Instructions
1. Prepare a statement of partnership liquidation, covering the period November 1–30 2014, for each of the following independent assumptions:
a. All of the noncash assets are sold for $156,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners.
b. All of the noncash assets are sold for $55,000 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.
2. Assume the partner with the capital deficiency in part (b) above declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.
Answer:
1. a.
SAILS, WELCH, AND GREENBERG
Statement of Partnership Liquidation
For Period November 1–30, 2014
Noncash
Capital
Sails Welch Greenberg
Cash + Assets = Liabilities + (2/5) + (2/5) + (1/5)
Balances before realization $ 32,000 $128,000 $20,000 $58,000 $72,000 $10,000
Sale of assets and division of gain +156,000 –128,000 — +11,200 +11,200 +5,600
Balances after realization $188,000 $ 0 $20,000 $69,200 $83,200 $15,600
Payment of liabilities –20,000 — –20,000 — — —
Balances after payment of liabilities $168,000 $ 0 $ 0 $69,200 $83,200 $15,600
Cash distributed to partners –168,000 — — –69,200 –83,200 –15,600
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
1. b.
SAILS, WELCH, AND GREENBERG
Statement of Partnership Liquidation
For Period November 1–30, 2014
Noncash
Capital
Sails Welch Greenberg
Cash + Assets = Liabilities + (2/5) + (2/5) + (1/5)
Balances before realization $32,000 $128,000 $20,000 $58,000 $72,000 $10,000
Sale of assets and division of loss +55,000 –128,000 — –29,200 –29,200 –14,600
Balances after realization $87,000 $ 0 $20,000 $28,800 $42,800 $ (4,600)
Payment of liabilities –20,000 — –20,000 — — —
Balances after payment of liabilities $67,000 $ 0 $ 0 $28,800 $42,800 $ (4,600)
Receipt of deficiency +4,600 — — — — +4,600
Balances $71,600 $ 0 $ 0 $28,800 $42,800 $ 0
Cash distributed to partners –71,600 — — –28,800 –42,800 —
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
2. a.
Sails, Capital 2,300
Welch, Capital 2,300
Greenberg, Capital 4,600
b.
Sails, Capital* 26,500
Welch, Capital** 40,500
Cash 67,000
The $4,600 deficiency of Greenberg would be divided between the other partners, Sails and Welch, in their
income-sharing ratio (1:1, respectively). Therefore, Sails would absorb 1/2 of the $4,600 deficiency, or
$2,300, and Welch would absorb 1/2 of the $4,600 deficiency, or $2,300.
*$28,800 – $2,300
**$42,800 – $2,300