Question

On November 1, 2016, the firm of Sails, Welch, and Greenberg decided to liquidate their partnership. The partners have capital balances of $58,200, $72,490, and $9,940, respectively. The cash balance is $31,570, the book values of noncash assets total $128,990, and liabilities total $19,930. The partners share income and losses in the ratio of 2:2:1. Required: 1. Prepare a statement of partnership liquidation, covering the period November 1–30, 2016, for each of the following independent assumptions: a. All of the noncash assets are sold for $156,990 in cash, the creditors are paid, and the remaining cash is distributed to the partners.* b. All of the noncash assets are sold for $55,890 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.* * Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for sale of assets, payment of liabilities, receipt of deficiency, or cash distribution rows, the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0". 2. Assume the partner with the capital deficiency in part (b) declares bankruptcy and is unable to pay the deficiency. Journalize the entries on Nov. 30 to (a) allocate the partner’s deficiency and (b) distribute the remaining cash. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Assumption *a

Statement of Partnership Liquidation for Period November 1-30, 2016

	Cash	Non Cash Assets	Liablities	Sails	Welch	Greenberg
Balances before Realization	$31,570	$128,990	$19,930	$58,200	$72,490	$9,940
Sale of Assets and Division of Gain	+$1,56,990	-$128,990		+$11,200	+$11,200	+$5,600
Balances After Realization	$188,560	$0	$19,930	$69,400	$83,690	$15,540
Payment of Liablities	-$19,930		-$19,930
Balances after payment of Liabilities	$168,630	$0	$0	$69,400	$83,690	$15,540
Cash Distributed to partners	-$168,630			-$69,400	-$83,690	-$15,540
Final Balances	$0	$0	$0	$0	$0	$0

1. entry on the sale of non cash assets

Account	Debit	Credit
Cash	$156,990
Non Cash Assets		$128,990
Gain on Realization		$28,000

2. Entry for allocation of gain on liquidation

Account	Debit	Credit
Gain on Realization	$28,000
Sails Capital		$11,200
Welch Capital		$11,200
Greenberg Capital		$5,600

3. Payment of Liabilities

Account	Debit	Credit
Liabilities	$19,930
Cash		$19,930

4. Distribution of the remaining cash to the each partner using their capital ratio

Account	Debit	Credit
Sails Capital	$69,400
Welch Capital	$83,690
Greenberg Capital	$15,540
Cash		$168,630

Assumption *b

Statement of Partnership Liquidation for Period November 1-30, 2016

	Cash	Non Cash Assets	Liablities	Sails	Welch	Greenberg
Balances before Realization	$31,570	$128,990	$19,930	$58,200	$72,490	$9,940
Sale of Assets and Division of Gain	+$55,890	-$128,990		-$29240	-$29240	-$14,620
Balances After Realization	$87,460	$0	$19,930	$28960	$43250	-$4,680
Payment of Liablities	-$19,930		-$19,930
Balances after payment of Liabilities	$67,530	$0	$0	$28960	$43250	-$4,680
Receipt of Deficiency	+$4,680					+$4,680
Balances	$72,210	$0	$0	$28960	$43250	$0
Cash Distributed to partners	-$72,210			-$28960	-$43250	$0
Final Balances	$0	$0	$0	$0	$0	$0

1. entry on the sale of non cash assets

Account	Debit	Credit
Cash	$55,890
Loss on Realization	$73,100
Non Cash Assets		$128,990

2. Entry for Division of loss on liquidation

Account	Debit	Credit
Sails Capital	$29,240
Welch Capital	$29,240
Greenberg Capital	$14,620
Loss on Realization		$73,100

3. Payment of Liabilities

Account	Debit	Credit
Liabilities	$19,930
Cash		$19,930

4. Entry for Allocation of Deficiency

Account	Debit	Credit
Sails Capital	$2,340
Welch Capital	$2,340
Greenberg Capital		$4,680

5. Reciept of Deficiency

Account	Debit	Credit
Cash	$4,680
Greenberg Capital		$4,680

6.Distribution of the remaining cash to the each partner using their capital ratio after deficiency

Account	Debit	Credit
Sails Capital	$28,960
Welch Capital	$43,250
Cash		$72,210