1.Assume that MERGA and HAILU have been operating an art gallery as a partnership for a number of years. On May 1, 2001, the partners decide to terminate business activities, liquidate all non-cash assets, and dissolve their partnership. A number of reasons might exist for such decision - e.g. disagreement, inadequate business profit for investment of time & capital. The balance sheet is given below:

MERGA AND HAILU Partnership

BALANCE SHEET

MAY 1, 2001

Assets

Liabilities and Capital

Cash........................................

Br.45,000

Liabilities-----------

Br32,000

Accounts Receivables.............

12,000

MERGA, Capital.. ............................... ...............................

50,000

Inventory................................

22,000

HAILU, Capital....

38,000

Land, Building & Equipment, net...........................................

41,000

Total Assets............................

Br 120,000

Total Liab.&Capital............................... ...............................

Br 120,000

The following assumptions are made that the liquidation of MERGA and HAILU Partnership proceeds in an orderly fashion from June 1, 2001 through October 15, 2001:

June 1, 2001 - The inventory is sold at auction for Br 15,000. MERGA and HAILU allocate all profits and losses using 6:4 ratios, respectively.

July 15, 2001 - from the total accounts receivable, Br 9,000 is collected with the remainder being written off as bad debts.

August 20, 2001 - the fixed asset are sold for a total of Br29,000

August 25, 2001 - all partnership liabilities are paid

September 10, 2001 - a total of Br3,000 liquidation expenses is paid to cover costs such as accounting and legal fees, commissions incurred in disposing of partnership property

October 15, 2001 - all remaining cash is distributed to the owners based on their final capital account balances

Instruction:

A.Record the forgoing transactions and determine partners' capital balance.

B.Prepare statements of liquidations.