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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  60,000
Noncash assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	219,000
Total assets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 279,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$  40,000
Frick, capital (60%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	129,000
Wilson, capital (20%)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35,000
Clarke, capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	75,000
Total liabilities and capital? . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 279,000

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 $8,000 are estimated as a basis for this computation.

2.Sold noncash assets with a book value of $94,000 for $60,000.

3.Paid all liabilities.

4.Distributed cash based on safe capital balances again.

5.Sold remaining noncash assets for $51,000.

6.Paid actual liquidation expenses of $6,000 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.

Part C

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

Answer 1

Part A	Predistribution Plan
		Cash	Non cash asset	Liability	Frick Capital	Wilson Capital	Clarke Capital
		$        60,000.00	$      219,000.00	$ (40,000.00)	$   (129,000.00)	$    (35,000.00)	$    (75,000.00)
	Loss of 219000 distributed in Profit sharing ratio (60:20:20)	$                       -	$   (219,000.00)	$                   -	$     131,400.00	$      43,800.00	$      43,800.00
	Balances after distribution of losses	$        60,000.00	$                       -	$ (40,000.00)	$          2,400.00	$        8,800.00	$    (31,200.00)
	Payment of Liabilities	$      (40,000.00)	$                       -	$   40,000.00	$                       -	$                     -	$                     -
	Balances after paying liabilities	$        20,000.00	$                       -	$                   -	$          2,400.00	$        8,800.00	$    (31,200.00)
	Distributing Negative balances of partners	$                       -	$                       -	$                   -	$       (2,400.00)	$      (8,800.00)	$      11,200.00
	Balances after Adjusting partners Negative Balances	$        20,000.00	$                       -	$                   -	$                       -	$                     -	$    (20,000.00)
	Payment to Partners having Debit Banalce	$      (20,000.00)	$                       -	$                   -	$                       -	$                     -	$      20,000.00
	Balances after paying Clarke	$                       -	$                       -	$                   -	$                       -	$                     -	$                     -
	Notes-
	1) It will be assumed that non cash asset is not sold and will be taken as a loss, this loss is distributed to Partners in their Profit sharing ratio
	2) First Liabilities will be paid and then partners will be paid if any cash is left
	3) Only Clarke is paid since other partners have negative capital balances.
Part B	Predistribution Plan
		Cash	Non cash asset	Liability	Frick Capital	Wilson Capital	Clarke Capital
		$        60,000.00	$      219,000.00	$ (40,000.00)	$   (129,000.00)	$    (35,000.00)	$    (75,000.00)
	Distribution of Liquidation expenses (8000) into Partners Capital accounts				$          4,800.00	$        1,600.00	$        1,600.00
	Distribution of Loss on sale of asset (94000-60000) And Receipt of cash of 60000	$        60,000.00	$      (94,000.00)		$       20,400.00	$        6,800.00	$        6,800.00
	Payment of Liabilities	$      (40,000.00)		$   40,000.00
	Distribution of Loss on Other Non cash Assets (219000-94000)=125000		$   (125,000.00)		$       75,000.00	$      25,000.00	$      25,000.00
	Balances	$        80,000.00	$                       -	$                   -	$     (28,800.00)	$      (1,600.00)	$    (41,600.00)
	Distribution to Partners	$      (72,000.00)			$       28,800.00	$        1,600.00	$      41,600.00
	Distribution of remaining 8000 in Profit sharing Ratio	$        (8,000.00)			4800	1600	1600
	Sale of assets	$        51,000.00
	Payment made for Liquidation Expenses	$        (6,000.00)
	Cash left to be paid to Partners paid in Profit sharing ratio	$        45,000.00			$     (27,000.00)	$      (9,000.00)	$      (9,000.00)
Part C	Journal Entries( For Part A)
		Dr	Cr
	Frick Capital	131400
	Wilson Capital	43800
	Clarke Capital	43800
	To Loss		219000
	(Being Loss distributed to partners capital Account)
	Liabilities Account	40000
	To Cash		40000
	(being Liabilities Paid)
	Clarke Capital	11200
	To Frick Capital		2400
	To Wilson Capital		8800
	(Being Negative Capital of Frick and wilson adjusted with Clarke capital)
	Clarke Capital	20000
	To Cash		20000
	(being cash paid to Clarke)
	Journal Entries( For Part B)	Dr	Cr
	Cash Account	60000
	Loss on sale os assets	34000
	To non cash assets		94000
	(being Non Cash Assets Sold)
	Frick Capital	$        20,400.00
	Wilson Capital	$          6,800.00
	Clarke Capital	$          6,800.00
	To loss on sale of assets		34000
	(being loss Transferred to Capital Accounts)
	Frick Capital	$        75,000.00
	Wilson Capital	$        25,000.00
	Clarke Capital	$        25,000.00
	To loss on sale of assets		125000
	(being loss of other Non cash Assets Transferred to Capital Accounts)
	Liabilities account	40000
	To cash		40000
	(being Liabilities Paid)
	Frick Capital	4800
	Wilson Capital	1600
	Clarke Capital	1600
	To loss on sale of assets		8000
	(being Liquidation Expenses Transferred to Capital Accounts)
	Liquidation Expenses	6000
	To Cash		6000
	(being Liquidation Expenses Paid)
	Frick Capital	$        33,600.00
	Wilson Capital	$          3,200.00
	Clarke Capital	$        43,200.00
	To Cash		80000
	(Being payment made)
	Cash	51000
	Profit on sale of assets		51000
	(Being Non Cash Assets sold)
	Frick Capital	$        27,000.00
	Wilson Capital	$          9,000.00
	Clarke Capital	$          9,000.00
	To Cash		45000
	(Being Final Payment Made payment made)