PARTNERSHIP DISSOLUTION

Give the explanation of its answers or computation True or False:

1. The total capital of a partnership increases when an incoming partner purchases interest from an existing partner.

2. According to law, a partnership is dissolved when a new partner is admitted or when an existing partner withdraws.

Fact pattern: You and I are partners with capital balances P5 each. We have equal interests in the partnership.

3. Friend acquires one-half of your interest for P3. Your capital balance after the admission of Friend is P2.5.

4. The payment of Friend is recorded in the partnership's books.

5. The total partnership capital after the admission of Friend is P13.

6. Disregard the previous assumptions. Friend acquires 20% interest by investing P2.5 to the partnership. No bonus is allowed. My capital after the admission of Friend is P3.75.

7. The investment of Friend is recorded in the partnership's books.

Fact pattern: Dog, Cat and Mouse are partners with capital balance of P5 each. The partners have equal interests in the partnership. Mouse is fed up with Dog and Cat's quarrels and wants to withdraw from the partnership. The partnership's net assets are fairly valued.

8. Dog acquires Mouse's interest for P2. Dog's capital after the withdrawal of Mouse is P10.

9. The partnership pays Mouse P7 as settlement of his partnership interest. Cat's capital after the withdrawal of Mouse is P4.

10. Cat was able to persuade Mouse to stay, on condition that the partnership should be converted into a corporation. The corporation issued 4 shares with par value of P1 per share to each of the partners. The credit to share premium is P2.

PARTNERSHIP LIQUIDATION

Give the explanation of its answers or computation True or False:

1. Dissolution and liquidation are the same.

2. In the liquidation of a business, the business owners' claims are settled simultaneously with the creditors' claims.

Fact pattern A partnership has total assets of P5 (all non-cash), total liabilities of P1, and the following capital balances: A, Capital (50%) P2 and B, Capital (50%) P2. Scenario 1: Cash distributions to partners

3. The cash available for distribution to the partners is P3.

4. The loss on the sale is P2.

5. A's share in the final cash distribution is P1. Scenario 2: Reconstruction of information 6. If the loss on the sale of the assets is P3, the sale proceeds must be P1.

7. If the cash available for distribution to the partners is P2, A's share is P1.

8. If the cash available for the partners' claims is P2, the sale proceeds must have been P1.

9. If A's share in the final cash distribution is P0.75, the loss on the sale of assets must have been P1.

10. If the assets are realized, and the liabilities are settled, at carrying amounts, B's share in the final distribution will be P1.

CORPORATE LIQUIDATION AND REORGANIZATION

TRUE or FALSE: Then explain

Fact pattern Foot Corp. has total assets of P100 and total liabilities of P150. The assets are expected to be realized at an average of 90% of carrying amount. The expected net settlement amount of the liabilities is equal to carrying amount. Of the total liabilities, P60 represent secured and priority claims.

1. The "net free assets" are P40.

2. Unsecured non-priority creditors would expect to recover only one-third (1/3) of their claim.

3. Mr. A has a P30 loan receivable from Foot Corp. The loan is secured by an asset with a carrying amount of P10. Mr. B can expect payment of P21 on the loan.

4. Mr. B has a P15 note receivable from Foot Corp. The note is secured by an asset with a carrying amount of P10. Mr. B can expect payment of P11 on the note.

5. You are a major shareholder of Foot Corp. You own 70 out of the 100 outstanding ordinary shares with P1 par value per share. You can expect to recover nothing on the liquidation of Foot Corp.