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	$	66,000		Liabilities	$	46,000
Noncash assets		231,000		Frick, capital (60%)		135,000
				Wilson, capital (20%)		37,000
				Clarke, capital (20%)		79,000
Total assets	$	297,000		Total liabilities and capital	$	297,000

Part A

Prepare a predistribution plan for this partnership

Part B

The following transactions occur in liquidating this business:

Distributed cash based on safe capital balances immediately to the partners. Liquidation expenses of $10,000 are estimated as a basis for this computation.

Sold noncash assets with a book value of $98,000 for $66,000.

Paid all liabilities.

Distributed cash based on safe capital balances again.

Sold remaining noncash assets for $53,000.

Paid actual liquidation expenses of $8,000 only.

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.

Part C

Prepare journal entries to record the liquidation transactions reflected in the final statement of liquidation.

Answer 1

Part A) Pre Distribution Plan;
Total Assets				$      297,000.00
Less: Liabilities				$        46,000.00
Assets available for distribution				$      251,000.00
Capital Sharing Ratio
Frick	$       0.60			$      150,600.00
Wilson	$       0.20			$        50,200.00
Clarke	$       0.20			$        50,200.00
Part B
Step 1: Distribute cash based on capital
								Balance unpaid
Frick		$ 135,000.00	$        35,498.00	$        99,502.00	$           5,378.00	$        94,124.00	$ 71,534.00	$ 22,590.00
Wilson		$    37,000.00	$           9,729.00	$        27,271.00	$           1,474.00	$        25,797.00	$ 19,606.00	$    6,191.00
Clarke		$    79,000.00	$        20,773.00	$        58,227.00	$           3,148.00	$        55,079.00	$ 41,860.00	$ 13,219.00
Total		$ 251,000.00		$      185,000.00		$      175,000.00
Cash		$    66,000.00
Non Cash Assets			$        66,000.00
Less: Liabilities			$        46,000.00
Less: Liquidation Exp			$        10,000.00
Balance Cash			$        10,000.00	(Distributed)
Remaining net assets			$      133,000.00
Part C
Entries
Liquidation A/c Dr.			$      231,000.00
To Fixed Assets				$      231,000.00
Liquidation A/c Dr.			$        66,000.00
To Cash				$        66,000.00
Liabilities A/c Dr.			$        46,000.00
To Liquidation A/c				$        46,000.00
Frick Capital A/c Dr.			$      135,000.00
Wilson Capital A/c Dr.			$        37,000.00
Clarke Capital A/c Dr.			$        79,000.00
To Liuidation A/c				$      251,000.00