Question

Please use the following template to record answes to questions below

FRICK, WILSON, AND CLARKE

Schedule of Partnership Liquidation

Final Balances

Beginning Balances:

Cash $60,000

Noncash Assets $219,000

Liabilities $40,000

Frick, Capital (60%) $129,000

Wilson, Capital (20%) $35,000

Clarke, Capital (20%) $75,000

Distribution of $4,000 (cash in excess of liabilities and estimated liquidation expenses) in accordance with pre-distribution plan

Updated balances

Noncash assets sold

Updated balances

All liabilities are paid

Updated balances

Distribution of $48,000 (cash in excess of liabilities and estimated liquidation expenses) in accordance with pre-distribution plan

First distribution

                        Next

                        Next

Updated balances    

Noncash assets sold

Updated balances

Paid liquidation expenses

Updated balances

Final distribution based on ending capital account balances

Ending balance                                         $-0-          $-0-                   $-0-                   $-0-                     $-0-        $-0

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. Use template that follows to record your answers:

Answer 1

Part A Prepare a predistribution plan for this partnership.

	Cash Priority Schedule			Cash Payment to partner
	Flick Capital	Wilson Capital	Clarke capital	Flick Capital	Wilson Capital	Clarke capital
Profit Sharing ratio	60%	20%	20%	60%	20%	20%
Capital balance	129000	35000	75000
Loss absorption balance (Capital balance / Profit sharing ratio)	215000	175000	375000
Priority 1
Highest loss absorption balance is 375000 with the next highest of 215000			-160000			32000
Balance	215000	175000	215000
Priority 2
The loss absorption balance of 215000 are bought to the equity with the remaining loss absorption balance of 175000	-40000		-40000	24000		8000
Balance	175000	175000	175000

Cash to be distributed in accordance with the profit and loss of partner

The partner who has the biggest loss absorption balance. As a rule, the most invaluable partner has 1st priority to receive cash among all the partner.

The difference after being the loss absorption balance to equity minus that of the next highest is multiplied by the corresponding partners profit and loss ratio to arrive at the cash balance. Part B. Produce a final statement of liquidation for this partnership using the predistribution plan to determine payments of cash to partners based on safe capital balance Liquidation of partnership - Summary allocation Cash Non Cash Liability Liquidation exp Flick Capital Wilson Capital Clarke capital Opening balance 60000 219000 -40000 -6000 129000 35000 75000 Sell non cash 111000 -219000 -64800 -21600 -21600 Pay liability -40000 40000 Pay liquidation exp -6000 0 6000 -3600 -1200 -1200 Remaining cash -125000 -60600 -12200 -52200 Total 0 0 0 0 0 0 0

Cash Payment to Partner
	Flick Capital	Wilson Capital	Clarke capital
As per proriety 1			32000
As per proriety 2	21000		7000
As per proriety 3	12000	4000	4000
As per proriety 4*	27600	8200	9200
Cash to be distributed	60600	12200	52200
*Cash Can be maximum to the amount of capital invested reduced by the loss

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

	Journal Entries
	Account	Debit	Credit
1	Clarke capital	32000
	Cash		32000
1	Flick Capital	21000
	Clarke capital	7000
	Cash		28000
2	Cash	60000
	Non Cash asset		94000
	Loss on sale	34000
3	Liability	40000
	Cash		40000
4	Flick Capital	12000
	Wilson Capital	4000
	Clarke capital	4000
	Cash		20000
5	Cash	51000
	Non Cash asset		125000
	Loss on sale	74000
6	Liquidation exp	6000
	Cash		6000
7	Flick Capital	27600
	Wilson Capital	8200
	Clarke capital	9200
	Cash		45000