Question

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	$	64,000		Liabilities	$	38,000
Noncash assets		261,000		Frick, capital (60%)		156,000
				Wilson, capital (20%)		42,000
				Clarke, capital (20%)		89,000
Total assets	$	325,000		Total liabilities and capital	$	325,000

Part A

Prepare a predistribution plan for this partnership

Part B

The following transactions occur in liquidating this business:

Distributed cash based on safe capital balances immediately to the partners. Liquidation expenses of $8,000 are estimated as a basis for this computation.

Sold noncash assets with a book value of $108,000 for $64,000.

Paid all liabilities.

Distributed cash based on safe capital balances again.

Sold remaining noncash assets for $58,000.

Paid actual liquidation expenses of $6,000 only.

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.

Answer 1

A predistribution plan for this partnership               (IN $)
Description		F	W	C	TOTAL
	Capital Beginning	156000	42000	89000	287000
Less	Accumulated loss of 210000	126000	42000	42000	210000
	NET CAPITAL (1)	30000	0	47000	77000
Less	Accumulated loss of 50000	30000	0	20000	50000
	NET CAPITAL (2)	0	0	37000	37000
Less	Accumulated loss of $ 37000	0	0	37000	37000
	NET CAPITAL	0	0	0	0
	Working Note
	Accumulated loss for Step - 1		(in $)
	Description	F	W	C
	Capital Opening	156000	42000	89000
	Sharing %	60%	20%	20%
	Maximum loss that can be absorbed	260000	210000	445000
	Accumulated loss for Step - 2		(in $)
	Description	F	W	C
	Loss allocation	30000		47000
	Sharing %	60%	20%	20%
	Maximum loss that can be absorbed	50000	0	235000
(B )	Final statement of Liquidation for partnership firm using pre distribution plan
	to determine payments of cash to partner based on Safe capital balances,					(in $)
	in the following manner :
Description		Cash	Non cash Assets	Liabilities	F (60%)	W(20%)	C(20%)
	Balance Opening	64000	261000	38000	156000	42000	89000
LESS	Distribution (64000-38000-8000)	-18000	0	0	0	0	-18000
	Balance	46000	261000	38000	156000	42000	71000
	Non cash assets sold	64000	108000		26400	8800	8800
		(108000-64000) =44000 distributed in respective ratio
	Balance	110000	153000	38000	129600	33200	62200
	Liabilities Paid	-38000	0	-38000	0	0	0
	Balance	72000	153000	0	129600	33200	62200
	Safe Distribution	-50000			-30000		-20000
	Safe Distribution	-8000	0	0	-4800	-1600	-1600
	Balances	14000			94800	31600	40600
		58000	-153000	0	-57000	-19000	-19000
		Distribution of 95000(153000-58000) in respective %
	Balance	72000	0	0	37800	12600	21600
LESS	Liquidation Exp	-6000	0	0	-3600	-1200	-1200
	Balance	66000			34200	11400	20400
	FINAL DISTRIBUTION BASED ON ENDING CAPITAL	-66000			34200	11400	20400
	CLOSING BALANCE	-	-	-	-	-	-
	PART -C
	JOURNAL ENTRIES		(in$)
Date	Account Tital	Debit	Credit
	Capital C	18000
	Cash		18000
	(Initial cash Distribution)
	Capital -F	26400
	Capital - W	8800
	Capital - C	8800
	Loss on sale of non cash assets		44000
	(Loss Allocation)
	Liability	38000
	Cash		38000
	(Liability paid)
	Capital -F	57000
	Capital - W	19000
	Capital - C	19000
	Loss on sale of non cash assets		95000
	(Loss Allocation)
	Liquidation Exp	6000
	Cash		6000
	(Liquidation Exp paid)
	Capital -F	34200
	Capital - W	11400
	Capital - C	20400
	Loss on sale of non cash assets		66000
	(Loss Allocation)