Question

Hardin, Sutton, and Williams have operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy Williams' creditors, the partnership has decided to liquidate. The following balance sheet has been produced: 20 Points) 4 Cash Noncash assets 10,000 227,000 Liabilities Hardin, capital Sutton, capital Williams, capital Total liabilities and capital $ 80,000 96,000 45,000 16.000 S 237000 Total assets $ 237,000 During the liquidation process, the following transactions take place: Noncash assets are sold for $116,000. Liquidation expenses of $12,000 are paid. No further expenses are expected Safe capital distributions are made to the partners Payment is made of all business liabilities Any deficit capital balances are deemed to be uncollectible. Required a. Compute safe cash payments after the noncash assets have been sold and the liquidation expenses have been paid. (Show your work) b. Prepare the journal entries for the following transactions: 1) The journal to record the sale of the non-cash assets for $116,000 cash 2) The journal to record the payment of the liquidation expenses for $12,000 3) The journal to record the payment of the liabilities 4) The journal to record the distribution of the capital loss of Williams 5) The journal to record the distribution of the safe payments

Answer 1

Requirement a: Compute safe cash payments as follows:
Particulars	Partner H	Partner S	Partner W
Capital balances - Beginning	$96,000	$45,000	$16,000
Less: Liquidation expenses
Partner H ($12,000 × 3 ÷ 6)	($6,000)
Partner S ($12,000 × 2 ÷ 6)		($4,000)
Partner W ($12,000 × 1 ÷ 6)			($2,000)
Less: Loss on sale of assets $111,000 ($227,000 − $116,000)
Partner H ($111,000 × 3 ÷ 6)	($55,500)
Partner S ($111,000 × 2 ÷ 6)		($37,000)
Partner W ($111,000 × 1 ÷ 6)			($18,500)
Capital balances after adjusting for expenses and losses	$34,500	$4,000	($4,500)
Less: Partner W deficit balance apportioned
Partner H ($4,500 × 3 ÷ 5)	($2,700)		$2,700
Partner S ($4,500 × 2 ÷ 5)		($1,800)	$1,800
Safe cash payments	$31,800	$2,200	$0

Requirement b: Prepare journal entries as follows
Item	Account Title and Explanation	Debit	Credit
1	Cash	$116,000
	Capital -Partner H	$55,500
	Capital -Partner S	$37,000
	Capital -Partner W	$18,500
	Noncash assets		$227,000
	To record sale of noncash assets and allocation of loss on sale
2	Capital -Partner H	$6,000
	Capital -Partner S	$4,000
	Capital -Partner W	$2,000
	Cash		$12,000
	To record liquidation expenses
3	Liabilities	$80,000
	Cash		$80,000
	To record payment of liabilities
4	Capital -Partner H	$2,700
	Capital -Partner S	$1,800
	Capital -Partner W		$4,500
	To record distribution of the capital loss of Partner W
5	Capital -Partner H	$31,800
	Capital -Partner S	$2,200
	Cash		$34,000
	To record distribution of safe payments