PARTNERSHIP & CORPORATION ACCOUNTING

SUGGESTED ANSWERS TO CHAPTER 4

2021EDITION

Exercise 4 – 1

1. D
2. D
3. D
4. A
5. C
6. D
7. C
8. C
9. A
10. D

Exercise 4-2
1. C
2. D
3. C
4. A
5. B
6. D
7. D
8. D
9. D
10. B
PROBLEM 4-1

1
Guaren, Mendez and Morales
Statement of Liquidation
July 31, 2021
Other Accounts Mendez, Guaren, Mendez, Morales,
Cash Assets Payable Loan Capital Capital Capital
Balances before liquidation 80,000 720,000 100,000 50,000 220,000 280,000 150,000
Sale of Other Assets at book value 720,000 (720,000)
Balances 800,000 100,000 50,000 220,000 280,000 150,000
Payment of Liabilities (100,000) (100,000)
Balances 700,000 50,000 220,000 280,000 150,000
Payments to partners (700,000) {50,000} {220,000} {280,000} {150,000}

Cash 720,000
Other Assets 720,000

Accounts Payable 100.000

Cash 100,000

Mendez, loan 50,000

Guaren, Capital 220,000
Mendez, Capital 280,000
Morales, Capital 150,000
Cash 700,000
2.
Guaren, Mendez and Morales
Statement of Liquidation
July 31, 2021
Other Accounts Mendez, Guaren, Mendez, Morales,
Cash Assets Payable Loan Capital Capital Capital
Balances before liquidation 80,000 720,000 100,000 50,000 220,000 280,000 150,000
Sale of Other Assets and distribution of loss, 50:40:10 600,000 (720,000) {60,000} {48,000} {12,000}
Balances 680,000 100,000 50,000 160,000 232,000 138,000
Payment of Liabilities (100,000) (100,000)
Balances 580,000 50,000 160,000 232,000 138,000
Payments to partners (580,000) {50,000} {160,000} {232,000} {138,000}

Cash 600,000
Guaren, Capital 60,000
Mendez, Capital 48,000
Morales, Capital 12,000
Other Assets 720,000

Accounts Payable 100,000

Cash 100,000

Mendez, loan 50,000

Guaren, Capital 160,000
Mendez, Capital 232,000
Morales, Capital 138,000
Cash 580,000
3.
Guaren, Mendez and Morales
Statement of Liquidation
July 31, 2021
Other Accounts Mendez, Guaren, Mendez, Morales,
Cash Assets Payable Loan Capital Capital Capital
Balances before liquidation 80,000 720,000 100,000 50,000 220,000 280,000 150,000
Sale of Other Assets and distribution of gain, 50:40:10 800,000 (720,000) 40,000 32,000 8,000
Balances 880,000 100,000 50,000 260,000 312,000 158,000
Payment of Liabilities (100,000) (100,000)
Balances 780,000 50,000 260,000 312,000 158,000
Payments to partners (780,000) {50,000} {260,000} {312,000} {158,000}

Cash 800,000
Other Assets 720,000
Guaren, Capital 40,000
Mendez, Capital 32,000
Morales, Capital 8,000

Accounts Payable 100,000

Cash 100,000

Mendez, loan 50,000

Guaren, Capital 260,000
Mendez, Capital 312,000
Morales, Capital 158,000
Cash 780,000
Problem 4 - 2
Cuevas, Delfin and Guerra
Statement of Liquidation
December 1, 2021

Non-cash Accounts Loan Pay. Cuevas, Delfin Guerra,

Cash Assets Payable Delfin Capital Capital Capital
Balances before liquidation 25,000 475,000 150,000 30,000 120,000 50,000 150,000
Sale of non-cash Assets and dist. of loss, 20:40:40 260,000 {475,000} {43,000} {86,000} {86,000}
Balances 285,000 150,000 30,000 77,000 {36,000} 64,000
Payment of Liabilities {150,000) (150,000}
Balances 135,000 30,000 77,000 {36,000} 64,000
Right of Offset by Delfin {30,000} 30,000
Balances 135,000 77,000 {6,000} 64,000
Add’l investment by Delfin 3,000 3,000
Balances 138,000 77,000 {3,000} 64,000

Add’l loss to Cuevas and Guerra, 20:40 {1,000} 3,000 {2,000}

Balances 138,000 76,000 62,000
Payment to Cuevas and Guerra (138,000) (76,000) (62,000)

Cash 260,000
Cuevas. Capital 43,000
Delfin, Capital 86,000
Guerra, Capital 86,000
Non-cash Assets 475,000
Accounts Payable 150,000
Cash 150,000
Loan Payable, Delfin 30,000
Delfin, Capital 30,000
Cash 3,000
Delfin, Capital 3,000
Cuevas, Capital 1,000
Guerra, Capital 2,000
Delfin, Capital 3,000
Cuevas, Capital 76,000
Guerra, Capital 62,000
Cash 138,000

Problem 4 - 3

John, Orly, and Dante

Statement of Liquidation
August 31, 2021
Other Accounts John, Orly, Dante,
Cash Assets Payable Capital Capital Capital
Balances before liquidation 50,000 500,000 60,000 180,000 240,000 70,000
Sale of Other Assets and distribution of gain: 4:4:2 640,000 (500,000) 56,000 56,000 28,000
Balances 690,000 60,000 236,000 296,000 98,000
Payment of Liabilities (60,000) (60,000)
Balances 630,000 236,000 296,000 98,000
Payments to partners (630,000} {236,000} {296,000} {98,000}

98,000-70,000/.20=140,000+500,000= 640,000
Problem 4-4

Andrew, Mel and Joseph

Statement of Liquidation
July 1 to September 30, 2021

Cash Other Liabilities Joseph, Andrew, Mel, Joseph,

Assets loan capital capital capital
Balances before liquidation 8,000 192,000 61,000 4,000 40,000 45,000 50,000
July – sale of assets & dist. of loss 40,000 (62,000) {11,000} (6,600) (4,400)
Balances 48,000 130,000 61,000 4,000 29,000 38,400 45,600
Partial payment of liabilities (48,000) (48,000)
Balances 130,000 13,000 4,000 29,000 38,400 45,600
August – sale of assets & dist of loss 36,000 (66,000) (15,000) (9,000) (6,000)
Balances 36,000 64,000 13,000 4,000 14,000 29,400 39,600
Full payment of liabilities (13,000) (13,000)
Balances 23,000 64,000 4,000 14,000 29,400 39,600
August – inst. to partners (sched A) (23,000) (4,000) (19,000)
Balances 64,000 14,000 29,400 20,600
Sept. – sale of assets & dist. of loss 43,000 (64,000) (10,500) (6,300) (4,200)
Balances 43,000 3,500 23,100 16,400
Final payment to partners (43,000) {3,500} (23,100) (16,400)
SCHEDULE A
Andrew, Mel and Joseph
Schedule of Safe Payments
August 31, 2021

Andrew Mel Joseph

Capital balances before dist. of cash 14,000 29,400 39,600
Add loan balance 4,000
Partners’ total interest 14,000 29,400 43,600
Restricted interest – possible loss of P64,000 if nothing is realized on the remaining assets, 50:30:20 {32,000} (19,200) (12,800)
Balances {18,000} 10,200 30,800
Restricted interest – possible loss of 18,000 if Andrew is unable to pay his deficiency, 30:20 18,000 (10,800) (7,200)
Balances {600} 23,600
Restricted interest- possible loss of 600 if Mel is unable to pay his deficiency 600 (600)
Free interest – amount to be paid to Joseph 23,000
Cash 40,000
Andrew, Capital 11,000
Mel, Capital 6,600
Joseph, Capital 4,400
Other Assets 62,000
Liabilities 48,000
Cash 48,000
Cash 36,000
Andrew, Capital 15,000
Mel, Capital 9,000
Joseph, Capital 6.000
Other Assets 66,000
Liabilities 13,000
Cash 13,000
Joseph, loan 4,000
Joseph. Capital 19,000
Cash 23,000
Cash 43,000
Andrew, Capital 10,500
Mel, Capital 6,300
Joseph, Capital 4,200
Other Assets 64,000
Andrew, Capital 3,500
Mel, Capital 23,100
Joseph, Capital 16,400
Cash 43,000
 Problem 4-5

Jonah and Daniel

Cash Priority Program
January 1, 2021
Cash Payments to
Jonah Daniel Jonah Daniel
Capital balances 70,000 60,000
Divide by profit & loss ratio 70% 30%
Loss absorption balances 100,000 200,000
Priority I – to Daniel (100,000) - 30,000
100,000 100,000
Priority II - Amounts in excess of P30,000 based on P/L ratio 70% 30% 100%

2.

Jonah Daniel
January
Available for distribution P35,000
Priority I: to Daniel 30,000
Priority II: to Jonah & Daniel P5,000, 7:3 3,500 1,500
Payment to partners 3,500 31,500
February and March distribution – based on P/L ratio
 3.
Jonah and Daniel
Statement of Liquidation
January 1 to March 31, 2021

Cash Other Liabilities Bonnie, Jed,

Assets capital capital
Balances before liquidation 5,000 155,000 30,000 70,000 60,000
Jan. – sale of assets 60,000 (80,000) (14,000) (6,000)
Balances 65,000 75,000 30,000 56,000 54,000
Payment of liabilities (30,000) (30,000)
Balances 35,000 75,000 56,000 54,000
Jan. distribution (35,000) (3,500) (31,500)
Balances 75,000 52,500 22,500
Feb. – sale of assets 30,000 (42,000) (8,400) (3,600)
Balances 30,000 33,000 44,100 18,900
Feb. distribution (30,000) (21,000) (9,000)
Balances 33,000 23,100 9,900
March – sale of assets 12,000 (33,000) (14,700) (6,300)
Balances 12,000 8,400 3,600
Final distribution to partners (12,000) (8,400) (3,600)

Problem 4-6
1. A
2. B
3. C
4. A
5. C
6. B
7. B
8. A
9. A
10. D