Problem 4-5 (Lump-sum Liquidation: Comprehensive Problem)

Dulay, Sandoval, and Ramel are partners in a law firm. They share profits and losses in a 5:3:2 ratio.

The partnership agreement provided for annual salaries of P400,000. P350,000, P300,000, respectively.

The interest of 12% on their Jan 1 capital balances and any balances to be divided in the profit and loss ratio.

The partners' capital balances as of Jan 1, 2020, were Dulay, P1.200,000; Sandoval, P750,000 and

Ramel, P500,000. No additional investments were made during the year. Profit for 2020 was

P1.600,000. Partners' withdrawals for the year were as follows: Dulay, P500,000; Sandoval, P400.000

and Ramel, P350,000.

On Mar 4. 2021. the partners decided to liquidate their law firm. On that date, the firm has a cash balance

of P460,000, non-cash assets of P2,740,000, and liabilities of P400,000. No additional investments or

withdrawals have been made in 2021. Between May 5 and Mar 31. the non-cash assets are sold for

P2,900.000, the gain is divided by the profit and loss ratio. The liabilities are paid and the remaining

cash is then distributed to the partners.

Required:

Prepare the income allocation for 2020.

2. Prepare the statement of changes in partners' equity for the year ended Dec 31, 2020.

3. Prepare the statement of partnership liquidation.

THE ANSWER IS BELOW

      Dulay, Sandoval, and Ramel Partnership        
      Income Allocation      
             
      P and L ratio   5 3 2 10        
          Dulay Sandoval Ramel          

      Annual Salaries   400,000.00 350,000.00 300,000.00 1,050,000.00        

      Interest   144,000.00 90,000.00 60,000.00 294,000.00        

          128,000.00 76,800.00 51,200.00 256,000.00        

      Total   672,000.00 516,800.00 411,200.00 1,600,000.00        

                -        

                -        
                         
      Dulay, Sandoval and Ramel Partnership      
      Statement of Changes in Partner's Equity      
      As of December 31,2020      
          Dulay Sandoval Ramel          

      Beginning Capital, As of Jan 1   1,200,000.00 750,000.00 500,000.00   2,450,000.00      

      Additional: Profit   672,000.00 516,800.00 411,200.00   1,600,000.00      

      Less: Withdrawal   500,000.00 400,000.00 350,000.00 1,250,000.00        

          1,372,000.00 866,800.00 561,200.00   2,800,000.00      

                         
 

                       
                         
      Dulay, Sandoval and Ramel Partnership  
      Statement of Liquidation  
                         
                Capitals        
        Cash Non-Cash   Liabilities Dulay Sandoval      

        460,000.00 2,740,000.00 3,200,000.00 400,000.00 1,372,000.00 866,800.00 Ramel    

Realization of Assets & Profit 2,900,000.0 -

      Distribution 0 2,740,000.00 160,000.00   80,000.00 48,000.00 561,200.00 3,200,000.00  

3,360,000.0
      Balances 0 - 3,360,000.00 400,000.00 1,452,000.00 914,800.00 32,000.00 160,000.00  
- - -
      Payment of Liabilities 400,000.00   400,000.00 400,000.00     593,200.00 3,360,000.00  

2,960,000.0 -
      Balances 0   2,960,000.00 - 1,452,000.00 914,800.00   400,000.00 -
-
2,960,000.0 - - -
      Cash Settlement to Partners 0   2,960,000.00   1,452,000.00 914,800.00 593,200.00 2,960,000.00  
- -
      Balances -         - 593,200.00 2,960,000.00  

                    - -