Question

The partnership of Seymour, Packard, & Malone has experienced operating losses for three consecutive years. The partners—who have shared profits and losses in the ratio of Seymour, 15%; Packard, 60%; and Malone, 25% are liquidating the business. They ask you to analyze the effects of liquidation. They present the following condensed partnership balance sheet at December 31, 2018: SEYMOUR, PACKARD, & MALONE Balance Sheet December 31, 2018 Assets Liabilities Cash $ 59,000 Non-cash Assets $ 28,000 Accounts Payable 120,000 Partners' Equity Seymour, Capital Packard, Capital Malone, Capital Total Partners Equity $ 148,000 Total Liabilities and Partners' Equity 25,000 41,000 23,000 89,000 $ 148,000 Total Assets Requirements 1. Assume the non-cash assets are sold for $50,000. 2. Prepare the liquidation schedule ( model used in class or on page 656 of text) A) Journalize the sale of the non- cash assets. B) Journalize the gain or loss on sale. C) How much cash will Malone receive, if any? Note : Packard is insolvent and has no cash in his personal bank account.

Answer 1

Requirement 1 Non-cash assets sold for $ 150,000

Date	Particulars	Debit ($)	Credit ($)
Dec 31 2018	Cash	150,000
	Gain on disposal		30,000
	Non-cash assets		120,000
	(To record sale of non-cash assets at liquidation)
	Gain on disposal	30,000
	Seymour capital (15% share)		4,500
	Packard, capital (60% share)		18,000
	Malone, capital (25% share)		7,500
	(To record allocation of gain)
	Accounts payable	59,000
	Cash		59,000
	(To record payment of liabilities)
	Seymour, capital	29,500
	Packard Capital	59,000
	Malone, capital	30,500
	Cash (28+150-59)		119,000
	(To record distribution of balance cash)

Distribution as per sharing ratio will be done for 119,000 – 89,000 = 30,000

	Share in 30,000	Existing balance	Total
Seymour, capital at 15%	4500	25000	29500
Packard Capital at 60%	18,000	41000	59000
Malone, capital at 25%	7500	23000	30500

Requirement 2   Non-cash assets sold for $ 100,000

Date	Particulars	Debit ($)	Credit ($)
Dec 31 2018	Cash	100,000
	Loss on disposal	20,000
	Non-cash assets		120,000
	(To record sale of non-cash assets at liquidation)
	Seymour capital (15% share)	3000
	Packard, capital (60% share)	12000
	Malone, capital (25% share)	5000
	Loss on disposal		20,000
	(To record allocation of gain)
	Accounts payable	59,000
	Cash		59,000
	(To record payment of liabilities)
	Seymour, capital	22,000
	Packard Capital	29,000
	Malone, capital	18,000
	Cash (28+100-59)		69,000
	(To record distribution of balance cash)

Distribution as per sharing ratio will be done for 69,000-89,000 = $ 20,000

	Share in 20,000 (A)	Existing balance (B)	Total (B-A)
Seymour, capital at 15%	3000	25000	22,000
Packard Capital at 60%	12000	41000	29,000
Malone, capital at 25%	5000	23000	18,000
			69,000