Lecture 05: Partnership Dissolution – Admission
Pardilla and Tan are partners in Nayon Partnership with capital balances of P550,000 and
P350,000, respectively; they share income and loss in the ratio 1:3, respectively. The partners
are considering the admission of Conde.
Required:
Prepare the entries to record the admission of Conde under each of the following independent
situations:
1. Conde invested P100,000 cash in the partnership for a one-tenth interest. The net
assets of the partnership are fairly valued.
2. Conde invested P140,000 cash in partnership for a one-eight interest. Assets of the
partnership are fairly valued except for equipment, which is undervalued by P80,000. Net assets
of the partnership are to be revalued and Conde is to be admitted.
3. Conde is to receive a one-tenth interest in the partnership upon investing P180,000
cash. Net assets of the partnership are fairly valued.
4. Conde is to receive a 20% interest in the partnership upon investing P200,000 cash. Net
assets of the partnership are fairly valued.
Partnership Dissolution – Withdrawal
On June 1, 2021, Partner Cueto decided to withdraw from the Alvarez, Tabor and Cueto
Partnership. Their profit and loss ratio is 3:2:1, respectively. Partnership assets are to be used
to acquire Cueto’s partnership interest. The statement of financial position for the partnership on
that date follows:
Alvarez, Tabor and Cueto Partnership
Statement of Financial Position
June 1, 2021
Assets
Cash P74,000
Trade Accounts Receivable (net) 36,000
Plant Asset (net) 135,000
Goodwill (net) 30,000
Total P275,000
Liabilities and Partners’ Capital
Liabilities P45,000
Alvarez, Capital 120,000
Tabor, Capital 60,000
Cueto, Capital 50,000
Total P275,000
Required:
Prepare the Journal entries to record Cueto’s withdrawal under each of the following
assumptions:
1. Cueto is paid P54,000, and excess amount paid over Cueto’s capital account balance is
recorded as a bonus to Cueto from Alvarez and Tabor.
2. Cueto is paid P45,000, and the difference is recorded as a bonus to Alvarez and Tabor from
Cueto.
3. Cueto accepted cash of P40,500 and plant assets (equipment) with a current fair value of
P9,000. The equipment had cost P30,000 and was 60% depreciated, with no residual value.
4. Assume that it is not the partnership who pays the interest of Cueto but the payment comes
directly from Partner Tabor for 53,500 cash.
Lecture 06: Lump Sum Liquidation
Afable, Barros and Lorzano have decided to liquidate their partnership on Dec. 1, 2021. The
statement of financial position is shown below:
ABL Partnership
Statement of Financial Position
December 1, 2021
Assets
Cash 25,000
Accounts Receivable (net) 75,000
Inventories 100,000
Property and Equipment (net) 300,000
Total Assets 500,000
Liabilities and Capital
Liabilities
Accounts Payable 240,000
Loan Payable-Barros 30,000
Total Liabilities 270,000
Capital:
Afable, Capital 120,000
Barros,Capital 50,000
Lorzano, Capital 60,000
Total Capital 230,000
Total Liabilites and Capital 500,000
Additional information:
a) The personal assets (excluding partnership capital and loan interests) and personal
liabilities of each partner as of Dec. 1, 2021, are presented below:
Afable Barros Lorzano
Personal assets 250,000 300,000 350,000
Personal liabilities (230,000) (240,000) (325,000)
Personal net worth 20,000 60,000 25,000
b) Afable, Barros, and Lorzano share profits and losses in the ratio 20:40:40, respectively.
c) According to partnership agreement, interest will not accrue on partners’ loan balances
during the liquidation process.
d) All of the non-cash assets were sold on Dec. 10, 2021 for P 260,000.
Required:
Prepare a statement of liquidation. Journal entries to record the foregoing transactions.
Lecture 06: Installment Liquidation
On Jan. 31, 2021, the partners Veran, Nova and Panelo authorized the liquidation of their
partnership. The statement of financial position is as follows:
Veran, Nova and Panelo
Statement of Financial position
January 31, 2021
Assets
Cash P 10,000
Loan Receivable-Nova 50,000
Other Assets (net) 240,000
Total Assets P 300,000
Liabilities and Partners’ Capital
Accounts Payable-Trade P 90,000
Loan Payable- Veran 60,000
Veran, Capital 140,000
Nova, Capital (70,000)
Panelo, Capital 80,000
Total Liabilities and Partners’ Capital P 300,000
Additional information for 2021:
a. The partners’ profit and loss sharing ratio was Veran, 40%; Nova, 40%; and Panelo, 20%.
b. On Feb. 1, non-cash assets with a book value of P180,000 realized P140,000, and all
available cash was paid to creditors and to partners.
c. On Feb. 4, non-cash assets with a book value of P60,000 realized P50,000, and that
amount was paid to partners.
d. On Feb. 5, Nova, who was almost insolvent, paid P30,000 on the loan from the partnership.
Veran and Panelo agreed that the partnership would receive no more cash from Nova, and
they instructed the accountant to close the partnership’s accounting records.
Required:
1. Prepare the cash priority program.
2. Prepare the journal entries.
Lecture 06: Installment Liquidation: Schedule of Safe Payments
The statement of financial position for Palacio and Lagustan partnership on June 1, 2021 before
liquidation is as follows:
Assets Liabilities & Capital
Cash 50,000 Liabilities 200,000
Other Assets 550,000 Palacio, Capital 225,000
___ Lagustan, Capital 175,000
Total Assets 600,000 Total Liab. & Equity 600,000
Partners Palacio and Lagustan share profits and losses 60:40, respectively. In June, assets with
a book value of P220,000 were sold for P180,000, creditors were paid in the amount of 150,000,
and P30,000 was paid to partners.
In July, assets with book value of P100,000 were sold for P120,000, liquidation expenses of
P5,000 were paid, remaining liabilities were paid and cash of P125,000 was paid to partners.
In August, the remaining assets were sold for P225,000.
Required:
1. Statement of Liquidation
2. Schedule of Safe Payments
3. Journal Entries
Lecture 06: Installment Liquidation -- Cash Priority Program
The capital and loan balances for partners Uy, Lee and Ong are shown below. They share
profits or losses in the ratio of 4:4:2, respectively.
Loans Payable-Uy P 100,000
Loans Payable-Lee 100,000
Loans Payable-Ong 150,000
Uy, Capital 150,000
Lee, Capital 350,000
Ong, Capital 200,000
P 1,050,000
Required:
1. Prepare a cash priority program (May 2021).
2. Assume that P250,000 cash is available for initial distribution, prepare the entries to
record the distribution to the partners.
