Answered: The partnership of Frick, Wilson, and…

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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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 - $66,000

Noncash - $231,000

Liabilities - $46,000

Frick, capital (60%) - $135,000

Wilson, capital (20%) - $37,000

Clarke, capital (20%) - $79,000

The following transactions occured in liquidating its business:

Distributed safe payments of cash immediately to the partners. Liquidation expenses of $10,000 are estimated as a basis for this computation.
Sold noncash assets with a book value of $98,000 for $66,000.
Paid all liabilities.
Distributed safe payments of cash again.
Sold remaining noncash assets for $53,000.
Paid actual liquidation expenses of $8,000 only.
Distributedremainingcashtothepartnersandclosedthefinancialrecordsofthebusinesspermanently.

Produce a final statement of liquidation for this partnership using the predistribution plan to determine payments of cash to partners.

FRICK, WILSON, AND CLARKE
Statement of Partnership Liquidation
Final Balances
Wilson,
Capital
(20%)
135,000 $ 37,000 $ 79,000
Clarke,
Capital
(20%)
Noncash
Assets
Frick, Capital
(60%)
Cash
Liabilities
Beginning balances
Distribution
Updated balances
Noncash assets sold
Updated balances
Liabilities paid
Updated balances
First (remainder of first distribution)
Next
Next
Updated balances
$ 66,000 $ 231,000 $ 46,000 $
| (10,000)
$ 56,000 $ 231,000 $ 46,000 $
or (10,000)
135,000 $ 37,000 $ 69,000
(6,400)
115,800 $ 30,600 $ 62,600
66,000
(98,000)
(19,200)
(6,400)
$ 122,000 $ 133,000 $ 46,000 $
| (46,000)
$ 76,000 $ 133,000 $
(46,000)
$
115,800 $ 30,600 $ 62,600
(32,000)
(24,000)
(8,000)
$ 44,000 $ 133,000 $
(133,000)
91,800 $ 30,600 $ 54,600
(16,000)
43,800 $ 14,600 $ 38,600
(1,600)
39,000 $ 13,000 $ 37,000
$
Noncash assets sold
53,000
(48,000)
(16,000)
Updated balances
Liquidation expenses paid
Updated balances
Final distribution based on ending capital account balances
$ 97,000 $
(8,000)
$ 89,000 $
이 $
$
(4,800)
(1,600)
$
$
Ending balance
$ 89,000 $
$
$
39,000 $ 13,000
$ 37,000
%24

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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