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 Noncash assets Total assets $ 66,000 273,000 $339,000 Liabilities Frick, capital (60%) Wilson, capital (20%) Clarke, capital (20%) Total liabilities and capital Part A Prepare a predistribution plan for this partnership. Part B The following transactions occur in liquidating this business: $ 37,000 165,000 44,000 93,000 $339,000 1. Distributed safe payments of cash immediately to the partners. Liquidation expenses of $10,000 are estimated as a basis for this computation. 2. Sold noncash assets with a book value of $112,000 for $66.000. 3. Paid all liabilities. 4. Distributed safe payments of cash again. 5. Sold remaining noncash assets for $60,000. 6. Paid actual liquidation expenses of $8,000 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. Part C Prepare journal entries to record the liquidation transactions reflected in the final statement of liquidation.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Require parts a, b, & c

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**: $66,000
- **Noncash assets**: $273,000

**Liabilities:**
- $37,000

**Capital:**
- Frick, capital (60%): $165,000
- Wilson, capital (20%): $44,000
- Clarke, capital (20%): $93,000

Total assets: $339,000
Total liabilities and capital: $339,000

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**Part A**
Prepare a predistribution plan for this partnership.

**Part B**
The following transactions occur in liquidating this business:

1. Distributed safe payments of cash immediately to the partners. Liquidation expenses of $10,000 are estimated as a basis for this computation.
2. Sold noncash assets with a book value of $112,000 for $66,000.
3. Paid all liabilities.
4. Distributed safe payments of cash again.
5. Sold remaining noncash assets for $60,000.
6. Paid actual liquidation expenses of $8,000 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.

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

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**Instructions:**
Complete this question by entering your answers in the tabs below.

- Required A
- Required B
- Required C

**Prepare a predistribution plan for this partnership:**

| | Frick, Capital | Wilson, Capital | Clarke, Capital |
|----------------------------|----------------|-----------------|-----------------|
| Beginning balances | | | |
| Assumed loss of Schedule 1 | | | |
| Step one balances | | | |
| Assumed loss of Schedule 2 | | | |
| Step two balances | 0 | 0 | 0 |
| Assumed loss of Schedule 3 | | | |
| Step three balances | 0 | 0 | 0 |

<navigation buttons: Required A, Required B>

# Frick, Wilson, and Clarke Statement of Partnership Liquidation

### Final Statement of Liquidation

#### Beginning Balances
- **Cash:** $68,000
- **Noncash Assets:** $273,000
- **Liabilities:** $37,000
- **Frick, Capital (60%):** $165,000
- **Wilson, Capital (20%):** $44,000
- **Clarke, Capital (20%):** $93,000

#### Distribution and Updated Balances:
- **Distribution:** No entries
- **Updated Balances:**
- Cash: $68,000
- Noncash Assets: $273,000
- Liabilities: $37,000
- Frick, Capital: $165,000
- Wilson, Capital: $44,000
- Clarke, Capital: $93,000

#### Noncash Assets Sold:
- **Cash:** $68,000
- **Noncash Assets:** $273,000
- **Liabilities:** $37,000
- **Frick, Capital:** $165,000
- **Wilson, Capital:** $44,000
- **Clarke, Capital:** $93,000

#### Updated Balances and Liabilities Paid:
- **Liabilities Paid:** No entries
- **Updated Balances:**
- Cash: $68,000
- Noncash Assets: $273,000
- Liabilities: $37,000
- Frick, Capital: $165,000
- Wilson, Capital: $44,000
- Clarke, Capital: $93,000

#### Distribution and Adjustments:
- **First (remainder of first distribution):** No entries
- **Next:** No entries

#### Final Distribution Based on Ending Capital Account Balances:
- **Final Balances:**
- Cash: $68,000
- Noncash Assets: $273,000
- Liabilities: $37,000
- Frick, Capital: $165,000
- Wilson, Capital: $44,000
- Clarke, Capital: $93,000

#### Ending Balance:
- **Cash:** $68,000
- **Noncash Assets:** $273,000
- **Liabilities:** $37,000
- **Frick, Capital:** $165

Expert Solution

Step 1

Schedule I
Partner	Capital balance/loss allocation	The maximum loss that can be absorbed
Frick	165000/60%	275000
Wilson	44000/20%	220000 (most vulnerable to loss)
Clarke	93000/20%	465000

Schedule II
Partner	Capital balance/loss allocation	The maximum loss that can be absorbed
Frick	33000/(60/80)	44000 (most vulnerable to loss)
Clarke	49000/(20/80)	196000

	Frick	Wilson	Clarke
Beginning balance	165000	44000	93000
Loss 220000 assumed - sch I
(allocated on a 60:20:20 basis)	-132000	-44000	-44000
Step one balances	33000	0	49000
Loss 44000 assumed - Sch II
(allocated on a 60:20 basis)	-33000		-11000
Step two balances	0	0	38000
Loss of 38000 assumed			-38000
Final balances			0

Predistribution plan:

First, payment of liabilities and liquidation must be assured
Next $38000 goes to Clarke
Next $44000 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

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