Part A (used for reference for Part B) The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as a local architectural firm. Several partners have recently undergone personal financial problems and have decided to terminate operations and liquidate the business. The following balance sheet is drawn up as a guideline for this process: Cash $ 15,000 Liabilities $ 74,000 Accounts receivable 82,000 Rodgers, loan 35,000 Inventory 101,000 Wingler, capital (30%) 120,000 Land 85,000 Norris, capital (10%) 88,000 Building and equipment (net) 168,000 Rodgers, capital (20%) 74,000 Guthrie, capital (40%) 60,000 Total assets $ 451,000 Total liabilities and capital $ 451,000 When the liquidation commenced, liquidation expenses of $16,000 were anticipated as being necessary to dispose of all property. Part B The following transactions transpire during the liquidation of the Wingler, Norris, Rodgers, and Guthrie partnership: Collected 80 percent of the total accounts receivable with the rest judged to be uncollectible. Sold the land, building, and equipment for $150,000. Made safe capital distributions. Learned that Guthrie, who has become personally insolvent, will make no further contributions. Paid all liabilities. Sold all inventory for $71,000. Made safe capital distributions again. Paid actual liquidation expenses of $11,000 only. Made final cash disbursements to the partners based on the assumption that all partners other than Guthrie are personally solvent. Prepare journal entries to record these liquidation transactions. Please solve Part B.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Part A (used for reference for Part B)
The
| Cash | $ | 15,000 | Liabilities | $ | 74,000 |
| 82,000 | Rodgers, loan | 35,000 | |||
| Inventory | 101,000 | Wingler, capital (30%) | 120,000 | ||
| Land | 85,000 | Norris, capital (10%) | 88,000 | ||
| Building and equipment (net) | 168,000 | Rodgers, capital (20%) | 74,000 | ||
| Guthrie, capital (40%) | 60,000 | ||||
| Total assets | $ | 451,000 | Total liabilities and capital | $ | 451,000 |
When the liquidation commenced, liquidation expenses of $16,000 were anticipated as being necessary to dispose of all property.
Part B
The following transactions transpire during the liquidation of the Wingler, Norris, Rodgers, and Guthrie partnership:
- Collected 80 percent of the total accounts receivable with the rest judged to be uncollectible.
- Sold the land, building, and equipment for $150,000.
- Made safe capital distributions.
- Learned that Guthrie, who has become personally insolvent, will make no further contributions.
- Paid all liabilities.
- Sold all inventory for $71,000.
- Made safe capital distributions again.
- Paid actual liquidation expenses of $11,000 only.
- Made final cash disbursements to the partners based on the assumption that all partners other than Guthrie are personally solvent.
Prepare
Please solve Part B.
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