Question

The partnership of Frick, Wilson, and Clarke has elected to cease all operations and liquidate its business property. A balance sheet drawn up at this time shows the following account balances:

Cash	$	65,000		Liabilities	$	42,000
Noncash assets		237,000		Frick, capital (60%)		141,000
				Wilson, capital (20%)		38,000
				Clarke, capital (20%)		81,000
Total assets	$	302,000		Total liabilities and capital	$	302,000

Part A

Prepare a predistribution plan for this partnership

Part B

The following transactions occur in liquidating this business:

1. Distributed cash based on safe capital balances immediately to the partners. Liquidation expenses of $8,000 are estimated as a basis for this computation.
2. Sold noncash assets with a book value of $100,000 for $65,000.
3. Paid all liabilities.
4. Distributed cash based on safe capital balances again.
5. Sold remaining noncash assets for $54,000.
6. Paid actual liquidation expenses of $6,000 only.
7. Distributed remaining cash to the partners and closed the financial records of the business permanently.

Produce a final statement of liquidation for this partnership using the predistribution plan to determine payments of cash to partners based on safe capital balances.

Part C

Prepare journal entries to record the liquidation transactions reflected in the final statement of liquidation.

Complete this question by entering your answers in the tabs below. Required A Required B Required C Prepare a predistribution plan for this partnership Clarke, Capital Capital Capital Beginning balances Loss Step one balances Loss Step two balances Loss Final balances Required A Required B>

Answer 1

Part Sch-l Maximum loss that can be absorbed Partner Frick Wilson Clarke Capital Balance/loss allocation 141000/60% 38000/20% 81000/20% 235000 190000 (most vulnerable to loss) 405000 Sch-ll Maximum loss that can be absorbed Partner Capital Balance/loss allocation Frick Clarke 43000/(20/80) 27000/(60/80 36000 most vulnerable to loss 172000 Beginning balances Loss 190000 assumed -sch allocated on 60:20:20 basis Step one balances Loss 36000 assumed -sch lI allocated on 60:20 basis 141000 38000 81000 114000 27000 38000 38000 43000 27000 9000 4000 34000 Loss of 34000 assumed Final balances PREDISTRIBUTION PLAN First, payment of liabilities and liquidation expenses must be assured. . Next $34,000 goes to Clarke. . Next $36,000 is split between Frick and Clarke on a 60:20 basis. Any further cash is split among Frick, Wilson, and Clarke on a 60:20:20 basis. Statement of partnership liquidation Non cash ssets Liabil ities Frick 20% 20% inning balances 65,000$ 237,000 42,000 141,000 38,000 81,000 1 Distriburion of 15000 in accordance of edistribution plan ated balances 15,000 50,000 $ 237,000 42,000 65,000 $(15,000 141,000 38,0005 66,000 00,000 21,000 ated balances 115,000 updated balances 73,000 $ 137,000|$ 120,000 31,000 59,000 $ (19,000 $(6,000(2,000) 2,000 4|distribution of $65000 in accordance with plan first 19000 (remainder of first $34000) Next 36000 next 10000 36,000 10,000 8,000 54,000 (137,000 137,000 5 Non cash assets sold ated balances 6,000 56,000 S 6 Liquidation expenses updated balances 33,600$ 11,200 11,200 7 Final distribution based on ending capital 56,000 33,600 (11,200)(11,200 ending balances $15,000 in cash is immediately available for distribution: Cash of $65,000 less Liabilities of $42,000 and Estimated Liquidation Expenses of $8,000 $65,000 in cash is available for distribution: Cash of $73,000 less Estimated Liquidation Expenses of $8,000.