Question

On August 3, the firm of Chapelle, Rock, and Pryor decided to liquidate its partnership. The partners have capital balances of $60,000, $86,000, and $13,000, respectively. The cash balance is $24,000, the book values of noncash assets total $179,000, and liabilities total $44,000. The partners share income and losses in the ratio of 2:2:1.

Required:

1. Prepare a statement of partnership liquidation, covering the period August 3–29, for each of the following independent assumptions:

a. All of the noncash assets are sold for $242,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners. Enter any subtractions (balance deficiencies, payments, cash distributions, divisions of loss, sale of assets) as negative numbers using a minus sign. If there is no amount or an amount is zero, enter "0".

Chapelle, Rock, and Pryor Statement of Partnership Liquidation For Period August 3–29
	Cash	+	Noncash Assets	=	Liabilities	+	Capital Chapelle (2/5)		+	Capital Rock (2/5)		+	Capital Pryor (1/5)
Balances before realization	$		$		$		$			$			$
Sale of assets and division of gain
Balances after realization	$		$		$		$			$			$
Payment of liabilities
Balances after payment of liabilities	$		$		$		$			$			$
Cash distributed to partners
Final balances	$		$		$		$			$			$

b. All of the noncash assets are sold for $80,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners. Enter any subtractions (balance deficiencies, payments, cash distributions, divisions of loss, sale of assets) as negative numbers using a minus sign. If there is no amount or an amount is zero, enter "0".

Chapelle, Rock, and Pryor Statement of Partnership Liquidation For Period August 3–29
	Cash	+	Noncash Assets	=	Liabilities	+	Capital Chapelle (2/5)		+	Capital Rock (2/5)		+	Capital Pryor (1/5)
Balances before realization	$		$		$		$			$			$
Sale of assets and division of loss
Balances after realization	$		$		$		$			$			$
Payment of liabilities
Balances after payment of liabilities	$		$		$		$			$			$
Receipt of deficiency
Balances	$		$		$		$			$			$
Cash distributed to partners
Final balances	$		$		$		$			$			$

2. Assume the partner with the capital deficiency in part (b) declares bankruptcy and is unable to pay the deficiency.

a. Journalize the entry to allocate the partner's deficiency. For a compound transaction, if an amount box does not require an entry, leave it blank .

ACCOUNT	DEBIT	CREDIT

b. Journalize the entry to distribute the remaining cash. For a compound transaction, if an amount box does not require an entry, leave it blank.

ACCOUNT	DEBIT	CREDIT

Answer 1

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Part 1a
	Cash	Noncash Assets	=	Liabilities	+	Capital Chapelle (2/5)	+	Capital Rock (2/5)	+	Capital Pryor (1/5)
Balances before realization	$     24,000	$             179,000		$   44,000		$                            60,000		$                   86,000		$                     13,000
Sale of assets and division of gain	$   242,000	$           -179,000				$                            25,200		$                   25,200		$                     12,600
Balances after realization	$   266,000	$                         -		$   44,000		$                            85,200		$                 111,200		$                     25,600
Payment of liabilities	$   -44,000			$ -44,000
Balances after payment of liabilities	$   222,000	$                         -		$            -		$                            85,200		$                 111,200		$                     25,600
Cash distributed to partners	$ -222,000					$                           -85,200		$               -111,200		$                   -25,600
Final balances	$              -	$                         -		$            -		$                                      -		$                             -		$                              -
Part 1b
	Cash	Noncash Assets	=	Liabilities	+	Capital Chapelle (2/5)	+	Capital Rock (2/5)	+	Capital Pryor (1/5)
Balances before realization	$     24,000	$             179,000		$   44,000		$                            60,000		$                   86,000		$                     13,000
Sale of assets and division of gain	$     80,000	$           -179,000				$                           -39,600		$                  -39,600		$                   -19,800
Balances after realization	$   104,000	$                         -		$   44,000		$                            20,400		$                   46,400		$                      -6,800
Payment of liabilities	$   -44,000			$ -44,000
Balances after payment of liabilities	$     60,000	$                         -		$            -		$                            20,400		$                   46,400		$                      -6,800
Receipt of Deficiency	$       6,800									$                       6,800
Balance	$     66,800	$                         -		$            -		$                            20,400		$                   46,400		$                              -
Cash distributed to partners	$   -66,800					$                           -20,400		$                  -46,400		$                              -
Final balances	$     66,800	$                         -		$            -		$                                      -		$                             -		$                              -
Part 2
	Debit	Credit
Capital Chapelle	$       3,400
Capital Rock	$       3,400
Capital Pryor		$                  6,800
Capital Chapelle	$     17,000
Capital Rock	$     43,000
Cash		$               60,000