Question

Exercise 16-1 The CPA Partnership operated by Cook, Parks, and Argo is being liquidated. A balance sheet prepared at this stage in their liquidation process is presented below. Cash Other Assets $36,000 50,000 Liabilities Parks, Loan Cook, Capital Parks, Capital Argo, Capital Total $22,000 10,000 28,000 10,000 16,000 $86,000 Total $86,000 The partners share profits and losses 30% (Cook), 50% (Parks), and 20% (Argo). The partners are all personally insolvent. (a) Your answer is partially correct. Try again. The partners wish to distribute the $36,000 in cash. Record in journal entry form the distribution of the available cash. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit Liabilities 220001 22000 T cash (To record payment of liabilities) cook, Capital 10800 Argo, Capital 7200 T cash 18000 (To record distribution to partners) SHOW LIST OF ACCOUNTS

Please do part A above and Part B: journal entries to form the completion of the liquidation process.

Answer 1

Distribution of Cash and Assets

				3	5	2
		Trade Creditors	Parks Loan	Cook Capital	Park Capital	Argo Capital	Total
Balances		22000	10000	28000	10000	16000	86000
Cash Available	36000
Paid to outside liabilites and loans from partner	-32000	22000	10000
Balance	4000	0	0	28000	10000	16000	86000
Paid to Partners	-4000			-4000 (please see note below)
Balance	Nil

The Ratios and capital balances are as above. We calculate the capital in proportion to the profit sharing ratio. We use partner with lowest capital for the same. So its Park's capital a/c ie., 10000 and his ratio is 50%. So,

Partner	Capital Account Balance	Capital on basis of Park's capital	Excess
Cook	28000	10,000*3/5 = 6000	24000
Park	10000	10000	nil
Argo	16000	10000*2/5 = 4000	12000

Hence we distributed any cash up to first 12000 to Cook, next 12000 to Cook and Argo and balance to all partners in their profit sharing ratio.

Journal Entries are:

Creditors a/c Dr	22000
To Cash a/c		22000
Park's Loan a/c Dr	10000
To Cash a/c		10000
Cook's Capital a/c Dr	4000
To Cash a/c		4000