Question

Question (a): Prior to liquidating their partnership, Perkins and Brooks had capital accounts of $46,000 and $74,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $144,000. The partnership had $5,000 of liabilities. Perkins and Brooks share income and losses equally. Determine the amount received by Brooks as a final distribution from liquidation of the partnership.

Question (b): Steve Conyers and Chelsy Poodle formed a partnership, dividing income as follows: Annual salary allowance to Poodle of $170,500. Interest of 6% on each partner's capital balance on January 1. Any remaining net income divided to Conyers and Poodle, 1:2. Conyers and Poodle had $77,600 and $75,000, respectively, in their January 1 capital balances. Net income for the year was $310,000. How much is distributed to Conyers and Poodle?

Question (c): On January 1, 2016, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 2016, the cost of the available-for-sale securities was $84,200, and the fair value was $77,810.

Answer 1

Answer:

a.)

Perkins equity prior to liquidation	$46,000
Sale of assets	$144,000
Carrying value of assets ($46,000 + $74,000 + $5,000)	$125,000
Loss on liquidation	$19,000
Perkins share of loss (50% * $19,000)	($9,500)
Perkins cash distribution	$36,500

b.)

Calculation of distribution of net income to Conyers and Poodle
	Net Income	Conyers	Poodle
	$310,000
Salary allowance	-$170,500		$170,500
Interest on capital
- 6% of $77,600	-$4,656	$4,656
- 6% of $75,000	-$4,500		$4,500
Distribution of Balance net Income in 1:2 ratio	$130,344
- ($130,344/3) * 1	-$43,448	$43,448
- ($130,344/3) * 2	-$86,896		$86,896
Total Distribution	$0.00	$48,104	$261,896
Conyers share	$48,104
Poodle share	$261,896

c.)

Date	Account titles and explanation	Debit	Credit
Dec. 31, 2016	Valuation Allowance for Available-for-Sale Investments	$6,390
	Unrealized Gain /(Loss) on Available-for-Sale Investments		$6,390

Working Notes :

Calculation of Unrealised holding gain

Unrealized holding gain = Fair value of Holding Securities - Cost of Holding Securites

Unrealized holding gain = $ 77,810 - $ 84,200

Unrealized holding loss = $ (6,390)