BUSINESS

(4)

 

The following balance sheet is for a local partnership in which the partners have become very unhappy with each other.

 

Cash. . . . . . . . . . . . . . . . . . $ 40,000            Liabilities . . . . . . . . . . . . . . . . . . . $ 30,000

Land. . . . . . . . . . . . . . . . . . 130,000             Adams, capital . . . . . . . . . . . . . . 80,000

Building . . . . . . . . . . . . . . . 120,000             Baker, capital. . . . . . . . . . . . . . . . 30,000

Carvil, capital . . . . . . . . .  . 60,000

Dobbs, capital . . . . . . . .   . 90,000

Total assets . . . . . . . . .  . . $290,000           Total liabilities and capital . . . . $290,000

 

To avoid more conflict, the partners have decided to cease operations and sell all assets. Using this information, answer the following questions. Each question should be viewed as an independent situation related to the partnership’s liquidation.

 

a. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 2:3:3:2 basis, respectively, how will the $10,000 be divided?

b. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated on a 2:2:3:3 basis, respectively, how will the $10,000 be divided?

c. The building is immediately sold for $70,000 to give total cash of $110,000. The liabilities are then paid, leaving cash balance of $80,000. This cash is to be distributed to the partners. How much of this money will each partner receive if profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:3:3 basis, respectively?

d. Assume that profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:4:2 basis, respectively. How much money must the firm receive from selling the land and building to ensure that Carvil receives a portion?

 

(5)

 

March, April, and May have been in partnership for a number of years. The partners allocate all profits and losses on a 2:3:1 basis, respectively. Recently, each partner has become personally insolvent and, thus, the partners have decided to liquidate the business in hopes of remedying their personal financial problems. As of September 1, the partnership’s balance sheet is as follows:

 

Cash. . . . . . . . . . . . . . . . . . $ 11,000            Liabilities . . . . . . . . . . . . . . . . . . . $ 61,000

Accounts receivable . . . . . . 84,000           March, capital . . . . . . . . . . . . . . . 25,000

Inventory . . . . . . . . . . . . . . 74,000             April, capital . . . . . . . . . . . . . . . . 75,000

Land, building, and                                          May, capital . . . . . . . . . . . . . . . . . 46,000

Equipment (net) . . . . . . . . 38,000              Total liabilities and capital . . . . . $207,000

Total assets . . . . . . . . . . . $207,000

 

Prepare journal entries for the following transactions:

a. Sold all inventory for $56,000 cash.

b. Paid $7,500 in liquidation expenses.

c. Paid $40,000 of the partnership’s liabilities.

d. Collected $45,000 of the accounts receivable.

e. Distributed safe cash balances; the partners anticipate no further liquidation expenses.

f. Sold remaining accounts receivable for 30 percent of face value.

g. Sold land, building, and equipment for $17,000.

h. Paid all remaining liabilities of the partnership.

i. Distributed cash held by the business to the partners.

 

 

(6)

 

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. . . . . . . . . . . . . . . . . . $ 48,000            Liabilities . . . . . . . . . . . . . . . . . . . $ 35,000

Noncash assets . . . . . . . . . . 177,000         Frick, capital (60%) . . . . . . . . . . . 101,000

Wilson, capital (20%) . . . . . 28,000

Clarke, capital (20%). . . . . . 61,000

Total assets . . . . . . . . . . .   $225,000          Total liabilities and capital . . . . $225,000

 

 

The following transactions occur in liquidating this business:

• Distributed safe capital balances immediately to the partners. Liquidation expenses of $9,000 are estimated as a basis for this computation.

• Sold noncash assets with a book value of $80,000 for $48,000.

• Paid all liabilities.

• Distributed safe capital balances again.

• Sold remaining noncash assets for $44,000.

• Paid liquidation expenses of $7,000.

• Distributed remaining cash to the partners and closed the financial records of the business permanently.

 

 

Produce a final schedule of liquidation for this partnership.

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