Fundamentals of Advanced Accounting
6th Edition
ISBN: 9780077862237
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Question
Chapter 10, Problem 30P
Part A
To determine
Prepare a pre-distribution plan for the
Part A
Expert Solution
Explanation of Solution
Pre-distribution plan for the partnership
| Pre-distribution plan | ||
| Available Cash | Amount | Recipient |
| First | $ 40,000 | The firm pays all its liabilities of $40,000 |
| Next | $ 32,000 | The firm pays $32,000 to person C |
| Next | $ 32,000 | The firm pays $32,000 distributed between person F and person C in the ratio of 75:25 |
| Further cash balances | The firm pays all further cash balances distributed between person F, person W and person C in the ratio of 60:20:20 | |
Table: (1)
Working note
Calculate the maximum allocated loss for the partners
Now calculate for other partners
Now calculate for other partners
Person W has least maximum allocated loss and hence is considered first.
Calculate the loss share of all the partners
Calculate the ending capital balances of partners
| Particulars | Person F | Person W | Person C |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 |
| Loss distribution | $ (105,000) | $ (35,000) | $ (35,000) |
| Ending capital balance | $ 24,000 | $ - | $ 40,000 |
Table: (2)
Calculate maximum loss allocated to each partner
Now, calculate for other partners
Person F has least maximum allocated loss and hence is considered first.
Calculate the loss share of all the partners
Calculate the ending capital balances of partners
| Particulars | Person F | Person C |
| Beginning balance | $ 24,000 | $ 40,000 |
| Loss distribution | $ (24,000) | $ (8,000) |
| Ending capital balance | $ - | $ 32,000 |
Table: (3)
Calculate the updated balances of partners after all loss adjustment
| Particulars | Person F | Person W | Person C |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 |
| Assumed loss of $175,000 | $ (105,000) | $ (35,000) | $ (35,000) |
| Updated balance | $ 24,000 | $ - | $ 40,000 |
| Assumed loss of $32,000 | $ (24,000) | $ (8,000) | |
| Updated balances | $ - | $ - | $ 32,000 |
Table: (4)
Part B
To determine
Prepare a final statement of liquidation for the partnership using the predistribution plan to determine payments of cash to partners based on safe capital balances.
Part B
Expert Solution
Explanation of Solution
Final statement of liquidation for the partnership using the predistribution plan to determine payments of cash to partners based on safe capital balances
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Distribute safe balances | $ - | $ - | $ (12,000) | $ (12,000) | $ - | $ - |
| Updated balances | $ 129,000 | $ 35,000 | $ 63,000 | $ 48,000 | $ 219,000 | $ 40,000 |
| Loss on the sale of non cash assets | $ (20,400) | $ (6,800) | $ (6,800) | $ 60,000 | $ (94,000) | |
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 108,000 | $ 125,000 | $ 40,000 |
| Payment of liabilities | $ (40,000) | $ (40,000) | ||||
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 68,000 | $ 125,000 | $ - |
| Distribute safe capital balances | $ (28,800) | $ (1,600) | $ (29,600) | $ (60,000) | $ - | $ - |
| Updated balances | $ 79,800 | $ 26,600 | $ 26,600 | $ 8,000 | $ 125,000 | $ - |
| Sale of non cash assets | $ (44,400) | $ (14,800) | $ (14,800) | $ 51,000 | $(125,000) | |
| Updated balances | $ 35,400 | $ 11,800 | $ 11,800 | $ 59,000 | $ - | $ - |
| Liquidation expenses | $ (3,600) | $ (1,200) | $ (1,200) | $ (6,000) | ||
| Updated balances | $ 31,800 | $ 10,600 | $ 10,600 | $ 53,000 | $ - | $ - |
| Distribute remaining cash balance to partners | $ (31,800) | $ (10,600) | $ (10,600) | $ (53,000) | ||
| Closing balance | $ - | $ - | $ - | $ - | $ - | $ - |
Table: (5)
Working note
Calculate safe balances according to pre distribution plan
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Liabilities | $ (40,000) | $ (40,000) | ||||
| Liquidation expense | $ (4,800) | $ (1,600) | $ (1,600) | $ (8,000) | ||
| Loss on non cash assets | $(131,400) | $ (43,800) | $ (43,800) | $(219,000) | ||
| Potential balances | $ (7,200) | $ (10,400) | $ 29,600 | $ 12,000 | $ - | $ - |
| Assume person F and Person W re insolvent | $ 7,200 | $ 10,400 | $ (17,600) | |||
| Safe balances | $ - | $ - | $ 12,000 | $ 12,000 | $ - | $ - |
Table: (6)
Calculate distribution of safe balances
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Distribute safe balances | $ - | $ - | $ (12,000) | $ (12,000) | $ - | $ - |
| Updated balances | $ 129,000 | $ 35,000 | $ 63,000 | $ 48,000 | $ 219,000 | $ 40,000 |
Table: (7)
Calculate the total negative balances to cover the deficit
Calculate the amount of loss on the sale of non cash assets
Calculate safe balances after the transaction
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Distribute safe balances | $ - | $ - | $ (12,000) | $ (12,000) | $ - | $ - |
| Updated balances | $ 129,000 | $ 35,000 | $ 63,000 | $ 48,000 | $ 219,000 | $ 40,000 |
| Loss on the sale of non cash assets | $ (20,400) | $ (6,800) | $ (6,800) | $ 60,000 | $ (94,000) | |
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 108,000 | $ 125,000 | $ 40,000 |
Table: (8)
Calculate the balances after the payment of liabilities
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Distribute safe balances | $ - | $ - | $ (12,000) | $ (12,000) | $ - | $ - |
| Updated balances | $ 129,000 | $ 35,000 | $ 63,000 | $ 48,000 | $ 219,000 | $ 40,000 |
| Loss on the sale of non cash assets | $ (20,400) | $ (6,800) | $ (6,800) | $ 60,000 | $ (94,000) | |
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 108,000 | $ 125,000 | $ 40,000 |
| Payment of liabilities | $ (40,000) | $ (40,000) | ||||
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 68,000 | $ 125,000 | $ - |
Table: (9)
Calculate the balance after the sale of non cash assets
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Distribute safe balances | $ - | $ - | $ (12,000) | $ (12,000) | $ - | $ - |
| Updated balances | $ 129,000 | $ 35,000 | $ 63,000 | $ 48,000 | $ 219,000 | $ 40,000 |
| Loss on the sale of non cash assets | $ (20,400) | $ (6,800) | $ (6,800) | $ 60,000 | $ (94,000) | |
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 108,000 | $ 125,000 | $ 40,000 |
| Payment of liabilities | $ (40,000) | $ (40,000) | ||||
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 68,000 | $ 125,000 | $ - |
| Distribute safe capital balances | $ (28,800) | $ (1,600) | $ (29,600) | $ (60,000) | $ - | $ - |
| Updated balances | $ 79,800 | $ 26,600 | $ 26,600 | $ 8,000 | $ 125,000 | $ - |
| Sale of non cash assets | $ (44,400) | $ (14,800) | $ (14,800) | $ 51,000 | $(125,000) | |
| Updated balances | $ 35,400 | $ 11,800 | $ 11,800 | $ 59,000 | $ - | $ - |
Table: (10)
Calculate the balance after the payment of liquidation expenses
| Particulars | Person F | Person W | Person C | Cash | Non cash assets | Liabilities |
| Beginning balance | $ 129,000 | $ 35,000 | $ 75,000 | $ 60,000 | $ 219,000 | $ 40,000 |
| Distribute safe balances | $ - | $ - | $ (12,000) | $ (12,000) | $ - | $ - |
| Updated balances | $ 129,000 | $ 35,000 | $ 63,000 | $ 48,000 | $ 219,000 | $ 40,000 |
| Loss on the sale of non cash assets | $ (20,400) | $ (6,800) | $ (6,800) | $ 60,000 | $ (94,000) | |
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 108,000 | $ 125,000 | $ 40,000 |
| Payment of liabilities | $ (40,000) | $ (40,000) | ||||
| Updated balances | $ 108,600 | $ 28,200 | $ 56,200 | $ 68,000 | $ 125,000 | $ - |
| Distribute safe capital balances | $ (28,800) | $ (1,600) | $ (29,600) | $ (60,000) | $ - | $ - |
| Updated balances | $ 79,800 | $ 26,600 | $ 26,600 | $ 8,000 | $ 125,000 | $ - |
| Sale of non cash assets | $ (44,400) | $ (14,800) | $ (14,800) | $ 51,000 | $(125,000) | |
| Updated balances | $ 35,400 | $ 11,800 | $ 11,800 | $ 59,000 | $ - | $ - |
| Liquidation expenses | $ (3,600) | $ (1,200) | $ (1,200) | $ (6,000) | ||
| Updated balances | $ 31,800 | $ 10,600 | $ 10,600 | $ 53,000 | $ - | $ - |
Table: (11)
Part C
To determine
Prepare
Part C
Expert Solution
Explanation of Solution
Journal entries to record the liquidation transactions reflected in the final statement of liquidation
| Date | Accounts and Explanation | Post Ref. | Debit Amount | Credit Amount |
| Person C's Capital | $ 12,000 | |||
| Cash | $ 12,000 | |||
| (To record the cash payments made according to predistribution plan) | ||||
| Cash | $ 60,000 | |||
| Person F's Capital | $ 20,400 | |||
| Person W's Capital | $ 6,800 | |||
| Person C's Capital | $ 6,800 | |||
| Non cash assets | $ 94,000 | |||
| (To record non cash assets sold with losses allocated to partners) | ||||
| Liabilities | $ 40,000 | |||
| Cash | $ 40,000 | |||
| (To record the payment of liabilities) | ||||
| Person F's Capital | $ 28,800 | |||
| Person W's Capital | $ 1,600 | |||
| Person C's Capital | $ 29,600 | |||
| Cash | $ 60,000 | |||
| (To record cash payments to partners according to predistribution partners) | ||||
| Cash | $ 51,000 | |||
| Person F's Capital | $ 44,400 | |||
| Person W's Capital | $ 14,800 | |||
| Person C's Capital | $ 14,800 | |||
| Non cash assets | $ 125,000 | |||
| (To record the sale of non cash assets allocated to partners) | ||||
| Person F's Capital | $ 3,600 | |||
| Person W's Capital | $ 1,200 | |||
| Person C's Capital | $ 1,200 | |||
| Cash | $ 6,000 | |||
| (To record the payment of liquidation expenses) | ||||
| Person F's Capital | $ 31,800 | |||
| Person W's Capital | $ 10,600 | |||
| Person C's Capital | $ 10,600 | |||
| Cash | $ 53,000 | |||
| (To record final cash payment to partners) | ||||
Table: (12)
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Chapter 10 Solutions
Fundamentals of Advanced Accounting
Ch. 10 - Prob. 1QCh. 10 - Prob. 2QCh. 10 - Prob. 3QCh. 10 - Prob. 4QCh. 10 - What is the purpose of a statement of liquidation?...Ch. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - Prob. 8QCh. 10 - What is the purpose of a proposed schedule of...Ch. 10 - Prob. 10Q
Ch. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - A partnership is considering possible liquidation...Ch. 10 - What is a predistribution plan? a. A list of the...Ch. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10PCh. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Prob. 16PCh. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - Prob. 19PCh. 10 - The following balance sheet is for a local...Ch. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - Prob. 23PCh. 10 - Prob. 24PCh. 10 - Prob. 25PCh. 10 - March, April, and May have been in partnership for...Ch. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31P
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