SEATWORK # 5

Problems on Liquidation:

A. Below is the Statement of Financial Position of KAM Partnership:

ASSETS LIABILITIES & EQUITY

Cash P15,000 Accounts Payable P115,000
Accounts Receivable 80,000 Loans from M 30,000
Allowance for D/A (5,000) Kaye, Capital (3/6) 105,000
Loans to A 10,000 Anne, Capital (2/6) 50,000
Merchandise Inventory 195,000 Mane, Capital (1/6) 70,000
Equipment 75,000

On October 31, 2020, the partners dissolved and liquidated the partnership. The non-cash assets were
sold for a lump-sum amount of P350,000. Prepare a Statement of Liquidation and journalize the entries.

SOLUTION:
KAM Partnership
Statement of Liquidation
October 31, 2020
Cash Loan to Non- Liabilities M, Kaye , Anne, Mane,
A Cash Loan Capital Capital Capital
assets
3/6 2/6 1/6
Balances P15,000 P10,000 P345,000 P115,000 P30,000 P105,000 P50,000 P70,000
Sale of
NCA
350,000 (345,000 2,500 1,667 833
)
Balances 365,000 10,000 0 115,000 30,000 107,500 51,667 70,833
Payment
of
(115,000 (115,000
liabilities
)
Balances 250,000 10,000 0 30,000 107,500 51,667 70,833
Payment
to M
(30,000) (30,000
)
Balances 220,000 10,000 0 107,500 51,667 70,833
Payment
of loan -A
(10,000 (10,000)
)
Balances 220,000 0 97,500 51,667 70,833
Payment
to
(220,00) (97,500) (51,667 (70,833)
Partners
)

JOURNAL ENTRIES:

1. Cash P350,000
Non-Cash Assets
P345,000
Gain on Realization
5,000
2. Gain on Realization 5,000
K, Capital
2,500
A, Capital
M, Capital 1,667
833
3. Liabilities 115,000
Cash
1156,000
4. M, Capital 100,000
Cash
100,000
5. A, Capital 10,000
Loan to A
10,000
6. K, Capital 97,500
A, Capital
51,667
M, Capital
Cash 70,833
 220,000

SCORES:
SOL ( 2pts per transaction that is correctly entered x 5transaction) 10
JE (2 pts x 6 entries) 12
22

Note : No heading = minus 2pts

No explanation=minus 2pts

B. On January 1, 2020, partners Ali, Bob and Bon of ABB Co. decided to liquidate its business due
to migration to another country of the partners. As of Dec. 31, 2019, the Post-Closing Trial
Balance of the business showed the following balances:

ABB Company
Post-Closing Trial Balance
December 31, 2019
Debit Credit
Cash P105,000
Accounts Receivable 450,000
Merchandise Inventory 580,000
Equipment 205,000
Accounts Payable 540,000
Loans Payable to Ali 105,000
Ali, Capital 220,000
Bob, Capital 235,000
 Bon, Capital 240,000
Total P1,340,000 P1,340,000
Assume non-cash assets were realized as follows:
January 15, 2020 Accounts receivable were all
realized and collected
February 15, 2020 The merchandise inventory were
sold for only 60% of its book
value.
March 20, 2020 The remaining non-cash asset
(equipment) was sold for its
salvage value of P25,000
March 30,2020 The realization of non-cash
assets were fully completed as
well as the liquidation process
which have incurred total
expenses including legal fees of
P10,000
The partners profit sharing ratio is 4:4:2 and their personal
Net Worth were as follows:
Assets Liabilities
Ali P1,500,000 P 850,000
Bob 1,380,000 1,450,000
Bon 1,050,000 1,250,000

1. Statement of Liquidation with Schedule of Safe payments

2. Statement of Liquidation with Cash Priority Program
3. Journalize entries to support the statement of liquidation

Schedule A
ABB Co
Schedule of Safe Payments
January 15, 2020

ALI BOB BON

Cash Balance before distribution 220,000 235,000 240,000
Loan Balance 105,000
Partner’s Interests 325,000 235,000 240,000
 Restricted Interest if 785,000 will
not be realized
(314,000) (314,000) (157,000)
Balances 11,000 (79,000) 83,000
Restricted interests additional
possible loss of 79,000 if Bob is
unable to satisfy his deficiency
(52,667) 79,000 (26,333)
Balances (41,667) 0 56,667
Additional loss if Ali will not be 0
able to satisfy his deficiency
41667 (41,667)
Free interests 0 0 15,000

Schedule B

Capital balances for February sale of P348,000

ALI BOB BON
Sale of NCA =348,000
348,000 x 139,200 139,200 69,600
4/10;4/10;2/10
Add: Payment of Bob 52,667 (79,000) 26,333
Payment of Ali (41,667) 41,667
Cash balance 150,200 60,200 137,600

Schedule of Safe Payments

February 15, 2020
ALI BOB BON
Cash balance before
distribution
150,200 60,200 137,600
Free Interests 150,200 60,200 137,600

Schedule C
Capital balances for March 20 sale P25,000
 ALI BOB BON
Sale of NCA = 25,000
25,000 x
4/10;4/10;2/10
10,000 10,000 5,000
Cash Balance 10,000 10,000 5,000

Schedule of Safe Payments

March 15, 2020

Cash Balance before 10,000 10,000 5,000

distribution
Free Interests 10,000 10,000 5,000
Statement of Liquidation
January to March, 2020
Cash NCA Liabilities Ali Loan Ali, Cap Bob, Cap Bon, Cap

Balances 105,000 1,235,000 540,000 105,000 220,000 235,000 240,000

Jan Sale 450,000 (450,000)

Balances 555,000 785,000 540,000 105,000 220,000 235,000 240,000

Payment of L

(540,000) (540,000)

Balances 15,000 785,000 0 105,000 220,000 235,000 240,000

Payment to Ali
Loan partial
(15,000) (15,000)

Balances 0 785,000 0 90,000 220,000 235,000 240,000

February sale

348,000 (348,000)

Balances 348,000 437,000 90,000 220,000 235,000 240,000

Full payment to
Ali
(90,000) (90,000)

Balances 258,000 437,000 0 220,000 235,000 240,000

Sched A (15,000) (15,000)

Balances 243,000 437,000 220,000 235,000 225,000

Sched B=P & L (243,000) (97,200) (97,200) (48,600)

Balances 0 437,000 122,800 137,800 176,400

March sale 25,000 (437,000) (164,800) (164,800) (82,400)

Balances 25,000 0 (42,000) (27,000) 94,000

Payment of exp (10,000) (4,000) (4,000) (2,000)

Balances 15,000 (46,000) (31,000) 92,000

Absorb capital def (20,667) 31,000 (10,333)

of Bob (insolvent)

Balances 15,000 (66,667) 0 81,667

Add’l cash fr Ali 66,667 66,667

Balances 81,667 0 81,667

Payment to Bon (81,667) (81,667)

JOURNAL ENTRIES

Cash 450,000
Non-Cash Asset
450,000
To record January sale of NCA
Liabilities 540,000
Cash
540,000
Ali, Loan 15,000
Cash
15,000
To record partial payment of loan
Cash 348,000
NCA
348,000
To record February sale of NCA
Ali, Loan 90,000
Cash
90,000
To record full payment of loan.
Bon, Capital 15,000
Cash
15,000
Payment to Bon as per Sched. A
 Ali, Capital 97,200
Bob, Capital
97,200
Bon, Capital
Cash 48,600
To record distribution to partners
Sched B 243,000

Cash 25,000
Loss on Realization
412,000
NCA
To record March sale of NCA 437,000
Ali, Capital 164,800
Bob, Capital
164,800
Bon, Capital
Loss on Realization 82,400
412,000
Ali, Capital 4,000
Bob, Capital
4,000
Bon, Capital
Cash 2,000
To record payment of liq. expenses
10,000
Ali, Capital 20,667
Bon, Capital
10,333
Bob, Capital
To absorb capital deficiency of 31,000
insolvent Bob.
Cash 66,667
Ali, Capital
66,667
Additional cash from Ali

Bon Capital 81,667

Cash
81,667
Payment to partner Bon.

SCORES:
Sched. A 10
Sched B & C with computations (5each) 10
SOL per transaction (12 x 2 pts) 24
Journal Entries (13 x 2pts) 26 with explanation, none minus 2pts
Total 70
 ABB CO
Cash Priority Program
January to March 2020
Ali Bob Bon Ali Bob Bon
Capital balances P220,000 235,000 240,000
Loan balance 105,000

Partner’s Interests 325,000 235,000 240,000

Divided by 4/10 4/10 2/10

Loss Absorption Capacity 812,500 587,500 1,200,000

Priority I: to Bon (387,500) 77,500

Loss Absorption Balance 812,500 587,500 812,500

Priority II: to Ali & Bond (225,00) (225,000) 90,000 45,000

Loss Absorption Balance 587,500 587,500 587,500

Total 90,000 122,500

Total Cash Priority Payments:

Priority 1 to Bon (387,500 x 2/10) 77,500
Priority II
Ali (225,000 x 4/10) 90,000
Bon(225,000 x 2/10) 45,000
TOTAL 212,500

Statement of Liquidation
January to March, 2020
Cash NCA Liabilities Ali Loan Ali, Cap Bob, Cap Bon, Cap
Balances 105,000 1,235,00 540,000 105,000 220,000 235,000 240,000
0
Jan Sale 450,000 (450,000)
Balances 555,000 785,000 540,000 105,000 220,000 235,000 240,000
Payment of L
(540,000) (540,000)
Balances 15,000 785,000 0 105,000 220,000 235,000 240,000
Payment to
Ali Loan
 partial (15,000) (15,000)
Balances 0 785,000 0 90,000 220,000 235,000 240,000
February sale
348,000 (348,000)
Balances 348,000 437,000 90,000 220,000 235,000 240,000
Full payment
to Ali
(90,000) (90,000)
Balances 258,000 437,000 0 220,000 235,000 240,000
Priority 1 (77,500) (77,500)
Balances 180,500 437,000 220,000 235,000 162,500
Priority II (135,000) (90,000) (45,000)
Balances 45,500 437,000 130,000 235,000 117,500
March sale 25,000 (437,000) (164,800) (164,800) (82,400)
Balances 70,500 0 (34,800) 70,200 35,100
Payment of (10,000) (4,000) (4,000) (2,000)
exp
Balances 60,500 (38,800) 66,200 33,100
Addl Cash 38,800 38,800
from Ali
Balances 99,300 0 66,200 33,100
Payment to (99,300) (66,200) (33,100)
Partners

Journal entries:
1. Cash (January) 450,000
Non-Cash Assets 450,000

2. Liabilities 540,000
Cash 540,000
3. Ali, Loan (partial payment) 15,000
Cash 15,000
4. Cash (February) 348,000
NCA 348,000
5. Ali, Loan (full payment) 90,000
 Cash 90,000
6. Bon, Capital (Priority 1) 77,500
Cash 77,500
7. Ali, Capital (Priority II) 90,000
Bon, Capital 45,000
Cash 135,000
8. Cash (March sale) 25,000
Loss on realization 412,000
NCA 437,000
9. Ali, Capital 4,000
Bob, Capital 4,000
Bon, Capital 2,000
Cash (Liq expenses) 10,000
10. Cash 38,800
Ali, Capital 38,800
11. Bob, Capital 66,200
33,100
Bon, Capital
99,300
Cash

SCORES:
Cash Priority (CPP) 10 (No heading minus 2 pts)
SOL per transaction (11 x 2pts) 22
Journal Entries (11 x 2pts) 22 no explanation minus 2pts
TOTAL 54

SEATWORK NO. 5 TOTAL SCORES (22+70+54) =146 points