AFAR Quiz 2

1) After operating for 3 years, the books of M and N Partnership showed the following balances:
Net Assets 130,000
M, Capital 20,000
N, Capital 50,000

If liquidation takes place at this point and net assets are realized at book value, the partners are entitled to:
M N
a) P20,000 ; P50,000
b) P42,850 ; P58,250
c) P96,400 ; P71,000
d) P91,450 ; P69,700

A Book value. No gain or loss to be allocated.

2. A, B, C, and D are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and 8/21, respectively. The balances
of their capital accounts on December 31, 2018 are as follows:

A………………………………………………………………………. P 1,000
B…………………………………………………………………….. 25, 000
C………………………………………………………………………. 25, 000
D……………………………………………………………………… 9, 000
P 60,000

The partners decide to liquidate, and they accordingly convert the non-cash 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 of any partner’s capital
is uncollectible.

After the P22, 000 was divided, the capital balance of B was:

a. P3, 200 c. P4, 500

b. 13,880 d. 17, 800

A B C D
14% 19% 29% 38% 100%
1,000 25,000 25,000 9,000 60,000
(5,429) (7,238) (10,857) (14,476) (38,000)
(4,429) 17,762 14,143 (5,476)
(3,962) (5,943) (9,905)
13,800 8,200 22,000

Note: 13,880 if percentage were not rounded off to 2 decimal places.

3. Fleming, Durano and Mart are partners in a wholesale business. On January 1, 2019 the total capital was P30,00
and drawings presented as follows:

Capitals Drawings
Fleming 6,250 3,750
Durano 5,000 2,500
Mart 18,750 1,250

Partners agree that profit and loss ratio are shared equally. Because of the failure of some debtors to pay their
outstanding accounts, the partnership loses heavily and is compelled to liquidate. After exhausting the partnership
assets, including those arising from an operating profit of P4,500 in 2019, they still owe P5,250 to creditors on December
31, 2019. Fleming has no personal but the others are well off.

3. The partnership liquidation loss: a. None b. 10,000 c. 27,750 d. 32,250

4. The amount to be received by Mart as a result of the liquidation:

 AFAR Quiz 2

a. 818.75 b. 4,875 c. 7,125 d. 9,750

Solution:
Asset Liabilities Capital

5,250.00 22,500.00
Profit 4,500.00
Liquidation Loss 32,250.00 5,250.00 27,000.00

Fleming Durano Mart

Capital 6,250.00 5,000.00 18,750.00
Drawings (3,750.00) (2,500.00) (1,250.00)
2,500.00 2,500.00 17,500.00

Profit 1,500.00 1,500.00 1,500.00

Loss on Realization (10,750.00) (10,750.00) (10,750.00)
(6,750.00) (6,750.00) 8,250.00
6,750.00 (3,375.00) (3,375.00)
(10,125.00) 4,875.0

5. A and B formed a partnership on July 1, 2018 to operate two stores to be managed by each of them. They invested
P30,000 and P20,000 and agreed to share earnings 60% and 40%, respectively. All their transactions were of cash,
and all their subsequent transactions were handled through their respective bank accounts as summarized below:

A B
Cash receipts……………………………………………… P79,100 P65,245
Cash disbursements…………………….………………… 62,275 70,695

On December 31, 2018, all remaining non-cash assets in the two stores were sold for cash of P60,000. The partnership
was dissolved, and cash settlement was effected. In the distribution of the P60, 000 cash, A received:

a. P24, 000 c. P34, 000

b. 26, 000 d. 36, 000

A B
60% 40%
30,000 20,000
(79,100) (65,245) Receivable from
62,275 70,695 Loan to
13,175 25,450 38,625
12,825 8,550 21,375
26,000 34,000

II. On January 1, 2019, the partners of Allen, Brown, and Cox, who share profits and losses in the ratio of 5:3:2,
respectively, decide to liquidate their partnership. The partnership trial balance at this date is as follows:
Debit Credit
Cash P 18,000
Accounts receivable 66,000
Inventory 52,000
Machinery and equipment, net 189,000
Allen, loan 30,000
Accounts payable P 53,000
Brown, loan 20,000
Allen, capital 118,000
Brown, capital 90,000
Cox, capital _______ 74,000
P355,000 P355,000
 AFAR Quiz 2

The partners plan a program of piecemeal conversion of assets in order to minimize liquidation losses. All available
cash, less an amount retained to provide for 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 2019:
a. P51,000 was collected on accounts receivable; the balance is uncollectible.
b. P38,000 was received for the entire inventory.
c. P2,000 liquidation expenses were paid.
d. P50,000 was paid to outside creditors, after offset of a P3,000 credit memorandum received on January 11, 20X2.
e. P10,000 cash was retained in the business at the end of the month for potential unrecorded liabilities and anticipated
expenses.

All partners are insolvent.

Required:
Compute for the safe installment to the partners as of January 31, 2019. Show supporting computations in good form.
(5 pts.)

SOLUTION TO QUIZ 1:

a) Collection on accounts receivable 51,000

b) Sale of inventory 38,000
c) Liquidation expenses (2,000)
d) Gain on settlement of accounts payable 3,000
e) Cash retained (10,000)
Net cash proceeds 80,000
Less: Carrying amount of non-cash assets
(66K Accounts receivable+ 52K Inventory + 189K Equipment) (370,000)
Total loss on sale (227,000)

A (50%) B (30%) C (20%) Totals

Capital balances 118,000 90,000 74,000 282,000
Loans (receivable from A/payable to B) (30,000) 20,000 (10,000)
Total 88,000 110,000 74,000 272,000
Allocation of loss
[227K x (50%; 30% & 20%)] (113,500) (68,100) (45,400) (227,000)
Total (25,500) 41,900 28,600 45,000
Absorption of loss by other partners
(25.5K x 3/5 & 2/5) 25,500 (15,300) (10,200) -
Amts. received by the partners - 26,600 18,400 45,000