Question

In: Accounting

Part A The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as...

Part A

The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as a local architectural firm. Several partners have recently undergone personal financial problems and have decided to terminate operations and liquidate the business. The following balance sheet is drawn up as a guideline for this process:

Cash

$

61,000

Liabilities

$

47,000

Accounts receivable

128,000

Rodgers, loan

81,000

Inventory

147,000

Wingler, capital (30%)

189,000

Land

108,000

Norris, capital (10%)

134,000

Building and equipment (net)

191,000

Rodgers, capital (20%)

97,000

Guthrie, capital (40%)

87,000

Total assets

$

635,000

Total liabilities and capital

$

635,000

  

When the liquidation commenced, liquidation expenses of $26,000 were anticipated as being necessary to dispose of all property.

Prepare a predistribution plan for this partnership.

Part B

The following transactions transpire during the liquidation of the Wingler, Norris, Rodgers, and Guthrie partnership:

  1. Collected 80 percent of the total accounts receivable with the rest judged to be uncollectible.
  2. Sold the land, building, and equipment for $173,000.
  3. Made safe capital distributions.
  4. Learned that Guthrie, who has become personally insolvent, will make no further contributions.
  5. Paid all liabilities.
  6. Sold all inventory for $78,000.
  7. Made safe capital distributions again.
  8. Paid actual liquidation expenses of $17,000 only.
  9. Made final cash disbursements to the partners based on the assumption that all partners other than Guthrie are personally solvent.

Prepare journal entries to record these liquidation transactions.

Solutions

Expert Solution

Part A
Wingler, Norris, Rodgers, and Guthrie
Statement of Partnership Liquidation
Partner's Capital
Wingler Capital(30%) Norris Capital(10%) Rodgers Loan and Capital(20%) Guthrie Capital(40%)
Opening Balance $            189,000.00 $          134,000.00 $         178,000.00 $      87,000.00
Loss of $217500 assumed (allocated on a 30:10:20:40)(SCHEDULE-1) $            (65,250.00) $          (21,750.00) $         (43,500.00) $    (87,000.00)
Step one Balance $            123,750.00 $          112,250.00 $         134,500.00 $                      -  
Loss of $247500 assumed (allocated on a 30:10:20)SCHEDULE-2) $          (123,750.00) $          (41,250.00) $         (82,500.00) $                      -  
Step Two Balance $                              -   $             71,000.00 $           52,000.00 $                      -  
Loss of $78000 assumed (allocated on a 10:20)SCHEDULE-3) $          (26,000.00) $         (52,000.00)
Step Three Balance $                              -   $             45,000.00 $                          -   $                      -  
Payment of all liabilities and liquidation expenses must be assured
Next $45000 goes entirely to norris
Next 78000 is allocated to norris(10/30)and rodgers(20/30))
Next247500 is allocated to wingler (30/60 ,norris(10/60)and rodgers(20/60))
Any further cash distribution are divided on the original profit and loss ratio
Wingler (30%),Norris(10%),Guthrie (40%)
,Rodgers (20%)
Schedule 1
Partner capital balance/loss allocation Max loss that can be absporbed
Wingler 189000/30% $          630,000.00
Norris 134000/10% $       1,340,000.00
Rodgers 178000/20% $          890,000.00
Guthrie 87000/40% $          217,500.00 Most vulnerable to cash
Schedule 2
Partner capital balance/loss allocation Max loss that can be absporbed
Wingler 123750/(30/60)   $          247,500.00 Most vulnerable to cash
Norris 112250/(10/60) $          673,500.00
Rodgers 134500/(20/60) $          403,500.00
Schedule 3
Partner capital balance/loss allocation Max loss that can be absporbed
Norris 71000/(10/30) $          213,000.00
Rodgers 52000/(20/30) $             78,000.00 Most vulnerable to cash

PART B

Journal Entries -
Date Particulars Debit Credit
1 Cash $102,400.00
Wingler Capital $7,680.00
Norris Capital $2,560.00
Rodgers Loan and Capital $5,120.00
Guthrie Capital $10,240.00
Accounts Receivable $128,000.00
(Receivable are collected with losses allocated to partner
2 Cash $173,000.00
Wingler Capital $37,800.00
Norris Capital $12,600.00
Rodgers Loan and Capital $25,200.00
Guthrie Capital $50,400.00
Land ,building & Equipment $299,000.00
(Land ,building & Equipmente are sold with losses allocated to partner
3 Wingler Capital $70,200.00
Norris Capital $94,400.00
Rodgers Loan $81,000.00
Rodgers Capital $17,800.00
Cash(note-1) $263,400.00
(To Distribute safe capital balance )
4 No journal entries Guthrie, who has become personally insolvent
5 Liability $47,000.00
cash $47,000.00
(To Paid Liability)
6 Cash $78,000.00
Wingler Capital $34,500.00
Norris Capital $11,500.00
Rodgers Loan and Capital $23,000.00
Inventory $147,000.00

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