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 $ 64,000 Liabilities $ 44,000 Noncash assets 225,000 Frick, capital (60%) 132,000 Wilson, capital (20%) 36,000 Clarke, capital (20%) 77,000 Total assets $ 289,000 Total liabilities and capital $ 289,000 Part A Prepare a predistribution plan for this partnership. Part B The following transactions occur in liquidating this business: Distributed safe payments of cash immediately to the partners. Liquidation expenses of $9,000 are estimated as a basis for this computation. Sold noncash assets with a book value of $96,000 for $64,000. Paid all liabilities. Distributed safe payments of cash again. Sold remaining noncash assets for $52,000. Paid actual liquidation expenses of $7,000 only. 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.

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter19: Accounting For Partnerships

Section: Chapter Questions

Problem 5CE

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Question

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	$	64,000	Liabilities	$	44,000
Noncash assets		225,000	Frick, capital (60%)		132,000
			Wilson, capital (20%)		36,000
			Clarke, capital (20%)		77,000
Total assets	$	289,000	Total liabilities and capital	$	289,000

Part A

Prepare a predistribution plan for this partnership.

Part B

The following transactions occur in liquidating this business:

Distributed safe payments of cash immediately to the partners. Liquidation expenses of $9,000 are estimated as a basis for this computation.
Sold noncash assets with a book value of $96,000 for $64,000.
Paid all liabilities.
Distributed safe payments of cash again.
Sold remaining noncash assets for $52,000.
Paid actual liquidation expenses of $7,000 only.
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.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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