Partnership Liquidation - Installment

Procedures:
1. Realization of assets on a piece-meal basis
2. Distribution of gain or loss on realization
3. Preparation of cash distribution schedule
4. Distribution of available cash

Statement of Liquidation
1. Schedule to accompany the Schedule of Liquidation
2. Cash Priority Program
> Loss absorption capacity
> Cash allocation

The liquidation procedures shall be the same as in lump sum liquidation except that:
(1) Cash is distributed to partners even before fully realizing non-cash assets and determining
total gain or loss on realization.
(2) Restricted interest, in the Accompanying Schedule to Determine Amounts to be Paid to Partners,
shall consist of:
(a) Remaining unsold assets
(b) Cash withheld (for possibleexpenses)
© Debit balances in capital

Illustrative Problem:
The statement of financial position of the partnership of A, B, and Con December 31, 2023,
when the partners decide to liquidate follows:

Assets
Cash 200,000
Other assets 500,000
Total Assets 700,000

Liabilities and Capital

Liabilities 250,000
A Loan 70,000
A Capital 200,000
B, Capital ( 40%) 30,000
C, Capital ( 30%) 150,000
Total Liabilities and Capital 700,000

Cash is realized on the other assets as follows, and amounts realized are distributed at the end of
each month to the appropriate parties.

Fiscal Year 2023 Assets Book Value Cash Proceeds

January 300,000 260,000
February 200,000 230,000

Instructions:
(1) Prepare a statement of liquidation to summarize the course of liquidation. Provide schedules
to support of monthly contributions.
(2) Prepare the journal entries to record the liquidation.

A, B, and C
Statement of Liquidation
January to February 2023
A
Cash Other assets Liabilities Loan A B C
Profit and loss ratio (30%) (40%) (30%)
Balances before liquidation 200,000 500,000 250,000 70,000 200,000 30,000 150,000
January:
Sale of assets & distribution of loss 260,000 - 300,000 - 12,000 - 16,000 - 12,000
Balances 460,000 200,000 250,000 70,000 188,000 14,000 138,000
Payment of liabilities - 250,000 - 250,000
Balances 210,000 200,000 - 70,000 188,000 14,000 138,000
Payment to partners (per schedule) - 210,000 - 70,000 - 95,000 - 45,000
Balances - 200,000 - - 93,000 14,000 93,000
February: 9,000 12,000 9,000
Sale of assets & distribution of loss 230,000 - 200,000
Balances 230,000 - - - 102,000 26,000 102,000
Payment to partners - 230,000 - 102,000 - 26,000 - 102,000
 A, B and C Partnership
Schedule to Accompany Statement of Liquidation
Amounts to be Paid to Partners
January 31, 2023

A B C
(30%) (40%) (30%)
Capital balances before cash distribution 188,000 14,000 138,000
Add Loans 70,000
Total Partners' interest 258,000 14,000 138,000
Restricted interest - possible loss of P200,000 if nothing is
realized on remaining unsold assets - 60,000 - 80,000 - 60,000
198,000 - 66,000 78,000
Restricted interest - additional possible loss of P66,000
to A and C if Bis unable to pay his possible
deficiency, shraed in the ratio of 30:30 - 33,000 66,000 - 33,000
Free interest - payment ot partners 165,000 - 45,000

Payment to apply on:

Loan capital 70,000
Capital 95,000 45,000
Total Cas distributions 165,000 - 45,000

Journal Entries:
January Cash 260,000
A Capital 12,000
B Capital 16,000
C Capital 12,000
Other assets 300,000
Sale of assets and distribution of loss

Liabilities 250,000
Cash 250,000
Payment of Liabilities

A Loan 70,000
A Capital 95,000
C Capital 45,000
Cash 210,000
Payment to partners

February
Cash 230,000
Other assets 200,000
A Capital 9,000
B capital 12,000
C Capital 9,000
Sale of assest and distribution of gain

A Capital 102,000
B capital 26,000
C capital 102,000
Cash 230,000
Final payment to partners