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Part A
Prepare a pre-distribution plan for the
Part A
![Check Mark](/static/check-mark.png)
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
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
![Check Mark](/static/check-mark.png)
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
Prepare
Part C
![Check Mark](/static/check-mark.png)
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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