Problem \#13 Lump-Sum Liquidation: Comprehensive Problem Reyes, 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 and P300,000, respectively, interest of 12% on their Jan. I capital balances and any balance to be divided in the profit and loss ratio. The partners' capital balances as of Jan. 1, 2006 were Reyes, P1,200,000; Sandoval, P750,000 and Ramel, P500,000. No additional investments were made during the year. Profit for 2006 was P1,600,000. Partners' withdrawals for the year were as follows: Reyes, P500,000; Sandoval, P400,000 and Ramel, P350,000. On Mar. 4, 2007, 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 2007. Between Mar. 5 and Mar. 31, the non-cash assets are sold for P2,900,000, the gain is divided in the profit and loss ratio. The liabilities are paid and the remaining cash is then distributed to the partners. Required: 1. Prepare the bottom portion of the statement of recognized income and expense for the year ended Dec. 31, 2006, showing the manner of allocation of the profit. 2. Prepare the journal entry to close the income summary against the partners' capital accounts as at Dec. 31,2006. 3. Prepare the statement of changes in partners' equity for the year ended Dec. 31, 2006. 4. Prepare the journal entries as at Mar. 31, 2007 for the following: a. sale of the non-cash assets. b. distribution of gain on realization. c. payment of liabilities. d. distribution of remaining cash to the partners. 5. Prepare a statement of liquidation for the period Mar. 5 to Mar. 31, 2007