Question

settlement by the partners. EXERCISE 16-10 Rights of Various Parties LO 3 The trial balance for the MAD Partnership is as follows just before declaring bankruptcy. Cash Other Assets Liabilities Matt Loan Matt Capital Allen Capital Dave Capital $20,000 $100,000 $18,000 $10,000 $44,000 $30,000 $18,000 Partners share profits in the ratio 45:30:25. Required: A. Prepare a schedule to show how available cash would be distributed to the partners after creditors are paid in full. State which partner would receive the first cash available and at what point and to what degree each of the remaining partners would participate in cash distributions. B. Cash of $30,000 is available to partners after the creditors have been paid in full. Prepare the general journal entry to record the distribution of $30,000. ASC Exercises PROBLEMS PROBLEM 16-1 Simple Liquidation LO 3 The Discount Partnership is being liquidated. The current balance sheet is shown here. A 988 % & 7 00* deve O 9 6 0 R P Y T Т. G F H K к < B N M

Answer 1

Solution A. Calculation of order of Cash distribution Particulars Net Capital Interest Profit loss ratio Loss absorption potential order of cash distribution Matt Allen Dave $54,000 $30,000 $18,000 0.45 0.3 0.25 $120,000 $100,000 $72,000 1 2 3 Cash Distribution Schedule Particulars Loss Absorption Potential Assets Distribution Matt Allen Dave Matt Allen Dave Profi loss ratio 0.45 0.3 0.25 0.45 0.3 0.25 Loss Absorption potential 120,000 100,000 72,000 Net capital interest 54,000 30,000 18,000 Distribution to Matt to reduce loss ptential to 20,000 9,000 Balance after distribution 100,000 100,000 72,000 45,000 30,000 18,000 Distribution to Matt and Allen to reduce loss 28,000 28,000 12,600 8,400 Reminder of assets distributed 72,000 72,000 72,000 32,400 21,600 18,000 0.45 0.3 0.25 Matt Allen Dave 0.3 0.25 0.45 Cash Distribution Plan Particulars order of cash distribution 1.First $18,000 2.Next $9,000 3.Next $21,000 4.Reminder Liabilities 100% 100% 60% 45% 40% 30% 25% B. Journal Entry Pariculars Matt Loan Matt Capital Allen's Capital To Cash Debit Credit 10,000 11,600 8,400 30,000 Distribution First 9000 to Matt Next 21,000 to Matt and Allen as 12,600 and 8,400 respectively