Instructions
1. Prepare a statement of partnership liquidation, covering the period August 3–29, 2014, for each of the following independent assumptions:
a. All of the noncash assets are sold for $217,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners.
b. All of the noncash assets are sold for $72,000 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.
CHAPELLE, ROCK, AND PRYOR
Statement of Partnership Liquidation
For Period August 3–29, 2014
Noncash
Capital
Chapelle Rock Pryor
Cash + Assets = Liabilities + (1/5) + (2/5) + (2/5)
Balances before realization $ 65,000 $167,000 $30,000 $14,000 $102,000 $ 86,000
Sale of assets and division of gain +217,000 –167,000 — +10,000 +20,000 +20,000
Balances after realization $282,000 $ 0 $30,000 $24,000 $122,000 $106,000
Payment of liabilities –30,000 — –30,000 — — —
Balances after payment of liabilities $252,000 $ 0 $ 0 $24,000 $122,000 $106,000
Cash distributed to partners –252,000 — — –24,000 –122,000 –106,000
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
1. b.
CHAPELLE, ROCK, AND PRYOR
Statement of Partnership Liquidation
For Period August 3–29, 2014
Noncash
Capital
Chapelle Rock Pryor
Cash + Assets = Liabilities + (1/5) + (2/5) + (2/5)
Balances before realization $ 65,000 $167,000 $30,000 $14,000 $102,000 $86,000
Sale of assets and division of loss +72,000 –167,000 — –19,000 –38,000 –38,000
Balances after realization $137,000 $ 0 $30,000 $ (5,000) $ 64,000 $48,000
Payment of liabilities –30,000 — –30,000 — — —
Balances after payment of liabilities $107,000 $ 0 $ 0 $ (5,000) $ 64,000 $48,000
Receipt of deficiency +5,000 — — +5,000 — —
Balances $112,000 $ 0 $ 0 $ 0 $ 64,000 $48,000
Cash distributed to partners –112,000 — — — –64,000 –48,000
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
2. a.
Rock, Capital 2,500
Pryor, Capital 2,500
Chapelle, Capital 5,000
The $5,000 deficiency of Chapelle would be divided between the other partners, Rock and Pryor, in their
income-sharing ratio (1:1, respectively). Therefore, Rock would absorb 1/2 of the $5,000 deficiency, or
$2,500, and Pryor would absorb 1/2 of the $5,000 deficiency, or $2,500.
b.
Rock, Capital* 61,500
Pryor, Capital** 45,500
Cash 107,000
*$64,000 – $2,500
**$48,000 – $2,500