Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 PARTNERSHIP LIQUIDATION Answers to Questions Dissolution of a partnership terminates the partnership as a legal entity, but the partnership business may continue under a new agreement When a partnership is liquidated, however, the partnership is terminated both as a legal and as a business entity Thus, a partnership may be dissolved without liquidation, but it may not be liquidated without dissolution A simple partnership liquidation is the liquidation of a solvent partnership in which all partners have equity capital and all gains and losses are realized and recognized before any distributions are made to the partners In simple partnership liquidations, only one cash distribution is made and the amounts distributed to individual partners are equal to their predistribution capital account balances The priority ranking for the distribution of assets in liquidation pursuant to UPA is Rank I Rank II Amounts owed to creditors other than partners and amounts owed to partners other than for capital and profits Amounts due to partners after all assets have been liquidated and liabilities paid Normally if a partner has loaned money to the partnership, those liabilities are repaid before any capital distributions However if a partner is owed money and they have a debit (negative) capital balance, the liability is deducted from the capital shortfall, rather than be distributed The assumptions for determining distributions to partners prior to recognition of all gains and losses on liquidation are (1) all partners are personally bankrupt such that no partner could contribute personal assets into the partnership and (2) all noncash assets are possible losses and should be considered actual losses for purposes of determining amounts to be distributed In addition, liquidation expenses and probable loss contingencies should be estimated and assumed to be actual losses for purposes of determining advance distributions Capital balances represent one factor in determining a partner’s equity, but loans and advances payable to and receivable from the partnership are factors that must also be considered in calculating safe payments Partner equities, rather than capital balances, are used in safe payment schedules in order to avoid making distributions to partners that may end up with debit capital balances; i.e., owing money to the partnership Safe payment computations per se not affect ledger account balances Actual cash distributions based on safe payments computations reduce partnership assets and equities and require recognition in ledger accounts ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 17-2 Partnership Liquidation A statement of partnership liquidation is a summary of transactions and balances for a partnership during its liquidation stage Such statements provide continuous records of liquidation events Interim liquidation statements are particularly helpful in showing the progress that has been made toward liquidation to date and in identifying remaining assets to be liquidated and liabilities to be paid Interim liquidation statements are helpful to partners and creditors in providing a basis for current decisions as well as future planning Liquidation statements are important legal documents for partnership liquidations that come under the jurisdiction of a court Available cash may be distributed to partners according to their profit and loss sharing ratios only when nonpartner liabilities have been satisfied and partner equities (capital and loan balances combined) are aligned with the relative profit and loss sharing ratios of the partners In the absence of loans or advances payable to or receivables from individual partners, cash can be distributed to partners in their profit and loss sharing ratios when capital balances are in the relative profit and loss sharing ratios of the partners and all nonpartner liabilities have been paid 10 Vulnerability ranks are an ordering of partners on the basis of the adequacy of their equities in the partnership to absorb possible partnership losses The ordering is typically from the most vulnerable to the least vulnerable Vulnerability ranks are used in the preparation of assumed loss absorption schedules, which, in turn, are used in the construction of cash distribution plans 11 Partnership insolvency occurs when partnership liabilities exceed partnership assets In this case, all available cash is distributed to partnership creditors Individual partners will be called upon to use their personal assets to satisfy the remaining claims of the partnership creditors 12 Partners with credit capital balances after all partnership assets have been distributed in liquidation have a claim against partners with debit capital balances If the partners with debit balances are personally solvent, they should pay amounts equal to their debit balances into the partnership so that partners with credit balances can receive their partnership claims in full If partners with debit capital balances are insolvent, the partners with credit balances will absorb the losses of the insolvent partners with debit capital balances in relation to their relative profit and loss sharing ratios ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-3 SOLUTIONS TO EXERCISES Solution E17-1 Schedule of Capital Balances Capital balances January 1, 2011 $15,000 January losses: Lumber ($40,000 book value- $25,000 sales price) Receivables 4,000 ($25,000 - $21,000 collection) Capital balances before distribution 60% Folly $40,000 (9,000) 40% Frill $20,000 (6,000) (2,400) (1,600) $28,600 Cash distribution: Accounts payable Folly Frill Total cash $12,400 $15,000 28,600 12,400 $56,000 Cash balance: Beginning balance, $10,000 + $25,000 + $21,000 = $56,000 Solution E17-2 Sale of inventory Cash $10,000 Inventory To record sale of inventory items Distribution of cash Accounts payable Cash To record payment to creditors $10,000 $ 5,000 $ 5,000 Mike capital $12,600 Nan capital 6,200 Okey capital 25,200 Cash $44,000 To record distribution of available cash to partners computed as follows: Capital Possible Loss from Unsold Inventory = Balance Balance Mike capital $15,000 $2,400 $12,600 Nan capital 8,000 1,800 6,200 1,800 25,200 Okey capital 27,000 Totals $50,000 $6,000 $44,000 Solution E17-3 January balances Contingency fund of $10,000 Possible losses on asset disposal ($120,000) Loss on Ethel’s possible defaulta divided 3/7 and 4/7 30% Fred $85,000 (3,000) 30% Ethel $25,000 (3,000) 40% Lucy $90,000 (4,000) (36,000) 46,000 (36,000) (14,000) (48,000) 38,000 14,000 (8,000) (6,000) ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-4 Available cash is distributed 40,000 30,000 Notice that Ethel would have a debit balance in her capital account if the contingencies occurred and if the assets were a total loss In order to determine how much cash is available for distribution, Fred and Lucy’s balances must absorb Ethel’s debit balance a Solution E17-4 Beginning balances Offset Kim’s loan Loss on sale of assets ($180,000 - $120,000) Additional liability Distribute Kim’s debit balance 5/7, 2/7 Cash distribution Creditors $60,000 50% Jan $59,000 30% Kim $29,000 (20,000) 20% Lee $52,000 5,000 65,000 (30,000) (2,500) 26,500 (18,000) (1,500) (10,500) (12,000) (1,000) 39,000 $65,000 (7,500) $19,000 10,500 (3,000) $36,000 Kim owes $7,500 to Jan and $3,000 to Lee Solution E17-5 Schedule to Correct Capital Accounts December 31, 2011 balance Undervalued inventory Corrected balances ($15,000) Ali Capital (40%) $60,000 6,000 $66,000 Bart Capital (20%) $25,000 3,000 $28,000 Carrie Capital (40%) $65,000 6,000 $71,000 The capital balances are adjusted for the error in computing net income in the partners’ residual equity ratios ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-5 Solution E17-6 Evers, Freda, and Grace Partnership Safe Payment Schedule Partner equities Loss on sale of assets Possible lossesa Allocate Evers’ loss a 40% Evers $100,000 (52,000) 48,000 (84,000) (36,000) 36,000 40% Freda $250,000 (52,000) 198,000 (84,000) 114,000 (24,000) $ 90,000 20% Grace $170,000 (26,000) 144,000 (42,000) 102,000 (12,000) $ 90,000 Total $520,000 (130,000) 390,000 (210,000)a 180,000 $180,000 Remaining noncash assets of $200,000 plus contingency fund of $10,000 equals $210,000 possible losses Cash to distribute: Beginning cash balance of $100,000 plus $170,000 from sale of assets less $10,000 contingency fund equals $260,000 Distribution of cash: Accounts payable Freda Grace $ 80,000 90,000 90,000 $260,000 Solution E17-7 Schedule for Phase-out of the Partnership Capital balances Creditors’ recovery from Betty 30% Alice $ 20,000 Partnership recovery from Alice 30% Carle $ 70,000 20,000 30,000 (90,000) 70,000 20,000 (35,000) (15,000) 20,000 (70,000) 70,000 70,000 (35,000) 35,000 Partnership recovery from Betty a Write-off of Betty’s deficit 40% Betty $(120,000) Total $(30,000) 30,000 20,000 20,000 20,000 10,000 35,000 30,000 (5,000) Write-off of Alice’s deficit 30,000 30,000 (30,000) Cash distribution to Carle (30,000) 0 a Betty’s personal net assets after partnership creditor recovery are $80,000 personal assets - $60,000 personal liabilities = $20,000 10,000 (5,000) 5,000 ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-6 Solution E17-8 Daniel, Eric, and Fred Partnership Schedule for Phase-out of Partnership Capital balances Fred’s payment to creditors 40% Daniel Capital $10,000 30% Eric Capital $60,000 10,000 60,000 30% Fred Capital $(90,000) 20,000 (70,000) 10,000 60,000 40,000 (30,000) 40,000 40,000 (17,143) (7,143) (12,857) 47,143 30,000 40,000 Fred’s payment to the Partnership Write-off of Fred’s deficit in the relative profit sharing ratio of Daniel and Eric 4/7:3/7 Daniel’s payment to the partnership for his Deficit Write off of Daniel’s deficit to Eric Payment to Eric a 5,000 (2,143) 2,143 Total $(20,000) 20,000 5,000 45,000 47,143 (2,143) 45,000 (45,000) 0 (45,000) Fred’s personal assets of $100,000 less the $40,000 owed to his personal creditors, and less the $20,000 paid to partnership creditors, equals $40,000 available for his debit capital account balance ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-7 Solution E17-9 Ace, Ben, Cid, and Don Statement of Partnership Liquidation for the period June 30 to July 31, 2011 Balances June 30, 2011 July 1, 2011 Investment of Ace July 1, 2011 Payment of Liabilities Balances July 1, 2011 July 15, 2011 Investment of Cid Investment of Don Loss on Cid’s Insolvency a Loss on Ben’s Insolvency July 31, 2011 Final distribution Cash Liabilities Ace (50%) Capital Ben(20%) Capital $200,000 $400,000 $ 40,000 $10,000 $(170,000) $(80,000) 200,000 400,000 400,000 200,000 240,000 10,000 (170,000) (80,000) (400,000) (400,000) 240,000 10,000 (170,000) (80,000) 0 100,000 80,000 180,000 240,000 180,000 180,000 Cid (20%) Capital Don (10%) Capital 100,000 (180,000) () Debit capital balance or deduct a 10,000 (70,000) (50,000) 190,000 (20,000) (10,000) 70,000 (10,000) 180,000 10,000 80,000 (180,000) Allocating Cid’s insolvency to Ace & Ben: 70,000*2/7 = 20,000 Ben 70,000*5/7 = 50,000 Ace, Solution E17-10 Denver, Elsie, Fannie and George Partnership Safe Payment Schedule January 31, 2011 Possible Losses Partner’s equity at 1/1 January profit/loss transactions: Inventory sale Land sale Partner’s equity at 1/31 Possible losses — noncash Possible losses — contingent Possible losses — Fannie Possible losses — George $395,000 20,000 Denver (20%) $150,000 (6,000) 20,000 $164,000 (79,000) (4,000) $ 81,000 (13,000) $ 68,000 (2,667) $ 65,333 Elsie (10%) $80,000 Fannie (50%) $140,000 George (20%) $78,000 (3,000) (15,000) 10,000 50,000 $87,000 $175,000 (39,500) (197,500) (2,000) (10,000) $45,500 $(32,500) (6,500) 32,500 $39,000 $ (1,333) $37,667 (6,000) 20,000 $92,000 (79,000) (4,000) $ 9,000 (13,000) $(4,000) 4,000 $ ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-8 Solution E17-12 (cont’d) Payments of $103,000 can be safely made to Denver and Elsie in the amounts shown above $ 523,000 Check: Cash availablea Accounts payable $(400,000) Contingencies (20,000) Available to partners $ 103,000 a (250,000 land + 45,000 inv + 28,000 rec + 200,000 cash) Solution E17-11 b d a Supporting computations for Questions 1-3: See cash distribution plan that follows Vulnerability Rankings Partners’ Equitiesa Quen $45,000 Reed $25,000 Stacy $25,000 30% 50% 20% Loss Absorption Potential $150,000 50,000 125,000 Schedule of Assumed Loss Absorption Quen Predistribution equities $ 45,000 Loss to absorb Reed (15,000) 30,000 Loss to absorb Stacy $15,000/40% (22,500) Balance $ 7,500 Cash Distribution Plan Priority Creditors First $50,000 100% Next $7,500 Next $37,500 Remainder a Reed $ 25,000 (25,000) Quen Capital Reed Capital 100% 60% 30% 50% Vulnerability Ranks Stacy $ 25,000 (10,000) 15,000 Total $ 95,000 (50,000) 45,000 (15,000) (37,500) $ 7,500 Stacy Loan Stacy Capital 26.667% 13.333% 20% Equity balance = Equity +/- loans to/from ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-9 Solution E17-12 d Answer b is correct for situations in which all partners have equity in partnership assets; in other words, credit capital balances d c The debit balance in Maris’s capital account should be charged against the loan payable to Maris d Possible Losses Net capital balances Possible loss on inventories $100,000 Gwen’s debit balance 50:50 Distribution of cash after payment of accounts payable 25% Bill Capital $45,000 (25,000) 20,000 (5,000) 25% Sissy Capital $35,000 (25,000) 10,000 (5,000) $15,000 $ 5,000 40% Frank Capital $220,000 40% Helen Capital $155,000 c Possible Losses Net capital balances Noncash assets: Accounts receivable Inventories Plant assets — net Contingency fund $ 60,000 85,000 200,000 5,000 $350,000 Allocate Dick’s possible deficit Distribution of cash after payment of $60,000 liabilities 50% Gwen Capital $40,000 (50,000) (10,000) 10,000 20% Dick Capital $ 50,000 (70,000) (20,000) 20,000 (140,000) 80,000 (10,000) (140,000) 15,000 (10,000) $ 70,000 $ 5,000 c Capital balances Wayne’s contribution Vance’s personal net assets Vance’s remaining deficit divided 3/7 to Unsel and 4/7 to Wayne 30% Unsel 30% Vance 40% Wayne Capital Capital Capital $90,000 $(60,000) $(100,000) 70,000 90,000 (60,000) (30,000) 39,000a 90,000 (21,000) (30,000) (9,000) 81,000 21,000 Wayne’s remaining personal net assets to offset his deficit capital balance Wayne’s final deficit allocated to Unsel and uncollectible Amount of Unsel’s partnership equity that should be recoverable (12,000) (42,000) 81,000 40,000b (2,000) (2,000) 2,000 $79,000 Personal net assets= personal assets- personal liabilities (100,000 - 61,000) = 39,000 b (190,000 – 70,000 – 80,000) = 40,000 a ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-10 SOLUTIONS TO PROBLEMS Solution P17-1 Journal entry to distribute available cash on January Barney capital $25,000 Cash $25,000 To distribute available cash to Barney computed as follows: Safe Payments Schedule January 1, 2011 Possible Barney Betty Losses Partners’ capital balances Allocation of possible losses Allocate deficits to Barney Safe payments to Barney $90,000 Rubble $72,000 $28,000 $15,000 (30,000) 42,000 (30,000) (2,000) (30,000) (15,000) (17,000) 2,000 15,000 0 $25,000 Journal entry to record sale of assets on February Cash $81,000 Barney capital 3,000 Betty capital 3,000 Rubble capital 3,000 Inventory $72,000 Supplies 18,000 To record sale of inventory items and supplies and recognize gain or loss Journal entry to distribute cash on February 10 Barney capital $44,000 Betty capital 25,000 Rubble capital 12,000 Cash $81,000 To distribute cash to partners in final liquidation [Amounts are equal to final capital account balances.] ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-11 Solution P17-2 Chan, Dickerson, and Grunther Partnership Cash Distribution Plan Vulnerability ranks Equity $ 80,000 210,000 205,000 Chan Dickerson Grunther Profit and Loss Ratio 20% 30 50 Loss Absorption $400,000 700,000 410,000 Vulnerability Rank Schedule of assumed loss absorption Chan $80,000 (80,000) Equities Loss to absorb Chan Loss to absorb Grunther ($5,000 5/8) Dickerson $210,000 (120,000) 90,000 Grunther $205,000 (200,000) 5,000 Total $495,000 (400,000) 95,000 (3,000) $ 87,000 (5,000) (8,000) $ 87,000 Chan Capital Dickerson Capital Grunther Capital 20% 100% 3/8 30% 5/8 50% Cash distribution plan First $90,000 Second $50,000 Third $37,000 Fourth $8,000 Remainder Priority Creditors 100% Loan from Dickerson 100% ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-12 Solution P17-3 Fred, Flint, and Wilma Partnership Cash Distribution Plan Vulnerability Ranking Partnership Equity Fred $75,000 Flint 20,000 Wilma 60,000 Profit and Loss Ratio 30% 20% 50% Schedule of Assumed Loss Absorption 30% Fred Predistribution equity $75,000 Assumed loss to absorb Flint (30,000) $20,000 20% 45,000 Assumed loss to absorb Wilma (6,000) $10,000 5/8 $39,000 Loss Absorption Potential $250,000 100,000 120,000 Vulnerability Ranking 20% Flint $20,000 50% Wilma $60,000 Total $155,000 (20,000) (50,000) 10,000 (100,000) 55,000 (10,000) (16,000) $ 39,000 30% Fred 20% Flint 50% Wilma 100% 3/8 30% 20% 5/8 50% Cash Distribution Plan First $20,000 Next $39,000 Next $16,000 Remainder Priority Creditors 100% ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-13 Solution P17-4 Gary, Henry, Ian, and Joseph Partnership Cash Predistribution Plan Schedule of Vulnerability Ranks: Capital Loan to Partner Divided ratio balance Henry equity by profit Loss absorption potential Vulnerability ranks Gary Equity Henry Equity Ian Equity Joseph Equity $300,000 $100,000 $ 110,000 $300,000 $320,000 (20,000) $300,000 $100,000 $ 110,000 40% 30% 20% 10% $750,000 $1,000,000 $500,000 $1,100,000 Gary $300,000 Henry $300,000 Ian $100,000 Joseph $110,000 (200,000) 100,000 (150,000) 150,000 (100,000) (100,000) (75,000) 75,000 (25,000) 35,000 (75,000) (25,000) $ 10,000 Schedule of Assumed Loss Absorption: Equities Loss to absorb Ian’s equity Loss to absorb Gary’s equity Loss to absorb Henry’s equity (50,000) 60,000 Cash Distribution Plan: First $100,000 Next $50,000 Next $10,000 Next $100,000 Next $200,000 Remainder Priority Liabilities 100% Contingency Fund Gary Henry Joseph 100% 100% 3/4 1/4 1/2 3/8 1/8 40% 30% 20% 10% (Profit and loss sharing ratios) Available cash to distribute ($200,000 + $100,000) First $100,000 Next 50,000 Next 10,000 Next 100,000 Next 40,000 Distribution to partners Ian Priority Contingency Liabilities Fund $100,000 $50,000 $300,000 Gary Henry Ian 20,000 75,000 $15,000 $10,000 25,000 5,000 $20,000 $90,000 $40,000 ©2012 Pearson Education, Inc publishing as Prentice Hall Joseph Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-14 Solution P17-5 Eli, Joe, and Ned, Consultants Statement of Partnership Liquidation for the month ended August 31, 2011 July 31 balances Receivables: Collections Assumption Write-off Liabilities paid Expenses paid Furniture: Sold to Joe Donated Predistribution balances To partners Noncash Assets $47,000 Cash $13,000 8,000 Accounts Payable $6,000 (8,000) (3,000) (1,000) (6,000) (3,000) 15,000 20% Eli Capital $24,000 30% Joe Capital $15,000 50% Ned Capital $15,000 (200) (300) (3,000) (500) (600) (900) (1,500) (2,000) (5,000) (600) (1,200) (3,000) (1,000) (900) (1,800) 19,400 (19,400) 7,100 (7,100) 500 (500) (6,000) (25,000) (4,000) (6,000) 27,000 (27,000) 0 (1,500) (3,000) Solution P17-6 Jones, Smith, and Tandy Partnership Statement of Partnership Liquidation for the liquidation period January 1, 2011 to March 31, 2011 Noncash Assets $215,000 Accounts Payable $80,000 Cash Balances $ 15,000 January 2011 Inventories sold 20,000 (65,000) (14,000) Receivables collections 14,000 Predistribution balance 49,000 136,000 80,000 Cash distribution to (40,000) creditors (40,000) Balances January 31 February 2011 Land sold Land and buildings sold Receivables collections Balances February 28 March 2011 Write-off of furniture and fixtures Predistribution balance Cash distribution: Creditors Partners Balances March 31 9,000 136,000 40,000 20% Jones Capital $40,000 (9,000) 30% Smith Capital $60,000 50% Tandy Capital $50,000 (13,500) (22,500) 31,000 46,500 27,500 31,000 46,500 27,500 60,000 40,000 3,000 112,000 (40,000) (70,000) ( 6,000) 20,000 40,000 4,000 (6,000) ( 600) 28,400 6,000 10,000 (9,000) (15,000) ( 900) ( 1,500) 42,600 21,000 112,000 ( 20,000) 40,000 ( 4,000) 24,400 ( 6,000) 36,600 (10,000) 11,000 (24,400) (36,600) (11,000) (40,000) (72,000) (40,000) ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-15 Solution P17-7 Cash distribution plan for Lin, Mary, and Nell partnership Vulnerability ranks Capital Balances Lin Mary Nell $55,000 12,000 20,000 $87,000 Profit Loss Equity in and Loss Absorption Vulnerability Partnership Ratio Potential Ranking $55,000 12,000 20,000 $87,000 50% 30 20 $110,000 40,000 100,000 Schedule of assumed loss absorption Mary Nell Total Lin Predistribution equities $55,000 $12,000 $20,000 $87,000 Assumed loss to absorb Mary’s (12,000) ( 8,000) equity 50/30/20 (20,000) (40,000) 35,000 12,000 47,000 Assumed loss to absorb Nell’s (12,000) equity 50/20 (30,000) (42,000) $ 5,000 $ 5,000 Cash distribution plan Priority Creditors 100% First $55,000 Next $5,000 Next $42,000 Remainder Lin Mary Nell 100% 5/7 50% 30% 2/7 20% Cash of $25,000 is realized from inventories and receivables with a $45,000 book value Cash balance December 31, 2011 Realized during 2012 $47,000 25,000 72,000 (10,000) $62,000 Less: Amount reserved for contingencies Cash available for distribution Lin, Mary, and Nell Partnership Schedule of January 2012 Cash Distribution Cash Available Priority Creditors Lin Mary Nell Total Cash to be distributed $62,000 Payments to creditors Remainder To Lin Remainder To Lin (5/7) and Nell (2/7) (55,000) $55,000 $55,000 7,000 (5,000) $5,000 5,000 2,000 (2,000) 1,429 $ 571 ©2012 Pearson Education, Inc publishing as Prentice Hall 2,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-16 Cash distribution $55,000 $6,429 $ 571 ©2012 Pearson Education, Inc publishing as Prentice Hall $62,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-17 Solution P17-8 Jason, Kelly, and Becky Partnership Statement of Partnership Liquidation for the period January 1, 2011 through February 28, 2011 Balances January Offset loan to Jason Collection of receivables Liquidation expenses Predistribution balances Cash distribution: Creditors Partners — Schedule A Balances January 31 Liability discovered Liquidation expenses Sale of remaining assets Predistribution balances Cash distribution: Creditors Partners — Schedule B Balances February 28 Cash $ 16,500 ( 25,000 2,000) 39,500 Noncash Assets $163,500 (14,000) (28,000) 121,500 (21,000) ( 13,500) 5,000 50% Priority Jason Liabilities Capital $21,000 $69,000 (14,000) ( 1,500) ( 1,000) 21,000 111,000 ( ( 900) 600) 20% Becky Capital $43,000 ( ( 600) 400) 52,500 45,500 42,000 52,500 (1,500) (1,000) ( 1,100) 44,400 ( 900) ( 600) (12,400) 29,600 ( 600) ( 400) ( 6,750) ( 4,050) ( 2,700) 43,250 38,850 25,900 (38,850) (25,900) (21,000) 121,500 3,000 ( 2,000) 108,000 30% Kelly Capital $47,000 (121,500) 3,000 (108,000) 3,000 (3,000) $43,250 Schedule A Possible Losses Partners’ equity January 31 Allocate possible losses $126,500 Allocate Jason’s deficit Safe payments to partners January 31 50% Jason Equity $52,500 (63,250) (10,750) 10,750 30% Kelly Equity $45,500 (37,950) 7,550 (6,450) 20% Becky Equity $42,000 (25,300) 16,700 (4,300) $ 1,100 $12,400 $43,250 $43,250 $38,850 $38,850 $25,900 $25,900 Schedule B Partners’ equity February 28 Safe payments to partners February 28 ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-18 Solution P17-9 Roger, Susan, and Tom Partnership Statement of Partnership Liquidation for the period January 1, 2011 through February 28, 2011 Balances January Offset loan to Susan Sale of assets Predistribution balances Cash distribution: Creditors Partners — Schedule A Balances January 31 Sale of remaining assets Offset loan to Roger capital Predistribution balances Cash distribution: Partners — Schedule B Balances February 28 Priority Liabilities $40,100 40,000 Noncash Assets $140,000 (10,000) (40,000) 60,000 90,000 40,100 Cash $20,000 (40,100) Roger Loan $5,000 30% Roger Capital $ 9,900 5,000 9,900 35,000 5,000 9,900 (2,814) (17,086) 32,186 42,914 60,000 (40,100) (19,900) 90,000 21,000 (90,000) (20,700) (20,700) (27,600) (5,000) 21,000 30% 40% Susan Tom Capital Capital $45,000 $60,000 (10,000) 0 5,000 (5,800) 11,486 15,314 (9,000) (12,000) $ (5,800) $ 2,486 $ 3,314 (21,000) Note: Roger owes Susan $2,486 and Tom $3,314 These balances remain on the partnership books until it is determined if Roger is personally solvent and able to pay $5,800 to the other partners Schedule A Possible Losses Partners’ equity January Allocate possible losses $90,000 Allocate Roger’s deficit Safe payments to partners January 31 30% Roger Equity 30% Susan Equity 40% Tom Equity $14,900 (27,000) (12,100) 12,100 $35,000 (27,000) 8,000 (5,186) $60,000 (36,000) 24,000 (6,914) $ 2,814 $17,086 $11,486 (2,486) $ 9,000 $15,314 (3,314) $12,000 Schedule B Partners’ equity February 28 Allocate Roger’s deficit Safe payments to partners February 28 $(5,800) 5,800 Note: Since cash was distributed to Susan and Tom in January and since Roger has negative equity, the distribution in February is necessarily in the 3/7 and 4/7 relative profit and loss sharing ratio of Susan and Tom ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-19 Solution P17-10 Cash $21,000 Balances October Write-off Rob’s loan against capital Collected accounts Receivable 40,000 Sale of inventory 50,000 Sale of equipment 60,000 Payment of bank loan and accrued interest (50,600) Payment of accounts Payable (80,000) Liquidation expenses (2,000) Predistribution Balances 38,400 October 31 distribution 33,400 Balance November 5,000 Sale of equipment 38,000 Accounts receivable 10,000 Inventory to Val Write-off remaining inventory Liquidation expenses (800) Predistribution balances 52,200 Cash distributed (52,200) Balances - Noncash Assets $348,000 30% Rob Liabilities Capital $130,000 $43,600 50% Tom Capital $150,000 20% Val Capital $45,400 (15,000) (15,000) (44,000) (60,000) (55,000) (1,200) (3,000) 1,500 (2,000) (5,000) 2,500 (800) (2,000) 1,000 (180) (300) (120) (600) (1,000) (400) (50,000) (80,000) 174,000 - 25,120 144,200 43,080 174,000 (95,000) (19,000) (20,000) 25,120 (17,100) (2,700) (3,000) (33,400) 110,800 43,080 (28,500) (11,400) (4,500) (1,800) (5,000) (12,000) (40,000) (12,000) (240) (20,000) (400) (8,000) (160) (9,920) 52,400 (45,314) 7,086 9,720 (6,886) 2,834 - (9,920) Schedule of Safe Payments 30% Rob October 31 Partners’ equity October 31, 2011 Possible losses Possible loss on contingency fund Possible loss from Rob allocated 5/7 and 2/7 (rounded) Possible loss from Val Cash distribution November 30 Partners’ equity November 30 Possible loss from Rob’s debit balance 5/7 and 2/7 Cash distribution $174,000 5,000 50% Tom 20% Val $25,120 (52,200) $144,200 (87,000) $43,080 (34,800) (1,500) (28,580) (2,500) 54,700 (1,000) 7,280 28,580 (20,414) 34,286 (886) 33,400 (8,166) (886) 886 $(9,920) 9,920 $ 52,400 $ 9,720 (7,086) $ 45,314 (2,834) $ 6,886 ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-20 Solution P17-11 Closing entry Revenue Jee capital Moore capital Olsen capital Expenses $200,000 25,000 75,000 100,000 $400,000 To close revenue and expense items and distribute loss to partners as follows: 20% Jee 40% Moore 40% Olsen Net Loss $(200,000) $ 25,000 Salaries (50,000) $ 25,000 Loss to divide (250,000) (50,000) (100,000) $(100,000) Divided 20:40:40 250,000 Loss allocated $(25,000) $(75,000) $(100,000) Cash distribution plan Vulnerability ranks Jee: $250,000 balance - $25,000 loss Moore: $450,000 balance - $75,000 loss Olsen: $370,000 balance - $100,000 loss Equity Loss Absorption Vulnerability Rank $225,000/20% $1,125,000 $375,000/40% 937,500 $270,000/40% 675,000 Assumed loss absorption Predistribution equities Loss to absorb Olsen Jee Moore Olsen Total $ 225,000 (135,000) 90,000 $375,000 (270,000) 105,000 $270,000 (270,000) $870,000 (675,000) 195,000 (52,500) 37,500 (105,000) Loss to absorb Moore $105,000 40/60 $ (157,500) $ 37,500 Cash distribution plan First $80,000 Second $37,500 Third $157,500 Remainder Priority Creditors 100% Jee Moore Olsen 100% 2/6 20% 4/6 40% 40% Jee Moore Olsen $37,500 6,000 $43,500 $12,000 $12,000 Cash distribution schedule First Second Third $ 80,000 37,500 18,000 $135,500 Priority Creditors $80,000 $80,000 ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-21 Solution P17-12 Beams, Plank, and Timbers Partnership Statement of Partnership Liquidation for the period January 1, 2012 to March 31, 2012 Cash Balances January $120,000 Collection of receivables 100,000 Sale of inventory 100,000 Predistribution balances 320,000 January distribution (schedule 1) Creditors (250,000) Plank ( 60,000) Balances February 10,000 Plant assets to Beams and loss distribution Sale of inventory 60,000 Liquidation expenses paid ( 2,000) Liability discovered Predistribution balances 68,000 February distribution (schedule 2) Creditors ( 8,000) Plank (30,000) Timbers (20,000) Balances March 10,000 Sale of plant assets and write-off 110,000 Liquidation expenses paid ( 5,000) Predistribution balances 115,000 March distribution (115,000) Liquidation completed March 31 Noncash Assets $560,000 Liabilities $250,000 (100,000) ( 80,000) 380,000 250,000 50% Beams Capital $170,000 30% Plank Capital $180,000 20% Timbers Capital $ 80,000 10,000 6,000 4,000 180,000 186,000 84,000 (60,000) 126,000 84,000 (250,000) 380,000 (60,000) ( 3,000) ( 2,000) (30,000) (18,000) (12,000) 8,000 ( 1,000) ( 4,000) ( 600) ( 2,400) ( 400) ( 1,600) 8,000 90,000 102,000 90,000 72,000 (20,000) 48,000 (45,000) (27,000) (18,000) ( 2,500) ( 1,500) ( 1,000) 42,500 (42,500) 43,500 (43,500) 29,000 (29,000) (120,000) 200,000 180,000 (50,000) ( 5,000) 68,000 ( 8,000) (30,000) 200,000 (200,000) 0 0 ©2012 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-22 Solution 17-12 (continued) Schedule Beams, Plank, and Timbers Partnership Schedule of Safe Payments to Partners January Distribution Possible Losses Noncash assets Contingency reserve Possible losses Distribution 50:30:20 $380,000 10,000 390,000 (390,000) Distribution of Beams’ deficit 60:40 Safe payment to Plank Beams Capital $180,000 (195,000) ( 15,000) 15,000 Plank Capital Timbers Capital $186,000 $84,000 (117,000) 69,000 (78,000) 6,000 ( 9,000) $ 60,000 ( 6,000) Schedule Beams, Plank, and Timbers Partnership Schedule of Safe Payments to Partners February Distribution Noncash assets Contingency reserve Possible losses Distribution 50:30:20 Distribution of Beams’ deficit 60:40 Safe payment to Plank and Timbers Possible Losses Beams Capital Plank Capital Timbers Capital $200,000 10,000 210,000 (210,000) $ 90,000 $102,000 $68,000 (105,000) ( 15,000) 15,000 ( 63,000) 39,000 (42,000) 26,000 ( 9,000) ( 6,000) $ 30,000 $20,000 ©2012 Pearson Education, Inc publishing as Prentice Hall ... publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-3 SOLUTIONS TO EXERCISES Solution E17-1 Schedule of Capital Balances Capital... as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Partnership Liquidation 17-10 SOLUTIONS TO PROBLEMS Solution P17-1 Journal entry to distribute... publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 17 17-21 Solution P17-12 Beams, Plank, and Timbers Partnership Statement of Partnership