Chapter 16 PARTNERSHIP LIQUIDATION

Answers to Questions 1 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 RUPA is Rank I Rank II 4 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.

2

3

The distribution of assets for capital interests (Rank III) prior to the payment of loan balances to the partners (Rank II) is not in accordance with the Revised Uniform Partnership Act. But the partners may agree to distribute cash or other assets for capital interests before all losses on liquidation are known. With agreement among all partners, distributions to the partners would be based on each partner’s equity (combined capital and loan balances) in relation to his share of possible future losses. A partner with sufficient equity to absorb his share of possible future losses would be included in distributions, but a partner with loans to the partnership would not be included in distributions until his equity was sufficient to absorb his share of possible future losses. 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 do not affect ledger account balances. Actual cash distributions based on safe payments computations do reduce partnership assets and equities and require recognition in ledger accounts.

5

6

7

©2009 Pearson Education, Inc. publishing as Prentice Hall

16-2

Partnership Liquidation

8

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. 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. 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. 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.

9

10

11

12

©2009 Pearson Education, Inc. publishing as Prentice Hall

000 $2.000 Mike capital $12.Chapter 16 16-3 SOLUTIONS TO EXERCISES Solution E16-1 Schedule of Capital Balances Capital balances January 1.200 Totals $50.000 1.000 (6.200 Okey capital 25. Distribution of cash Accounts payable Cash To record payment to creditors.000 = $56.$25.000 28. $10.600) $12.600 40% Frill $20.000 book value. 2008 January losses: Lumber $15.000 Possible losses on 30% Fred $85.000 $ 5.600 Nancy capital 8.000 + $21.000 $6.200 Okey capital 27.000) ©2009 Pearson Education.400 $12.000) (2.000 + $25.000 sales price) Receivables 4.$21.400 $56.000 .000) 40% Lucy $90.400) $28.000 ($40.000) 30% Ethel $25. publishing as Prentice Hall .000 1.000 (3.000 $10.000 ($25.600 Nancy capital 6.000 collection) Capital balances before distribution Cash distribution: Accounts payable Folly Frill Total cash 60% Folly $40.000 $44.800 6.000 $10.400 $15.000 (4.600 12.000) (1.000 Solution E16-2 Sale of inventory Cash Inventory To record sale of inventory items.000 (9.000 To record distribution of available cash to partners computed as follows: Capital Possible Loss from Balance Unsold Inventory = Balance Mike capital $15. Inc.000 Cash balance: Beginning balance.000 (3.800 25.000 Solution E16-3 January 1 balances Contingency fund of $10. $ 5.200 Cash $44.

publishing as Prentice Hall .16-4 Partnership Liquidation asset disposal ($120. In order to much cash is available for distribution.000 (8.000 (6. Fred and Lucy’s absorb Ethel’s debit balance.000) 46.000 (36. ©2009 Pearson Education.000) Loss on Ethel’s possible defaulta divided 3/7 and 4/7 Available cash is distributed a (36.000) 30.000) 38. Inc.000) (14.000) 40.000 Notice that contingencies determine how balances must Ethel would have a debit balance in her capital account if the occurred and if the assets were a total loss.000 0 (48.000) 14.

000 Carrie Capital (40%) $65. publishing as Prentice Hall .000) 39.000) $32.000 30% Kim $29.500) (10.000) $23.000 .Chapter 16 16-5 Solution E16-4 Beginning balances Offset Kim’s loan Loss on sale of assets ($180. ©2009 Pearson Education.000 $71.000 (12.000 65.000) (2.000) (18.000 3.000) (1.$120.000 $28.000 The capital balances are adjusted for the error in computing net income in the partners’ residual equity ratios.000 6.000 6. 2008 balance Undervalued inventory Corrected balances ($15.500 0 20% Lee $52.000 (5. 2/7 Cash distribution Creditors $60.000 $66. Solution E16-6 Schedule to Correct Capital Accounts Ali Capital (40%) $60.000) $36.000 to Lee.500) 26.000) Additional liability Distribute Kim’s debit balance 5/7.000 (3.500) $19.500 (7.500) 10.000 50% Jan $59.000) (1. Solution E16-5 Schedule to Correct Capital Accounts Anita Capital (50%) $40. Inc.000 Colleen Capital (20%) $25.000 December 31.000 December 31.000 (20.000 Bart Capital (20%) $25.000 $65.500 to Jan and $3.000 5.000 Kim owes $7.000) $35. 2008 balance Overvalued inventory Corrected balances $10.000 (2.000 Bernice Capital (30%) $35.000 (30.000 (3.000) The capital balances are adjusted for the error in computing net income in the partners’ residual equity ratios.

000 (84.000) 198.000) $ 90.000 0 40% Freda $250.000) 390.000 90.000 Total $520. publishing as Prentice Hall .16-6 Partnership Liquidation Solution E16-7 Evers.000 from sale of assets less $10.000 (210.000 (12.000) 102.000 ©2009 Pearson Education.000 (42. and Grace Partnership Safe Payment Schedule Partner equities Loss on sale of assets Possible lossesa Allocate Evers’ loss a 40% Evers $100.000) (36. Distribution of cash: Accounts payable Freda Grace $ 80.000 Remaining noncash assets of $200.000.000) 144.000 (130. Freda.000 $180.000 20% Grace $170.000 plus contingency fund of $10.000 (24.000 (26. Inc.000 plus $170.000 contingency fund equals $260. Cash to distribute: Beginning cash balance of $100.000 (84.000 $260.000 90.000) 48.000) 114.000 equals $210.000) $ 90.000 (52.000) 36.000) 180.000 possible losses.000 (52.

000) 9.Chapter 16 16-7 Solution E16-8 Jerry.000) 0 $ 4. and Jill Partnership Statement of Partnership Liquidation at November 30. 2008 Noncash Assets $27.000) (8.500) $ 3.200 10% Jill Capital $3.000) (4.800 0 50% Joan Equity $13. If she does not agree.600 (6.200 40% Jerry Capital $10.000) 5.600 $ 9.200 (800) 2.000 Cash Balances Nov. Joan.600 (4. Inc.000 (4.800) 1.000) 8.000 (3. and Jill Partnership Safe Payments Schedule at November 30.000 (4.200 50% Joan Capital $13.000 (This solution assumes that Joan agrees to a distribution of amounts that can be distributed safely.200 (1.200 (8.200 (1. 2008 Possible Losses Partners’ equities Possible inventory losses Allocate Jerry’s deficit Safe payments to partners $16.800 (3. publishing as Prentice Hall .) Jerry. no distribution can be made to either Joan or Jill.200) 4.000 8.200 $2.000 Liab.000) (3.000) (4.000 16.700 10% Jill Equity $ 2.600) 600 (300) $ 300 ©2009 Pearson Education. Joan. $8.000) 0 $16.400) (1.000 40% Jerry Equity $ 4. 30 Offset receivable from Jerry Write-off patent Balances after adjustments Cash distribution: Creditors Partners Balances $8.

000 Total $(30.000 20.143) 45.143 (2.000 70. and Fred Partnership Schedule for Phaseout of Partnership 40% Daniel Capital $10.000 30.000) 40.143 30.000) 30. and less the $20.000 45.000 40.000 available for his debit capital account balance.000) 10. Solution E16-10 Daniel. publishing as Prentice Hall .000 30% Fred Capital $(90.000) 0 0 a Betty’s personal net assets after partnership creditor recovery are $80.000 owed to his personal creditors.000 (90.000 35.000 0 30% Alice $ 20.000) 20. equals $40.000 Fred’s payment to the partnershipa 10.000 30.000) 30.000 10.000 less the $40.143) 2.000 60.000 10.000) (15.000 (35.000 (17.857) 47.000 personal assets .000) 20.000) (30.000 (5.000 (35.143) 5. Inc.000 0 (45.000 (30.000) 20. Eric.000 paid to partnership creditors.000 5.000) 35.000 (45.000) Total $(20.000 70.000 0 40.000 personal liabilities = $20.143 0 (12.000) 0 Fred’s personal assets of $100.000 0 30% Carle $ 70.000 0 20.000 Write-off of Alice’s deficit (5.143) (7.000.000 (2.000 20. ©2009 Pearson Education.000) 70.000 (70.000 60.000 0 40.000 Cash distribution to Carle (30.000 40% Betty $(120.16-8 Partnership Liquidation Solution E16-9 Schedule for Phase-out of the Partnership Capital balances Creditors’ recovery from Betty Partnership recovery from Betty a Write-off of Betty’s deficit Partnership recovery from Alice 20.000 20.000) 30.000 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 Capital balances Fred’s payment to creditors 30% Eric Capital $60.000) 5.$60.000) 0 47.000 (70.

2008 July 1.000 $164.000 240.000) $ 9.000*5/7 = 50.000 190.000) 240.000 (20.000 400.000*2/7 = 20.000 (13.000) 0 100.000 Ben (20%) Capital $10.000 0 (70.000 (80. 2008 Investment of Cid Investment of Don Loss on Cid’s Insolvency a Liabilities $400.000 (400.000 (197.000 (6. publishing as Prentice Hall .500) (2.000) (80. 2008 Ace (50%) Cash Balances June 30.000) 180.000 (50.000 (3.000 Ace.000) 20.000 Possible losses — Fannie Denver (20%) $170.000 $92.000) 0 Loss on Ben’s insolvency July 31. Fannie and George Partnership Safe Payment Schedule January 31.000) 10.000 (170.000) $(32.000) 70.000 180.000 $175.000) (170.000 (10.000 (79. Elsie.500) $39.000) $ 68.000) 100.000) $(4. 2008 Investment of Ace July 1.000 ) (10.000 Possible losses — noncash Possible losses — contingent 20.000 10.000 Fannie (50%) $140.500) 32.000 $(170. Allocating Cid’s insolvency to Ace & Ben: 70.000 (180.000 (400.500 (6.000 (15.000) 0 () Debit capital balance or deduct. 2008 Possible Losses Partner’s equity at 1/1 January profit/loss transactions: Inventory sale Land sale Partner’s equity at 1/31 $395. 2008 Final distribution a 180.500 $ 0 George (20%) $78.000 (13.000 ) 10.000 0 180.000) 240.500) (10.000 (6.000 0 80. 2008 Payment of liabilities Balances July 1.000) $(80.000) (4. Denver.000 10.000) 50.000 80.000) $ 81.000) 10. Cid.000) 20.000 200.000 (39. Ben.000) ©2009 Pearson Education. Inc.000 Ben Solution E16-12 70.000 $87. and Don Statement of Partnership Liquidation for the period June 30 to July 31.000 400.Chapter 16 16-9 Solution E16-11 Ace. 2008 July 15.000) (4.000 (79.000 Elsie (10%) $80.000) 0 Capital $ 40.000 200.000) $45.000 (180.000 Cid (20%) Capital Don (10%) Capital $200.

333 $37.333) $ 65.667 $ 4. Inc.000 0 ©2009 Pearson Education. publishing as Prentice Hall .667) (1.16-10 Partnership Liquidation Possible losses — George (2.

000 Loss to absorb Stacy $15.000 (10.000 Reed $25.000) 0 Vulnerability Ranks 3 1 2 Total $ 95.000) 30. + 200.500 ÷ ÷ ÷ 30% 50% 20% Schedule of Assumed Loss Absorption Quen Predistribution equities $ 45. + 28.000 inv.000) Contingencies (20.000) 45.000 $ (37.000) 0 Quen Capital 100% 60% 30% Reed Capital Stacy Loan 26. Vulnerability Rankings Partners’ Equitiesa Quen $45.000 125.500 Remainder a Stacy $ 25.667% Stacy Capital 13.loans to/from ©2009 Pearson Education.000 can be safely made to Denver and Elsie in the amounts shown above.000 Stacy $25.000 50.000 (15.500) Balance $ 7. Inc.000 rec.000 (25.500 Next $37.Chapter 16 16-11 Solution E16-12 (cont’d) Payments of $103.000 Loss to absorb Reed (15.000 land + 45.500 Cash Distribution Plan Priority Creditors First $50.000 Loss Absorption Potential $150. Check: Cash availablea $ 523.000 Accounts payable $(400.000 Reed $ 25.333% 20% 50% Equity balance = Equity +/. publishing as Prentice Hall .000 a (250.000/40% (22.000 (50.000 cash) Solution E16-13 1 2 3 b d a Supporting computations: See cash distribution plan that follows.500) 7.000) Available to partners $ 103.000 100% Next $7.000) 15.

000) 40.000) 20.000) 15.000) $ 70.000 6 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 Wayne’s remaining personal net assets to offset his deficit capital balance 81.personal liabilities ©2009 Pearson Education. Inc.000) 20.000 40% Helen Capital $155.000) (30.000 200.000) $15.000 (25.000a 90.000 50% Gwen Capital $40.000 25% Sissy Capital $35.000 90.000) 2.000 (50.000) 80.000 20% Dick Capital $ 50.000) (9.000) (42.000 21. credit capital balances.000 liabilities $ 60.000) $(100.000) 10. d Possible Losses Net capital balances Possible loss on inventories Gwen’s debit balance 50:50 Distribution of cash after payment of accounts payable $100.16-12 Partnership Liquidation Solution E16-14 1 d Answer b is correct for situations in which all partners have equity in partnership assets.000) 10.000 $350.000 Wayne’s final deficit allocated to Unsel and uncollectible Amount of Unsel’s partnership equity that should be recoverable (2.000 (10.000 (70.000 2 3 4 5 c Possible Losses Net capital balances Noncash assets: Accounts receivable Inventories Plant assets — net Contingency fund Allocate Dick’s possible deficit Distribution of cash after payment of $60.000 0 25% Bill Capital $45.000) 39. in other words.000) (10.000 (140.000 $(60.000) (30.000 0 (140.000) $ 5.000 85.000) 81.000b (2.000 (21.000 (25.000 (60.000 (5.000 (5.000 40% Frank Capital $220.000 5.000 (10.000 0 (12.000) $79.000) (20.000 30% Unsel 30% Vance 40% Wayne Capital Capital Capital $90.000) $ 5. publishing as Prentice Hall . d c The debit balance in Maris’s capital account should be charged against the loan payable to Maris.000 0 Personal net assets= personal assets.000) 70.

61.000) = 39.000) = 40.000 (190.000 – 70.000 – 80.000 . publishing as Prentice Hall .000 ©2009 Pearson Education. Inc.Chapter 16 a b 16-13 (100.

000 $90.000 0 Rubble $15.000 Rubble capital 12.000 Cash $25.000 (30.000 Inventory $72.000 Cash $81.000 (17.000 $28.000) 2. [Amounts are equal to final capital account balances.000 Barney capital 3.000 To distribute available cash to Barney computed as follows: Safe Payments Schedule January 1.000 Betty capital 3. 3 Journal entry to distribute cash on February 10 Barney capital $44. 2008 Possible Losses Barney Betty Partners’ capital balances Allocation of possible losses Allocate deficits to Barney Safe payments to Barney 2 $72.000 (30.000 To distribute cash to partners in final liquidation.16-14 Partnership Liquidation SOLUTIONS TO PROBLEMS Solution P16-1 1 Journal entry to distribute available cash on January 1 Barney capital $25.000 Betty capital 25.000 To record sale of inventory items and supplies and recognize gain or loss.000 Supplies 18.] ©2009 Pearson Education. Inc.000) (2.000) 42.000) 15.000 (30.000 0 Journal entry to record sale of assets on February 9 Cash $81.000 Rubble capital 3.000) $25.000) (15. publishing as Prentice Hall .

000 Third $37.000 410.000 ÷ 5/8) Cash distribution plan Priority Creditors 100% Loan from Dickerson 100% 20% 100% 3/8 30% 5/8 50% Chan Capital Dickerson Capital Grunther Capital Chan $80.000 210. Dickerson.000 700.000) 0 Dickerson $210. Inc.000 (80.000 Second $50.000 First $90.000) 5.000) $ 87.000 Vulnerability Rank 1 3 2 Schedule of assumed loss absorption Equities Loss to absorb Chan Loss to absorb Grunther ($5.000 ÷ ÷ ÷ Profit and Loss Ratio 20% 30 50 Loss Absorption $400.000 Fourth $8.000 (8. publishing as Prentice Hall .000 205.000 (120. and Grunther Partnership Cash Distribution Plan Vulnerability ranks Chan Dickerson Grunther Equity $ 80.000) $ 87.000 (400.000 Remainder ©2009 Pearson Education.000) 90.000) 0 Total $495.000 (5.000 Grunther $205.000 (200.000 (3.000) 95.Chapter 16 16-15 Solution P16-2 Chan.

publishing as Prentice Hall . Flint.000 Vulnerability Ranking 3 1 2 Total $155.000 (16.16-16 Partnership Liquidation Solution P16-3 Fred.000 Remainder Priority Creditors 100% 20% Flint $20.000 ÷ 5/8 (6.000) 55.000) $39.000) 10.000 (50.000 ÷ 20% (30.000) $ 39. Inc. and Wilma Partnership Cash Distribution Plan Vulnerability Ranking Partnership Equity Fred $75.000 Profit and Loss Ratio 30% 20% 50% Loss Absorption Potential $250.000 100.000) 0 30% Fred 100% 3/8 30% 20% Flint 50% Wilma 5/8 50% 20% ©2009 Pearson Education.000 Cash Distribution Plan First $20.000 Next $39.000 Next $16.000 Assumed loss to absorb Wilma $10.000 (20.000 Assumed loss to absorb Flint $20.000 (10.000 Flint 20.000 120.000 (100.000) 45.000) 0 50% Wilma $60.000 ÷ ÷ ÷ Schedule of Assumed Loss Absorption 30% Fred Predistribution equity $75.000 Wilma 60.

000 Ian Joseph $10.000 (25.000 Gary Henry $300.000.000 Distribution to 20.000 (100.000 30% $1.000 (25.000 ©2009 Pearson Education.000 2 Henry Equity $320.000 Next 10. Inc.000 (75.000 (200.000 1 $ $ Joseph Equity 110.000 5.000 20% $500.000 Next $10.000) Priority Contingency Liabilities Fund $100.000) $ 10. and Joseph Partnership Cash Predistribution Plan Schedule of Vulnerability Ranks: Gary Equity Capital Loan to Partner Divided ratio balance Henry equity by profit $300.000 $100.000 Next $50.Chapter 16 16-17 Solution P16-4 1 Gary.000 First $100.100.000 Remainder 2 Available cash to distribute ($200.000 4 Loss absorption potential Vulnerability ranks Schedule of Assumed Loss Absorption: Equities Loss to absorb Ian’s equity Loss to absorb Gary’s equity Loss to absorb Henry’s equity Cash Distribution Plan: Priority Liabilities 100% Contingency Fund 100% 100% 3/4 1/4 1/2 3/8 1/8 40% 30% 20% 10% (Profit and loss sharing ratios) Gary Henry Ian Joseph Gary $300.000 75. Henry.000 40% $750.000 (150.000 (50.000 First $100.000) $300. Ian.000 $15. publishing as Prentice Hall .000 Next $200.000) 0 Joseph $110.000) 75.000 $300.000 Next 50.000 (20.000 $50.000) 0 Henry $300.000) 0 Ian $100.000 3 Ian Equity $100.000) 35.000) 150.000) 100.000 (75.000 + $100.000 Next 40.000 10% $1.000 (100.000) 60.000 25.000 Next $100.000 110.000 Next 100.

000 $90. Inc.000 ©2009 Pearson Education. publishing as Prentice Hall .000 Partnership Liquidation $40.16-18 partners $20.

000 112.000) (500) July 31 balances Receivables: Collections Assumption Write-off Liabilities paid Expenses paid Furniture: Sold to Joe Donated Predistribution balances To partners (200) (300) Solution P16-6 Jones.000* 14.000 (8.400 24.100 (7.000* 136.000 (6.000* 0 31.000) (1.000 3.000* 36.000* 136.000 40.000) (6.000* 72.000 13. and Tandy Partnership Statement of Partnership Liquidation for the liquidation period January 1.000 20.000 20% Jones Capital $40. Consultants Statement of Partnership Liquidation for the month ended August 31.000 9.000 Cash distribution to creditors 40.000) (600) (2.600 36.000 6.000 40.000 9.000* 24. and Ned.000 Receivables collections 14.400 4.000* 80.Chapter 16 16-19 Solution P16-5 Eli.000* 70.000 Predistribution balance 49.000 50% Ned Capital $15. Joe. publishing as Prentice Hall .000 Accounts Payable $80.600* 0 27.000* 1.400* 0 46.000) (4.100) 0 (1. 2008 Cash $13.000 11.000* 20.000) 500 (500) 0 Accounts Payable $6.000) (3.400 (19.500 Cash Balances $ 15. Inc.400) 0 (900) (3.000 65.000 20% Eli Capital $24.800) 7.000) 15. 2008 to March 31.000) (900) (1.000) (6.000 31.500 50% Tandy Capital $50.000 40.000* Balances January 31 February 2008 Land sold Land and buildings sold Receivables collections Balances February 28 March 2008 Write-off of furniture and fixtures Predistribution balance Cash distribution: Creditors Partners Balances March 31 9.000* 0 ©2009 Pearson Education.000 10.000 112.000) (3.500* 27.000 30% Smith Capital $60. Smith.000 40.000 4.500* 21.500) (5.000) (1.000) (600) (1.000 15.500* 46.000 8.000 30% Joe Capital $15.000) 27.000* 11.000) (1.000 40.000 22.000 (27.000* 900* 42.000* 6.000 January 2008 Inventories sold 20.500) (3.000* 600* 28.500 6.500 10.000) 0 0 0 Noncash Assets $47.000 60.000* 0 40.200) 19.000 (3. 2008 Noncash Assets $215.000 (25.000* 0 40.000 40.600 6.

Mary.000 12.000 book value Cash balance December 31.000 50% 30 20 $110.000 $55.000 0 Total $87.000 20.000 (5.000 Assumed loss to absorb Nell’s equity 50/20 30.000 Payments to creditors Remainder To Lin (for loan balance) (55.000 72.000 100.000 5.000 $87.000 42.000 12.000 is realized from inventories and receivables with a $45.000) $5. 2008 Realized during 2009 Less: Amount reserved for contingencies Cash available for distribution Lin.000 $55.000 (10. and Nell Partnership Schedule of January 2009 Cash Distribution Cash Available Cash to be distributed $62.000 Assumed loss to absorb Mary’s equity 50/30/20 20.000 25.000 12.000 $ 5.000 40.000 12.000 Next $42.000 12.000) $62. Inc.000 Lin 100% 5/7 50% Mary Nell 2/7 20% 30% Cash of $25.000 Next $5.000 Cash distribution plan First $55.000 $80. Mary.000 47.000 Remainder 2 Priority Creditors 100% Mary $12.000 40.000 3 1 2 Schedule of assumed loss absorption Lin Predistribution equities $55.000 20. publishing as Prentice Hall .000 Priority Creditors Lin Mary Nell Total $47.16-20 Partnership Liquidation Solution P16-7 1 Cash distribution plan for Lin.000) 7.000 8.000 $ 5.000 $55.000 35.000 ©2009 Pearson Education. and Nell partnership Vulnerability ranks Profit Loss Capital Equity in and Loss Absorption Vulnerability Balances Partnership Ratio Potential Ranking Lin Mary Nell $55.000 0 Nell $20.

000) 0 $55. publishing as Prentice Hall .000 1.429 $6.429 0 $ 571 $ 571 16-21 2.000 ©2009 Pearson Education.Chapter 16 Remainder To Lin (5/7) and Nell (2/7) Cash distribution 2.000 $62. Inc.000 (2.

500* 1.500 0 3.000 111.450) $ 1.000* 121.000* 13.000* 43. 2008 Noncash Assets $163.000* 0 121.900 $126.000 2.000* 1.000 50% 30% Jason Kelly Capital Capital $69.000 (25.000 $47.000 Balances January 1 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 $ 16.000 2.500* 1.250 0 Schedule A Possible Losses Partners’ equity January 31 Allocate possible losses Allocate Jason’s deficit Safe payments to partners January 31 Schedule B Partners’ equity February 28 Safe payments to partners February 28 $43.000* 108.950) 7.000 3.000 3.250 $38.500 1. Inc.850 $25.000* 28.600 600* 400* 2.250 $43.400 ©2009 Pearson Education.000 52.050* 38. and Becky Partnership Statement of Partnership Liquidation for the period January 1. 2008 through February 28.000* 1.850* 0 12.500 (63.16-22 Partnership Liquidation Solution P16-8 Jason.250 $43.500* 0 3.750 0 30% Kelly Equity $45.500 21.500 14.100* 44.750) 10.500 50% Jason Equity $52.300) 16.000 14.900 25.700 (4.000* 6.000 108.550 (6.500 900* 600* 45.500 (37.400* 29.500 25.500* 5.900 $25.500 21.100 20% Becky Equity $42.000* 52.900* 0 Priority Liabilities $21.000* 39.850 38.000 600* 400* 42.250) (10.850 $38.700* 25. Kelly. publishing as Prentice Hall .300) $12.750* 121.400 900* 600* 4.000 21.500 20% Becky Capital $43.

486) $ 9.314) $12.314 21.000 30% Roger Equity $14.800 0 $11.900 30% 40% Susan Tom Capital Capital $45.000 Priority Liabilities $40.000 60.800) 5.000) 8.800* 11.314 (3.486 15.000 Balances January 1 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 Cash $20. publishing as Prentice Hall .086 Note: Since cash was distributed to Susan and Tom in January and since Roger has negative equity.000 40.486 $ 3.000* 21.100 0 30% Susan Equity $35.900 20.000 (36.000* 5.700* 2.000) (12.000 (27.000 90.486 (2.800 to the other partners.000* 40.000* 90.000 $90. and Tom Partnership Statement of Partnership Liquidation for the period January 1.000 10.000 0 0 5.314 Note: Roger owes Susan $2.000 $15.600* 5.000) 24.000 5.800* $ 2.314.814 40% Tom Equity $60.900 90.000 $60. These balances remain on the partnership books until it is determined if Roger is personally solvent and able to pay $5. Inc.814* 17.000* 0 5.900* 0 21.100 40.914 20.000 (5.486 and Tom $3.000 9. Schedule A Possible Losses Partners’ equity January 1 Allocate possible losses Allocate Roger’s deficit Safe payments to partners January 31 Schedule B Partners’ equity February 28 Allocate Roger’s deficit Safe payments to partners February 28 $(5.000 60.000 30% Roger Capital $ 9.000* 0 $ 9. 2008 Noncash Assets $140.700* 27.100 Roger Loan $5.000 40.100) 12.186 42.914) $17.000 10.900 (27.Chapter 16 16-23 Solution P16-9 Roger.186) $ 2.100* 5.000 40.100* 19. the distribution in February is necessarily in the 3/7 and 4/7 relative profit and loss sharing ratio of Susan and Tom.000* 12. Susan.000 9. 2008 through February 28.000 (6.000* 35.086* 32. ©2009 Pearson Education.

000) (160) 9.000) (60.886) 2.200 Cash distributed (52.834) $ 6.000) (2.000 Inventory to Val Write-off remaining inventory Liquidation expenses (800) Predistribution balances 52.720 (6.000) (55.400 $ 52.000) (400) 52.000 (120) 50% Tom Capital $150.000 Payment of bank loan and accrued interest (50.000 5. 2008 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 $25.100) (2.086 (8.000) 1.120 25.000) Liquidation expenses (2.120 (17.886 $174.400) (4.080 30% Rob Liabilities Capital $130.600 (15.000 Sale of equipment 38.080 (28.000 Sale of equipment 60.800) (1.580) 28.000 (95.000) (12.000) (600) 174.500) (11.000) (240) (9.500 (180) (2.700) (3.200) Balances --- (33. Inc.000) (44. publishing as Prentice Hall .500 (300) (800) (2.000 $43.200 (87.000) (1.000) (19.000 20% Val Capital $45.920) 9.920) (1.286 (886) 33.000) (50.000) (20.000) 2.700 (20.920) (9.000) (20.16-24 Partnership Liquidation Solution P16-10 Cash $21.000 Noncash Assets $348.200 (400) 43.834 Schedule of Safe Payments 30% Rob October 31 Partners’ equity October 31.400) 110.000) 144.080 (34.720 (2.500) 54.314 20% Val $43.086) $ 45.800) (5.000 (15.280 (8.200) (1.400 Balance November 1 5.000) 1.500) (1.120 (52.500) (28.000 $(9.400 October 31 distribution 33.800 43.400 (7.000) (80.000) (5.400 Balances October 1 Write-off Rob’s loan against capital Collected accounts receivable 40.000 Accounts receivable 10.920 0 ©2009 Pearson Education.000 Sale of inventory 50.000) (12.000 174.000) Predistribution balances 38.000) 7.166) (886) 886 0 $ 9.000) (40.600) Payment of accounts payable (80.000) ----25.200) (3.400 (45.580 0 50% Tom $144.414) 34.314) 7.

000/40% $270.000) 2 Cash distribution plan Vulnerability ranks Equity Jee: $250.000 To close revenue and expense items and distribute loss to partners as follows: Net Loss 20% Jee 40% Moore 40% Olsen $(200.000 Second $37.000 loss Assumed loss absorption Jee Predistribution equities Loss to absorb Olsen Loss to absorb Moore $105.000 (270.000) Salaries (50.000 937. Inc.000 balance .000 $400.500) 37.500 Third $157.000/40% Loss Absorption $1.$100.000 (157.000 loss Olsen: $370.500 Remainder 3 Priority Creditors 100% Jee 100% 2/6 20% Moore 4/6 40% Olsen $ 225.000) $(100.500 Moore $375.000 25.500 675.000 $ 25.000 loss Moore: $450.Chapter 16 16-25 Solution P16-11 1 Closing entry Revenue Jee capital Moore capital Olsen capital Expenses $200.000) 90.125. publishing as Prentice Hall .000) $(75.000 (50.500 $225.000) $ 25.$75.000) Divided 20:40:40 250.000 ÷ 40/60 $ Cash distribution plan First $80.000 (675.000 75.000 (270.000) (100.000) 0 Total $870.000/20% $375.000 (52.000 Loss to divide (250.000 (105.000 balance .000) 195.000) 105.000 100.000 ©2009 Pearson Education.000) $(100.000) 0 Olsen $270.000 Jee Moore Olsen First $ 80.000 balance .000 (135.000) Loss allocated 0 $(25.500) $ 37.$25.000 Vulnerability Rank 3 2 1 40% Cash distribution schedule Priority Creditors $80.

000 $135.500 18.500 6.000 $37.000 $12.500 $80.16-26 Partnership Liquidation Second Third 37.000 $43.500 $12. Inc.000 0 ©2009 Pearson Education. publishing as Prentice Hall .

000 18.000* 18.500 42.000* 30.000 6.000 January distribution (schedule 1) Creditors 250.000 Sale of plant assets and write-off 110.000* 4.000* Predistribution balances 115.000 20% Timbers Capital $ 80.000* 0 ©2009 Pearson Education.000 50.000 30% Plank Capital $180. 2009 to March 31. publishing as Prentice Hall .000 84.000 180.400* 102.000 250.000* 29.000* 200.000 29.000* 90.000* 400* 1.000 Collection of receivables 100.000 45.000* 72.500* 0 20.000* 600* 2.500* 0 0 180.000 186.000 Sale of inventory 100.000* Plank 60.000 60. Inc.000 50% Beams Capital $170.000* 1.000 Cash Balances January 1 $120.500* 43. and Timbers Partnership Statement of Partnership Liquidation for the period January 1.000* 48.000* 1. Plank.000* 80.000 4.000* 12.000 200.000* Timbers 20.000 84.000 100.000 250.000* 380.000* Balances March 1 10.000 2.000 27.000* 126.000 Liquidation expenses paid 5.000 200.000 3.000 February distribution (schedule 2) Creditors 8.000 Liquidation expenses paid 2.000* 1.000* Liquidation completed March 31 0 Liabilities $250.000* Balances February 1 10.000 Predistribution balances 320.Chapter 16 16-27 Solution P16-12 Beams.000* 380.000 8.000 8.000* Liability discovered Predistribution balances 68.500* 0 42.000* 5.000* 0 90.000* 120. 2009 Noncash Assets $560.000 Plant assets to Beams and loss distribution Sale of inventory 60.500 43.000 30.000 10.000 60.000 March distribution 115.000* 2.000* Plank 30.600* 68.000* 8.

000* 26.000 390.000 Timbers Capital $68.000* $ 60. publishing as Prentice Hall .000 0 Plank Capital $102.000 0 Plank Capital $186.000* 0 $380. Plank.000 42.000 390.000 9.000 105.000* 15.000* 39. Inc.000 10.000* 0 Beams Capital $ 90.000* 69.000 210.000 6.000* 15.000* $20.000 195. and Timbers Partnership Schedule of Safe Payments to Partners February Distribution Possible Losses Noncash assets Contingency reserve Possible losses Distribution 50:30:20 Distribution of Beams’ deficit 60:40 Safe payment to Plank and Timbers * Deduct or deficit Beams Capital $180.000* 15.000 78.000* 15. Plank.000 6. and Timbers Partnership Schedule of Safe Payments to Partners January Distribution Possible Losses Noncash assets Contingency reserve Possible losses Distribution 50:30:20 Distribution of Beams’ deficit 60:40 Safe payment to Plank Schedule 2 Beams.000 210.000 $200.000 9.000 Timbers Capital $84.16-28 Partnership Liquidation Solution 16-12 (continued) Schedule 1 Beams.000 10.000* $ 30.000* 6.000 63.000 117.000* 0 ©2009 Pearson Education.

Sign up to vote on this title
UsefulNot useful