Question

The partnership of Frick, Wilson, and Clarke has elected to cease all operations and liquidate its business property. A balance sheet drawn up at this time shows the following account balances:

Cash	$ 51,000		Liabilities	$ 37,000
Noncash assets	183,000		Frick, capital (60%)	105,000
			Wilson, capital (20%)	29,000
			Clarke, capital (20%)	63,000
Total assets	$234,000		Total liabilities and capital	$234,000

Part A

Prepare a predistribution plan for this partnership

Part B

The following transactions occur in liquidating this business:

1.	Distributed cash based on safe capital balances immediately to the partners. Liquidation expenses of $10,000 are estimated as a basis for this computation.
2.	Sold noncash assets with a book value of $82,000 for $51,000.
3.	Paid all liabilities.
4.	Distributed cash based on safe capital balances again.
5.	Sold remaining noncash assets for $45,000.
6.	Paid actual liquidation expenses of $8,000 only.
7.	Distributed remaining cash to the partners and closed the financial records of the business permanently.

  

Produce a final statement of liquidation for this partnership using the predistribution plan to determine payments of cash to partners based on safe capital balances. (Do not round intermediate calculations.)

Part C

Prepare journal entries to record the liquidation transactions reflected in the final statement of liquidation. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

A) PREPARE PREDISTRIBUTION PLAN FOR THIS PARTNERSHIP.

   capital balances

	cash	non cash assets	liabilities	frick 60%	wilson 20%	clarke 20%
account balances	51,000	1,83,000	(37,000)	(1,05,000)	(29,000)	(63,000)
LOSS OF 183000 distributed in profit sharing ratio for partners		(183,000)		109800	36,600	36,600
balance before distribution of losses	51000	0	(37000)	4800	7600	(26,400)
payment of liabilities	(37000)		37000
balance after paying liabilities	14000	0	0	4800	7600	(26,400)
distributing negative cash of partners	14000	0	0	(4800)	(7600)	12400
balance	14000	0	0	0	0	(14000)
payment to partners having debit balnce	14000	0	0	0	0	14000
balance	0	0	0	0	0	0

  

b) PRODUCE FINAL STATMENT OF LIQUIDATION FOR THE PARTNERSHIP USING PREDISTRIBUTION PLAN.

   capital balances

	cash	non cash assets	liabilities	frick 60%	wilson 20%	clarke 20%
account balances	51,000	1,83,000	(37,000)	(1,05,000)	(29,000)	(63,000)
distribution of loss on sale of asset (82,000-51000)	51000	(82000)		18600	6200	6200
balance	102000	1,01,000	(37000)	(86400)	(22,800)	(56,800)
payment of liabilities	(37000)		37000
balance	65000	1,01,000	0	(86,400)	(22,800)	(56,800)
distribution of cash	(65000)			39000	13000	13000
balance	0	1,01,000		(47,400)	(9800)	(43800)
distribution of loss on sale of remaining non cash asset (1,01,000-45000)	45000	(1,01,000)		33600	11200	11200
balance	45000	0		(13,800)	1400	(32600)
payment of liquidation expenses	(8000)			4800	1600	1600
balance	37000			(9000)	3000	(31000)
distribution of negative balance				1500	(3000)	1500
balance	37000			(7500)	0	(29500)
cash left is paid to partners in profit sharing ratio	(37000)			7500		29500

c) JOURNAL ENTRIES TO RECORD LIQUIDATION TRANSACTIONS.

	DEBIT	CREDIT
CASH A/C LOSS ON SALE    TO NON CASH ASSET A/C (SALE OF NON CASH ASSET)	51000 31000	82000
FRICK CAPITAL A/C    DR WILSON CAPITAL A/C DR CLARKE CAPITAL A/C DR    TO LOSS (BEING LOSS ON SALE OF ASSET DISTRIBUTED TO PARTNERS)	18,600 6200 6200	31000
LIABILITIES A/C DR TO CASH A/C (BEING PAYMENT OF LIABILITIES)	37000	37000
FRICK CAPITAL A/C    DR WILSON CAPITAL A/C DR CLARKE CAPITAL A/C DR    TO CASH (BEING PAYMENT OF CASH TO PARTNERS)	39000 13000 13000	65000
CASH A/C LOSS ON SALE    TO NON CASH ASSET A/C (SALE OF NON CASH ASSET)	45000 56000	101000
FRICK CAPITAL A/C    DR WILSON CAPITAL A/C DR CLARKE CAPITAL A/C DR    TO LOSS (BEING DISTRIBUTE LOSS ON SALE OF NON CASH ASSET)	33600 11200 11200	56000
LIQUIDATION EXPENSE A/C    TO FRICK A/C    TO WILSON A/C    TO CLARKE A/C (BEING LIQUIDATION EXPENSE PAID)	4800 1600 1600	8000
FRICK CAPITAL A/C    DR CLARKE CAPITAL A/C DR    TO WILSON A/C ( BEING NEGATIVE AMOUNT DISTRIBUTED)	1500 1500	3000
FRICK CAPITAL A/C    DR CLARKE CAPITAL A/C DR    TO CASH CASH PAID TO PARTENERS	7500 29500	37000