Question

The partners Carl, Sean, and Frank decide to liquidate on August 1, 2018. The partners share profit/losses using 25%, 45%, and 30% respectively. The B/S of the partners is as follows:

Cash	$60,000	A/P	$130,000
Loan Receivable, Carl	$40,000	Loan Payable, Sean	$60,000
Other Assets	$500,000	Carl, Capital	$140,000
Total Assets	$600,000	Sean, Capital	$160,000
		Frank, Capital	$110,000
		Total Liab & Capital	$600,000

The disposal of Other Assets with a carrying amount of $300,000 realized $250,000. Liquidation expenses are expected to total $40,000. Any partner with a negative capital balance is insolvent. Prepare a schedule of the safe cash payments that can be made to each partner.

Answer 1

Assets Sold for a Loss:

The disposal of Other assets are mentioned in the question as $300,000 but they are sold for $250,000.

This is a $50,000 loss to the partnets and will result in reducing both their assets and capital accounts.

Date	Description	Dr ($)	Cr ($)
2018, Aug 1	Cash	250,000
	Loss or Gain on Realization	50,000
	Other Assest		300,000
	(To record the sale of Other Assets)

2018, Aug 1	Carl, Capital	12,500
	Sean, Capital	22,500
	Frank, Capital	15,000
	Loss or Gain on Realization		50,000
	(To record the closing of the Loss to Partners' Capital Accounts)

2018, Aug 1	Accounts Payable	130,000
	Cash		130,0000
	(To Record the payment of the Creditors)

Working Notes : 25%, 45% & 30% for Carl, Sean and Frank respectively sharing loss.

50,000 * 25% = 12,500

50,000*45% = 22,500

50,000*30% = 15,000

Date	Description	Dr ($)	Cr ($)
2018, Aug 1	Carl, Capital	10,000
	Sean, Capital	18,000
	Frank, Capital	12,000
	To Liquidation Expenses		40,000
	(To record liquidation Expenses)

Working Notes:

Liquidation Exp 40,000 between 25,45 & 30 % respectively.

40,000*25% = 10,000

40,000*45% = 18,000

40,000*30% = 12,000

Carls, Capital

12,500	140,000
10,000	117,500

Sean Capital

22,500	160,000
60,000	77,500
18,000	59,500

Frank Capital,

15,000	110,000
12,000	83,000

Other Assets

300,000

300,000

Accounts Payable

130,000

130,000

Loss or Gain Realiation

50,000

50,000

Cash

60,000	130,000
250,000
180,000

There is $180,000 left in the Cash Account, distributing the remaining Safe cash payments according to the equities of the partners.

Date	Description	Dr ($)	Cr ($)
2018, Aug 1	Carl, Capital	45,000
	Sean, Capital	81,000
	Frank, Capital	54,000
	Cash		180,000
	To record the closing of the Partnership Books

Working Notes:

180,000* 25 % , 45% & 30%

After this entry is posted all the accounts have a zero balance and partnership is terminated.