Question

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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: Assets $ 59,000 Cash Non-cash Assets SEYMOUR, PACKARD, & MALONE Balance Sheet December 31, 2018 Liabilities $ 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

Statement of Partnership Liquadation Assets Liability Capital + Non Cash Assests = Account payables + Seymour + Packard + Cash Malone 28000 120000 59000 25000 41000 23000 50000 -120000 - 10500 -17500 -42000 -1000 78000 0 59000 14500 5500 -59000 -59000 Balance before Realisation Sales of assets & Distribution of loss Balance after realisation Payment of liabilities Balance after payment of liabilities Distribution of packard loss Balance after distribution of packard loss Balance cash distribution Net balance of partners 19000 0 0 14500 -1000 5500 -375 1000 -625 19000 0 0 14125 0 4875 -19000 7125 11875 16750 0 0 0 21250 0

2 Debit($) 50000 Credit($) a. Journal entry Cash A/c Dr Loss on sale To Non Cash assets (Being noncash assets sold) 70000 120000 b. 10500 42000 Seymour capital A/C Packard capital A/C Malone capital A/C To Loss on sale (Being loss distributed) 17500 70000 C. Malone will receive cash of $11875 Total receipt of Malone is $16750 *Balance ratio of Seymour and Malone = 3:5