Question

On November 1, 2019, the firm of Sails, Welch and Greenberg decided to liquidate their partnership. The partners have capital balances of $58,000, $72,000 and $10,000 respectively. The cash balance is $32,000, the book values of the noncash assets total $128,000, and liabilities total $20,000. The partners share income and losses in the ratio of 2:2:1. Instructions: 1. Prepare a statement of partnership liquidation, covering the period November 1-30, 2019, for each of the following 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) declares bankruptcy and is unable to pay the deficiency. Determine the manner in which the remaining cash is distributed to the two other partners.

Answer 1

Answer-

Answer to 1( A)	Sails, Welch, and Greenberg
	Statement of Partnership Liquidation For Period November 1–30
	1	Amount Descriptions	Cash +	Noncash Assets =	Liabilities +	Capital, Sails (2/5) +	Capital, Welch (2/5) +	Capital, Greenberg (1/5)
	2	Balance before realization	32000	128000	20000	58000	72000	10000
	3	Sale of Assets and division of gain	156000	-128000		11200	11200	5600
	4	Balance after realization	188000	0	20000	69200	83200	15600
	5	Payment of Liabilities	-20000		-20000
	6	Balance after Payment of Liabilities	168000	0	0	69200	83200	15600
	7	cash distributed to partners	-168000			-69200	-83200	-15600
	8	Final Balances	0	0	0	0	0	0
Answer to 1( B)	Sails, Welch, and Greenberg
	Statement of Partnership Liquidation For Period November 1–30
	1	Amount Descriptions	Cash +	Noncash Assets =	Liabilities +	Capital, Sails (2/5) +	Capital, Welch (2/5) +	Capital, Greenberg (1/5)
	2	Balance before realization	32000	128000	20000	58000	72000	10000
	3	Sale of Assets and division of Loss	55000	-128000		-29200	-29200	-14600
	4	Balance after realization	87000	0	20000	28800	42800	-4600
	5	Payment of Liabilities	-20000		-20000
	6	Balance after Payment of Liabilities	67000	0	0	28800	42800	-4600
	7	Capital Additions	4600					4600
	8	Balances	71600	0	0	28800	42800	0
	9	cash distributed to partners	-71600	0	0	-28800	-42800	0
	10	Final Balances	0	0	0	0	0	0
	JOURNAL
	ACCOUNTING EQUATION
		DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
	1	Nov'30	Sail's Capital A/c	(a)	2300				✔
	2	Nov'30	Welch Capital A/c	(a)	2300				✔
	3	Nov'30	To GreenBerg Capital A/c	(a)		4600			✔
	4	Nov'30	Sail's Capital A/c	(b)	26500				✔
	5	Nov'30	Welch Capital A/c	(b)	40500				✔
	6	Nov'30	To Cash A/c	(b)		67000	✔