Question

PROBLEM 16-1 Simple Liquidation
The Discount Partnership is being liquidated. The current balance sheet is shown here.
Discount Partnership
Balance Sheet
14-Jan-14
Assets
Cash $ 25,000
Other assets 120,000
Total assets $145,000
Liabilities and Partners’ Equity
Accounts payable $ 40,000
Dawson, capital 31,000
Feeney, capital 65,000
Hardin, capital 9,000
Total liabilities and partners’ equity $145,000
Dawson, Feeney, and Hardin share profits and losses in a 30:40:30 ratio.
Required:
A. Prepare a schedule of partnership liquidation for each of the following three independent cases.
(1) The noncash assets are sold for $60,000, and any partner with a deficit is unable to eliminate any of the
deficit.
(2) The noncash assets are sold for $60,000, and any partner with a deficit is able to invest cash equal to the
amount of the deficit.
(3) The noncash assets are sold for $50,000, and any partner with a deficit is able to invest up to $8,000 cash
in the partnership.
B. Prepare all necessary journal entries for case 2 above.

Answer 1

1st Case
	The noncash assets are sold for $60,000, and any partner with a deficit is unable to eliminate any of the deficit.
	cash available	Dawson	Feeney	Hardin
	$45,000	$13,000	$41,000	($9,000)**
	0	($3,857) = $9,000*30/70	(5143) = $9,000*40/70	$9,000
	Available balance =$45,000	$9,143	$35,857	0
	cash distributed to surplus partner($45,000)	($9,143)	($35,857)	0
	balance 0	0	0	0
2nd Case	The noncash assets are sold for $60,000, and any partner with a deficit is able to invest cash equal to the amount of the deficit.
	cash balance	Dawson	Feeney	Hardin
	$45,000	$13,000	$41,000	($9,000)
	Deficient partner will meet its deficiency =$9,000	0	0	$9,000
	available balance =$54,000	$13,000	$41,000	0
	distribution of surplus cash =($54,000)	($13,000)	($41,000)	0
	Blaance	0	0	0
3rd Case	The noncash assets are sold for $50,000, and any partner with a deficit is able to investup to $8,000 cash in the partnership.
		Cash	Assets	Liabilities	Dawson	Feeney	Hardin
	Balance before liquidation	$25,000	$120,000	$40,000	$31,000	$65,000	$49,000
	Sale of Asset and Distribution of Loss [120000-50000 = 70000 in ratio of 30:40:30]	$50,000	($120,000**)	-	($21,000)	($28,000)	($21,000)
	Payment of Liability	($40,000)	-	($40,000)	-	-	-
	Surplus Balance	$35,000	-	-	$10,000	$37,000	($12,000)
	Deficit partner will bring cash up to 8000 and remaining deficit of [12000-8000 = 4000 ] will made by surplus partner in ratio of 30 :40	$8,000	-	-	($1,714)	($2,286)	($8,000+$4,000**)
					1714.286	2285.71429
	Remaining Balance	$43,000	-	-	$8,286	$34,714	0
	Surplus distributed to Surplus Partner	($43,000)	-	-	($8,286)	($434,714)	0
	Balance	0	0	0	0	0	0

B. Journal Entry for Case 2

Cash account ............dr $9,000

To Hardin Capital A/c............$9,000