Question

The partnership of Butler, Osman, and Ward was formed several years as a local tax preparation firm. Two partners have reached retirement age and the partners have decided to terminate operations and liquidate the business. Liquidation expenses of $38,000 are expected. The partnership balance sheet at the start of liquidation is as follows:

Cash	$	34,000		Liabilities	$	174,000
Accounts receivable		64,000		Butler, loan		34,000
Office equipment (net)		54,000		Butler, capital (25%)		70,000
Building (net)		130,000		Osman, capital (25%)		34,000
Land		120,000		Ward, capital (50%)		90,000
Total assets	$	402,000		Total liabilities and capital	$	402,000

Prepare a predistribution plan for this partnership. -Done

Butler, Loan and Capital Osman, Capital Ward, Capital Beginning balances $104,000 $34,000 $90,000 Loss (34,000) (34,000) (68,000) Step one balances $70,000 $0 $22,000 Loss (11,000) 0 (22,000) Step two balances $59,000 $0 $0 The following transactions transpire in chronological order during the liquidation of the partnership: 1.)Collected 90 percent of the accounts receivable and wrote the remainder off as uncollectible. 2.)Sold the office equipment for $22,000, the building for $94,000, and the land for $136,000. 3.)Made safe capital distributions. 4.)Paid all liabilities in full. 5.)Paid actual liquidation expenses of $32,000 only. 6.) Made final cash distributions to the partners. Prepare journal entries to record these liquidation transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1.

BUTLER, OSMAN AND WARD
Statement of Partnership Liquidation
Event	Transaction	Cash	Acounts Receivable	Office Equipmet	Building	Land	Liabilities	Butler, Loan	Butler, capital 25%	Osman, capital 25%	Ward, capital 50%
													Beginning Balances	34000	64000	54000	130000	120000	174000	34000	70000	34000	90000
1	Colection of Accounts Receivable	57600	-64000						-1600	-1600	-3200
	Updated balances	91600	0	54000	130000	120000	174000	34000	68400	32400	86800
2	Non-cash assets sold	252000		-54000	-130000	-120000			-13000	-13000	-26000
	Updated balances	343600					174000	34000	55400	19400	60800
3	Distribution of safe cash	-97600							-24400	-24400	-48800
	Updated balances	246000					174000	34000	31000	-5000	12000
4	Payment of liabilities	-208000					-174000	-34000
	Updated balances	38000					0	0	31000	-5000	12000
5	Lquidation Expenses	-32000							-8000	-8000	-16000
	Updated balances	6000					0	0	23000	-13000	-4000
6	Final distribution	-6000							-23000	13000	4000
	Updated balances	0					0	0	0	0	0
1. Los on accounts receivable of $6,400 (10% of $64,000) distributed to the partners as $16,00, $1,600 and $3,200.
2. Los on sale of non-cash assets of $52,000 ($54,000+$130,000+$120,000 - $22,000 - $94,000 - $136,000) distributed to the partners as $13,000, $13,000 and $26,000
3. safe Cash = $343,600 - $174,000 - $34,000 - $38,000 = $97,600 distributed as $24,400, $24,400 and $48,800.

BUTLER, OSMAN AND WARD
Journal entries for liquidation
Event	Account title	Debit	Credit
1.a.	Cash	57600
	Loss on accounts receivables	6400
	Accounts Receivable		64000
	(Acounts receivable recovered upto 90%)
1.b.	Butler, Capital	1600
	Osman, Capital	1600
	Ward, Capital	3200
	Loss on accounts receivables		6400
	(Loss on accounts receivable distributed)
2.a.	Cash	252000
	Loss on sale of non-cash assets	52000
	Office Equipment		54000
	Building		130000
	Land		120000
	(Sale of non cash assets )
2.b.	Butler, Capital	13000
	Osman, Capital	13000
	Ward, Capital	26000
	Loss on sale of non-cash assets		52000
	(Loss on sale of assets distributed)
3	Butler, Capital	24400
	Osman, Capital	24400
	Ward, Capital	48800
	Cash		97600
	(Distribution of safe cash)
4	Butler , Loan	34000
	Liabilities	174000
	Cash		208000
	(Payment of liabilities)
5	Butler, Capital	8000
	Osman, Capital	8000
	Ward, Capital	16000
	Cash		32000
	(Payment of liquidation expenses)
6	Butler, Capital	23000
	Osman, Capital		13000
	Ward, Capital		4000
	Cash		6000
	(Final distribution of cash)