SAMPLE PROBLEMS (PARTNERSHIP INSTALLMENT LIQUIDATION)

Problem I
On December 31, 2016, partners Happy, Joy, and Love have capital balances of
P252,000, P368,000, and P305,000, respectively. The partnership has P275,000
liabilities, including a loan from Happy amounting to P20,000 and a cash of
P175,000.
On May 31, 2017, the partnership decided to liquidate. Its net income from January
to May 31 amounted to P348,000. Its profit/loss distribution agreement calls for
annual salaries of P134,400, P158,400 and P115,200 for Happy, Joy and Love,
respectively. Any remainder will be distributed as follows: 25% to Happy, 25% to
Joy, and 50% to Love. The partnerships cash as of this date amounted to P250,000
and its total liabilities amounted to P307,000, excluding loan from Happy.
During June, noncash assets with a book value of P400,000 were sold for a certain
amount. The partnership paid P67,000 of its liabilities to outside creditors.
Liquidation expenses amounting to P44,000 were paid and cash will be withheld for
the payment of its remaining liabilities.
Questions:
1. How much were the noncash assets sold for in order for Happy to receive the
amount priority to her and an additional P7,500?
For questions 2 and 3:
During July, non-cash assets were sold for P432,000 resulting to a loss of P18,000.
Remaining liabilities to outsiders were paid and P425,000 were distributed to the
partners. P5,000 were paid for liquidation expenses.
2. What is Loves share in the maximum possible loss after the July sale of non-cash
assets?
3. How much cash was distributed to Happy in July?

PROBLEM II
STRIVE! partnership provided you with the following account balances as of
December 31, 2016: Just before the retirement of Lee.
Cash
Noncash Assets
Loan to Adam
Liabilities
Loan from David
David, Capital

390,000
1,100,000
10,000
310,000
25,000
450,000

Lee, Capital

325,000

Adam, Capital

390,000

On December 31, 2016, Lee decided to leave the partnership and he got paid 80%
of his capital balance.
After four months of attempt to carry on with the partnership, David and Adam
decided to enter into liquidation. A net loss amounting to 124,000 was realized. In
connection with this, 84,000 was the net cash inflow during the first four months of
2017 and the partnerships liabilities increased by P40,000. Half of the non-cash
assets were sold at a loss of P120,000.
Liquidation expenses of P35,000 are expected to be incurred in due course of
liquidating the partnership. 275,000 of the total liabilities to outside creditors were
paid. Available cash was distributed to the partners.
Question:
1. How much is Davids total interest after the first cash distribution?
PROBLEM III
NGU Partnership has the following account balances before liquidation:
Cash
Non-cash assets
Loan to GIVE
Receivable from
NEVER
Expenses
Liabilities
Loan from UP
NEVER, Capital
GIVE, capital
UP, Capital
Revenues

70,000
1,475,000
30,000
4,000
446,000
225,000
10,000
250,000
380,000
200,000
960,000

During May, some noncash assets were sold that resulted to a loss of 9,225.
Liquidation expenses of P35,000 were paid and additional expenses amounting to
P18,000 were expected to be incurred through the following months of liquidation of
the partnership. Liabilities to outsiders amounting to P175,000 were paid.
Question:
1. What is the book value of the non-cash assets which were sold for Up to receive
P111,110?

ANSWERS:
PROBLEM I
1. 540,000
2. 231,000
3. 106,250
PROBLEM II
1. 255,250
PROBLEM III
1. 426,000