMENTS AND CASH PAYMENT

PRIORITY PROGRAM

1.) Assume T, U, V and W are partners sharing profits of 40%, 20%, 20%, 20%, respectively. On
January 1, 20x4, they agree to liquidate. A balance sheet is prepared on this date is shown as
follows:

ASSETS LIABILITIES AND CAPITAL

Noncash assets …………………………………P 181, 800 Liabilities ………………………………….…………..P 84,000
A, loan……………………………………………………….6, 000
D, loan……………………………………………………… 3, 000
A, Capital………………………………………………….26, 400
B, Capital………………………………………………….25, 800
C, Capital………………………………………………….20, 400
D, Capital…………………………………………………16, 200
TotaL…………………………………………………P 181, 800 Total…………………………………………………..P 181,800

20X4 CASH BOOK CASH PAYMENT CASH PAYMENT

PROCEEDS VALUE OF LIQUIDATION TO WITHHELD TO
ON SALE OF NONCASH EXPENSES CREDITORS PARTNERS
NONCASH ASSETS PAID
ASSETS SOLD
January P 72, 000 P 90, 000 P 1, 200 P 66, 000 P 4, 800 P 5, 280
February 21, 600 30, 000 1, 320 18, 000 1, 800 18, 360
March 19, 200 24, 000 1, 440 -- 1, 200 1, 800
April 6, 000 19, 800 4, 800 -- 600
May 2, 400 18, 000 960 -- --
Distribution of cash to partners are normally done at month-end.

Required:

1. Prepare statement of liquidation for the month of January to May 20x4.

2. Prepare schedule of safe payments to support the distribution of cash payment for the month
January to May 20x4.
3. Prepare cash payment (pre-distrubution) priority program indicating the cash payment to each
partner for the month of January to May 20x4.
4. Using cash payment priority program, indicate the vulnerability rankins for each in the event of
loss suffered by the partnership.
Solution:

CASH NON LIABILITIES A, LOAN D, LOAN A, B, C, D,

CASH CAPITAL CAPITAL CAPITAL CAPITAL
ASSETS (40%) (20%) (20%) (20%)
181, 800 84, 000 6, 000 3, 000 26, 400 25, 800 20, 400 16, 200
72, 000 (90, 000) (7, 200) (3, 600) (3, 600) (3, 600)
(1, 200) (480) (240) (240) (240)
(66, 000) (66, 000)
Bal. 4,800 91, 800 18, 000 6, 000 3, 000 18, 720 21, 960 16, 560 12, 360
21, 600 (30, 000) (3, 360) (1, 680) (1, 680) (1, 680)
(1, 320) (528) (264) (264) (264)
(18, 000) (18, 000)

Bal. 7,080 61, 800 0 6, 000 3, 000 14, 832 20, 016 14, 616 10, 416
(5, 280) (5, 280)
Bal. 1,800 61, 800 0 6, 000 3, 000 14, 832 14, 736 14, 616 10, 416
19, 200 (24, 000) (1, 920) (960) (960) (960)
(1, 440) (576) (288) (288) (288)

Bal.19,560 37, 800 0 6, 000 3, 000 12, 336 13, 488 13, 368 9, 168
(18, 360) (2, 736) (3, 000) (5, 688) (5, 568) (1, 368)
Bal. 1,200 37, 800 0 3, 264 0 12, 336 7, 800 7, 800 7, 800
6, 000 (19, 800) (5, 520) (2, 760) (2, 760) (2, 760)
(4, 800) (1, 920) (960) (960) (960)

Bal. 2,400 18, 000 0 3, 264 0 4, 896 4, 080 4, 080 4, 080

(720) (360) (360) (360)

Bal. 1, 800 18, 000 0 2, 544 0 4, 896 3, 720 3, 720 3, 720

600 (18, 000) (6, 240) (3, 120) (3, 120) (3, 120)
(384) (192) (192) (192)
(1, 728) 1, 728
Bal. 2, 400 0 0 408 408 408
(960)

Bal. 2040 0 0 408 408 408

(2040) (408) (408) (408)

Bal. 0 0 0 0 0 0 0 0 0
Schedule of Safe Payment

A (40%) B (20%) C (20%) D (20%)

14, 832 20, 016 14, 616 10, 416
6, 000 3, 000
Bal. 20, 832 20, 016 14, 616 13, 416
(24, 720) (12, 360) (12, 360) (12, 360)
(720) (360) (360) (360)
Bal. (4, 608) 7, 296 1, 896 696
4, 608 (1, 536) (1, 536) (1, 536)
Bal. 0 5, 760 360 (840)
(420) (420) 840
Bal. 0 5, 340 (60) 0
(60) 60
5, 280 0

A (40%) B (20%) C (20%) D (20%)

12, 336 13, 488 13, 368 9, 168
6, 000 3, 000
Bal.18, 366 13, 488 13, 368 12, 168
(15, 600) (7, 800) (7, 800) (7, 800)

Bal. 2, 736 5, 688 5, 568 4, 368

A (40%) B (20%) C (20%) D (20%)

4, 896 4, 080 4, 080 4, 080
(3, 264)
Bal. 8, 160 4, 080 4, 080 4, 080
(7, 440) (3, 720) (3, 720) (3, 720)
Bal. 720 360 360 360

A (40%) B (20%) C (20%) D (20%)

26, 400 25, 800 20, 400 16, 200
6, 000 3, 000
32, 400 25, 800 20, 400 19, 200
÷ .40 ÷ .20 ÷ .20 ÷ .20
Bal. 81, 000 129, 000 102, 000 96, 000
(first) (fourth) (third) (second)
First Priority: 84, 000 Liability 84, 000
Second Priority:
B (129, 000 – 102, 000) X .20 = 5, 400
Third Priority:
B (102, 000 – 96, 000) X .20 = 1, 200
C (102, 000 – 96, 000) X .20 = 1, 300
Fourth Priority:
B (96, 000 – 81, 000) X .20 = 3, 000
C (96, 000 – 81, 000) X .20 = 3, 000
D (96, 000 – 81, 000) X .20 = 3, 000

TOTAL 100, 800

A B C D PRIORITY
FEBRUARY 5, 280 1
TOTAL 5, 280

MARCH 120 2
1, 200 1, 200 3
3, 000 3, 000 3, 000 P&L
2, 736 1, 368 1, 368 1, 368
TOTAL 2, 736 5, 688 5, 568 4, 368
 II. STATEMENT OF LIQUIDATION – INSTALLMENT; SCHEDULE OF SAFE PAYMENTS

On January 1, 20x4, partners AA, BB and CC, who share profits and losses in the ration of 5:3:2 decide
to liquidate their partnership. The partnership trial balance at this date is as follows:

Accounts Debit Credit

Cash P 18, 000
Accounts receivable 66, 000
Inventory 52, 000
Machinery and equipment 189, 000
Accounts payable P 53, 000
AA, Capital 88, 000
BB, Capital 110, 000
CC, Capital 74, 000
TOTAL 325, 000 325, 000

The partners plan a program of piecemeal conversion of assets to minimize liquidation losses. All available
cash, less amount retained to provide future expenses, is to be distributed to the partners at the end of
each month. A summary of the liquidation transactions is as follows:

January 20x4

1.) P 51, 000 was collected on accounts receivable; the balance is uncollectible.
2.) P 38, 000 was received for the entire inventory.
3.) P 2, 000 liquidation expenses were paid.
4.) P 50, 000 was paid to creditors after offset of a P 3, 000 credit memorandum received on January
11, 20x4.
5.) P 10, 000 cash was retained in the business at the end of the month for potential unrecorded
liabilities and anticipated expenses.

February 20x4

6.) P 4, 000 liquidation expenses were paid.

7.) P 6, 000 cash was retained in the business at the end of month for potential unrecorded liabilities
and anticipated expenses.

March 20x4

8.) P 146, 000 was received on sale of all items of machinery and equipment.
9.) P 5, 000 liquidation expenses were paid.
10.) No cash was retained in the business.
 Accounts Machinery Accounts AA, BB, CC,
Cash Receivable Inventory & Equip. payable Capital (5) Capital (3) Capital (2)
January
18, 000 66, 000 52, 000 189, 000 53, 000 88, 000 110, 000 74, 000
51, 000 (66, 000) (7, 500) (4, 500) (3, 000)
Bal.69, 000 0 52, 000 189, 000 53, 000 80, 500 105, 500 71, 000
38, 000 (52, 000) (7, 000) (4, 200) (2, 800)

Bal. 107, 000 0 0 189, 000 53, 000 73, 500 101, 300 68, 200
(2, 000) (1, 000) (600) (400)
Bal. 105, 000 0 0 189, 000 53, 000 72, 500 100, 700 67, 800
(3, 000) 1, 500 900 600
Bal. 105, 000 0 0 189, 000 50, 000 74, 000 101, 600 68, 400
(50, 000) (50, 000)
Bal. 55, 000 0 0 189, 000 0 74, 000 101, 600 68, 400
(45, 000) (26, 600) (18, 400)
Bal. 10, 000 0 0 189, 000 0 74, 000 75, 000 50, 000
February
10, 000 0 0 189, 000 0 74, 000 75, 000 50, 000
(4, 000) (2, 400) (1, 600)
Bal. 6, 000 0 0 189, 000 0 74, 000 72, 600 48, 400
March
6, 000 0 0 189, 000 0 74, 000 72, 600 48, 400
146, 000 (189, 000) (21, 500) (12, 900) (8, 600)
Bal. 152,000 0 0 0 0 52, 500 59, 700 39, 800
(5, 000) (2, 500) (1, 500) (1, 000)
Bal. 147, 000 0 0 0 0 50, 000 58, 200 38, 800
(147, 000) (50, 000) (58, 200) (38, 800)
Bal. 0 0 0 0 0 0 0 0

Schedule of Safe Payment

1ST SCHEDULE 2ND SCHEDULE

AA (5) BB (3) CC (2) AA (5) BB (3) CC (2)

74, 000 101, 600 68, 400 74, 000 75, 000 50, 000
(99, 500) (59, 700) (39, 800) (97, 500) (58, 500) (39, 000)
Bal. (25, 500) 41, 900 28, 600 Bal. (23, 500) 16, 500 11, 000
25, 500 (15, 300) (10, 200) 23, 500 (14, 100) (9, 400)
Bal. 0 2, 400 1, 600
Bal. 0 26, 600 18, 400
 AA (5) BB (3) CC (2)
88, 000 110, 000 74, 000
÷ .05 ÷ .03 ÷ .02
1, 760, 000 3, 666, 666. 67 3, 700, 000
1ST 2ND 3RD

First Priority: Liability 53, 000

Second Priority:
CC (3, 700, 000 – 3, 666, 667) X .20 = 6, 667
Third Priority:
CC (3, 666, 667 – 1, 760, 000) X .20 = 381, 333
BB (3, 666, 667 – 1, 760, 000) X .30 = 572, 000
TOTAL 1, 013, 000
 III – CASH DISTRIBUTION OR PAYMENT PRIORITY PROGRAM

The partnership PP, EE, and TT has asked you to assist in winding up its business. You complete the
following information.

1.) The trial balance of the partnership on June 30, 20x4 is:

Accounts Debit Credit

Cash P 6, 000
Accounts Receivable (net) 22, 000
Inventory 14, 000
Plant and Equipment (net) 99, 000
Accounts Payable P 17, 000
PP, Capital 55, 000
EE, Capital 45, 000
TT, Capital 24, 000
Total P 141, 000 P 141, 000

2.) The partners share profits and losses as follows: PP, 50%; EE, 30%; and TT, 20%.
3.) The partners are considering an offer of P 100, 000 for the accounts receivable, inventory, and
plant and equipment as of June 30. The P 100, 000 will be paid to creditors and the partners in
installments, the number and amounts of which are to be negotiated.

Required: prepare a cash distribution or cash payment priority program plan as of June 30, 20x4
showing how much cash each partner will receive if the offer to sell the assets is accepted.
 PP, EE, AND TT PARTNERSHIP
CASH DISTRIBUTION PLAN
AS OF JUNE 30, 20X4
Loss Absorption Power Capital Balance
PP EE TT PP EE TT
Loss on sharing 50% 30% 20%
percentage
Preliquidation capital 55, 000 45, 000 24, 000
balance
Loss Absorption 110, 000 150, 000 120, 000
Potential
(Capital Balance/Loss
Ratio)
Decrease highest LAP to
next highest LAP:
Decrease EE by 30, 000 (30, 000) (9, 000)
(Cash distribution: 30, 000* 30%)
Balance 110, 000 120, 000 120, 000 55, 000 36, 000 24, 000
Decrease highest LAP to
next highest level:
Decrease EE by 10, 000 (10, 000) (3, 000)
(Cash distribution: 10, 000* 30%)
Decrease TT by 10, 000 (10, 000) (2, 000)
(Cash distribution: 10, 000* 20%)
Balance 110, 000 110, 000 110, 000 55, 000 33, 000 22, 000
 IV – STATEMENT OF LIQUIDATION – INSTALLMENT; SCHEDULE OF SAFE PAYMENTS

Assuming the same information in PROBLEM III and the partners have decided to liquidate their
partnership by installments instead of accepting the offer of P 100, 000. Cash is distributed to the partners
at the end of each month; a summary of the liquidation transactions follows:

July

1. P 16, 500 collected on accounts receivable; balance is uncollectible.

2. P 10, 000received for the entire inventory.
3. P 1, 000 liquidation expense is paid.
4. P 17, 000 paid to creditors.
5. P 8, 000 cash retained in the business at the end of the month.

August

1. P 1, 500 in liquidation expenses paid.

2. As part of payment of his capital, TT accepted an item of equipment that he develop, which had
a book value of P 4, 000. The partners agreed that value of P 10, 000 should be placed on this item
for liquidation purposes.
3. P 2, 500 cash retained in the business at the end of the month.

September

1. P 75, 000 received on sale of remaining plant and equipment.

2. P 10, 000 liquidation expenses paid. No cash retained in the business.

Required: Prepare a statement of partnership realization and liquidation with supporting schedules of
cash payments to partners.
 Cash Accounts Inventory Plant and Accounts PP, EE, TT,
receivable Equipment payable Capital Capital Capital
(50%) (30%) (20%)
July
6, 000 22, 000 14, 000 99, 000 17, 000 55, 000 45, 000 24, 000
16, 500 (22, 000) (2, 750) (1, 650) (1, 100)
Bal. 22,500 0 14, 000 99, 000 17, 000 52, 250 43, 350 22, 900
10, 000 (14, 000) (2, 000) (1, 200) (800)
Bal. 32,500 0 0 99, 000 17, 000 50, 250 42, 150 22, 100
(1, 000) (500) (300) (200)
Bal. 31,500 0 0 99, 000 17, 000 49, 750 41, 850 21, 900
(17, 000) (17, 000)
Bal. 14,500 0 0 99, 000 0 49, 750 41, 850 21, 900
(6, 500) (6, 500)
Bal. 8, 000 0 0 99, 000 0 49, 750 35, 350 21, 900
August
8, 000 0 0 99, 000 0 49, 750 35, 350 21, 900
(1, 500) (750) (450) (300)
Bal. 6, 500 0 0 99, 000 0 49, 000 34, 900 21, 600
(4, 000) (3, 400) (600)
Bal. 2, 500 0 0 99, 000 0 49, 000 31, 500 21, 000
September
2, 500 0 0 99, 000 0 49, 000 31, 500 21, 000
75, 000 (99, 000) (12, 000) (7, 200) (4, 800)
Bal. 77, 500 0 0 0 0 37, 000 24, 300 16, 200
(1, 000) (500) (300) (200)
Bal. 76, 500 0 0 0 0 36, 500 24, 000 16, 000
(76, 000) (36, 500) (24, 000) (16, 000)
Bal. 0 0 0 0 0 0 0 0

Schedule of Safe Payment

1ST SCHEDULE

PP (50%) EE (30%) TT (20%)

49, 750 41, 850 21, 900
(53, 500) (32, 100) (21, 400)
Bal. (3, 750) 9, 750 500
3, 750 (2, 250) (1, 500)
Bal. 0 7, 500 (1, 000)
(1, 000) 1, 000
Bal. 0 6, 500 0
2nd Schedule

PP (50%) EE (30%) TT (20%)

49, 000 34, 900 21, 600
(50, 750) (30, 450) (20, 300)
Bal. (1, 750) 4, 450 1, 300
1, 750 (1, 050) (700)
Bal. 0 3, 400 600

PP (50%) EE (30%) TT (20%)

55, 000 45, 000 24, 000
÷ .05 ÷ .03 ÷ .02
1, 100, 000 1, 500, 000 1, 200, 000
1ST 3rd 2nd

First Priority: Liability 17, 000

Second Priority:
EE (1, 500, 000 – 1, 200, 000) x .30 90, 000
Third Priority:
EE (1, 200, 000 – 1, 100, 000) x .30 30, 000
TT (1, 200, 000 – 1, 100, 000) x .20 20, 000
TOTAL 157, 000
 V – STATEMENT OF LIQUIDATION – INSTALLMENT; SCHEDULE OF SAFE PAYMENTS

The DSV Partnership decided to liquidate the partnership as of June 30, 20x4. The balance sheet of the
partnership as of this date is presented as follows:

DSV Partnership
Balance Sheet
As of June 30, 20x4
ASSETS:
Cash P 50, 000
Accounts Receivable (net) 95, 000
Inventories 75, 000
Property, Plant, and Equipment (net) 500, 000
TOTAL ASSETS: P 720, 000
LIABILITIES
Accounts Payable P 405, 000
PARTNER’S CAPITAL
DD, Capital 100, 000
SS, Capital 140, 000
VV, Capital 75, 000
TOTAL LIABILITES AND CAPITAL P 720, 000

The personal assets (excluding partnership loan and capital interest) and personal liabilities of each
partner as of June 30, 20x4, follow:

DD SS VV
Personal Assets P 250, 000 P 450, 000 P 300, 000
Personal Liabilities (270, 000) (420, 000) (240, 000)
Personal Net Worth (20, 000) 30, 000 60, 000

The DSV Partnership was liquidated during the months of July, August, and September. The assets sold
and the amounts realized follow:

MONTH ASSETS SOLD CARRYING AMOUNT

AMOUNT REALIZED
July Inventories P 50, 000 P 45, 000
Accounts Receivable (net) 60, 000 40, 000
Property Plant and Equipment 400, 000 305, 000

August Inventories 25, 000 18, 000

Accounts Receivable (net) 10, 000 4, 000

September Accounts Receivable (net) 25, 000 10, 000

Property, Plant, and Equipment 100, 000 45, 000
Required: Prepare a statement of partnership realization and liquidation for the DSV Partnership for the
three-month period ended September 30, 20x4. DD, SS, and VV share profits and losses in the ratio
50:30:20. The partners wish to distribute available cash at the end of each month after reserving P 10,
000 of cash at the end of July and August to meet unexpected liquidation expenses. Actual liquidation
expenses incurred and paid each month amounted to P 2, 500. Support each cash distribution to the
partners with a schedule of safe installment payments.

Cash Accounts Inventories Property, Accounts DD, SS, VV,

Receivab Plant, and Payable Capital Capital Capital
le (net) Equipment (50%) (30%) (20%)
(net)

July
50, 000 95, 000 75, 000 500, 000 405, 000 100, 000 140, 000 75, 000
390, 000 (60, 000) (50, 000) (400, 000) (60, 000) (36, 000) (24, 000)
Bal. 440,000 35, 000 25, 000 100, 000 405, 000 40, 000 104, 000 51, 000
(2, 500) (1, 250) (750) (500)
Bal. 437, 500 35, 000 25, 000 100, 000 405, 000 38, 750 103, 250 50, 500
(405, 000) (405, 000)
Bal. 32, 500 35, 000 25, 000 100, 000 0 38, 750 103, 250 50, 500
(22, 500) (22, 500)
Bal. 10, 000 35, 000 25, 000 100, 000 0 38, 750 80, 750 50, 500
August
10, 000 35, 000 25, 000 100, 000 0 38, 750 80, 750 50, 500
22, 000 (10, 000) (25, 000) (6, 500) (3, 900) (2, 600)
Bal. 32, 000 25, 000 0 100, 000 0 32, 250 76, 850 47, 900
(2, 500) (1, 250) (750) (500)
Bal. 29, 500 25, 000 0 100, 000 0 31, 000 76, 100 47, 400
(19, 500) (13, 700) (5, 800)
Bal. 10, 000 25, 000 0 100, 000 0 31, 000 62, 400 41, 600
September
10, 000 25, 000 0 100, 000 0 31, 000 62, 400 41, 600
55, 000 (25, 000) (100, 000) (35, 000) (21, 000) (14, 000)
Bal. 65, 000 0 0 0 0 (4, 000) 41, 400 27, 600
4, 000 (2, 400) (1, 600)
Bal. 65, 000 0 0 0 0 0 39, 000 26, 000
(2, 500) (1, 500) (1, 000)
Bal. 62, 500 0 0 0 0 0 37, 500 25, 000
(62, 500) (37, 500) (25, 000)
Bal. 0 0 0 0 0 0 0 0
Schedule of Safe Payment

1ST SCHEDULE

DD (50%) SS (30%) VV (20%)

38, 750 103, 250 50, 500
(85, 000) (51, 000) (34, 000)
Bal. (46, 250) 52, 250 16, 500
46, 250 (27, 750) (18, 500)

Bal. 0 24, 500 (2, 000)

(2, 000) 2, 000
Bal. 0 22, 500 0

2ND SCHEDULE

DD (50%) SS (30%) VV (20%)

31, 000 76, 100 47, 400
(67, 500) (40, 500) (27, 000)
Bal. (36, 500) 35, 600 20, 400
(21, 900) (14, 600)
Bal. 0 13, 700 5, 800

DD (50%) SS (30%) VV (20%)

100, 000 140, 000 75, 000
÷ .05 ÷ .03 ÷ .02
2, 000, 000 4, 666, 667 3, 750, 000
1ST 3RD 2ND

First Priority: Liability 405, 000

Second Priority:
SS (4, 666, 667 – 3, 750, 000) x .30 275, 000
Third Priority:
SS (3, 750, 000 –2, 000, 000) x .30 525, 000
VV (3, 750, 000 –2, 000, 000) x .20 350, 000

TOTAL 1, 555, 000

 DSV PARTNERSHIP
SCHEDULE OF SAFE PAYMENTS TO PARTNERS
DD SS VV
50% 30% 20%
Schedule 1, July 31, 20x4
July, 20x4: Sale of Assets and distribution of
loss