EXERCISE 16-1 Simple Liquidation

The CPA Partnership operated by Cook, Parks, and Argo is being liquidated. A balance sheet prepared at this stage in their liquidation process is presented below.

Cash $41,000 Liabilities $19,000

Other Assets 45,000 Parks, Loan 9,000

Cook, Capital 33,000

Parks, Capital 9,000

Argo, Capital 16,000

Total $86,000 Total $86,000

The partners share profits and losses 30% (Cook), 50% (Parks), and 20% (Argo). The partners are all personally insolvent.

Required:

1. The partners wish to distribute the $40,000 in cash. Record in journal entry form the distribution of the available cash.
2. Record in journal entry form the completion of the liquidation process, assuming that the other assets of $50,000 are sold for $15,000.

EXERCISE 16-2 Simple Liquidation

John, Jake, and Joe are partners with capital accounts of $90,000, $78,000, and $64,000 respectively. They share profits and losses in the ratio of 30:40:30. When the partners decide to liquidate, the business has $70,000 in cash, noncash assets totaling $260,000, and $98,000 in liabilities. The noncash assets are sold for $270,000, and the creditors are paid.

Required:

1. Prepare schedule of partnership liquidation.
2. Prepare journal entries to record each of the following transactions.

(1) The sale of the noncash assets.

(2) The payment to the creditors.

(3) The distribution of cash to the partners.

EXERCISE 16-10 Rights of Various Parties

The trial balance for the MAD Partnership is as follows just before declaring bankruptcy.

Cash Other Assets Liabilities Matt Loan Matt Capital Allen Capital Dave Capital

$19,000 $100,000 = $14,000 $11,000 $43,000 $33,000 $18,000

Partners share profits in the ratio 45:30:25.

Required:

1. Prepare schedule to show how available cash would be distributed to the partners after creditors are paid in full. State which partner would receive the first cash available and at what point and to what degree each of the remaining partners would participate in cash distributions.
2. Cash of $30,000 is available to partners after the creditors have been paid in full. Prepare the general journal entry to record the distribution of $30,000.

Exercise 16-10 The trial balance for the MAD Partnership is as follows just before declaring bankruptcy. Matt Matt Allen Dave Cash Other Assets Liabilities Loan Capital Capital Capital $19,000 $100,000 = $14,000 $11,000 $43,000 $33,000 $18,000 Partners share profits in the ratio 45:30:25. (a) Prepare a schedule to show how available cash would be distributed to the partners after creditors are paid in full. Loss Absorption Potential Assets Distribution Matt Allen Dave Matt Allen Dave $ $ Balance after Distribution Distribution to Reduce Loss Potential Loss Absorption Potential Net Capital Interest $ $ $ State which partner would receive the first cash available and at what point and to what degree each of the remaining partners would participate in cash distributions. Cash Distribution Plan Matt Allen Dave Order of Cash Distribution Liabilities 0.45 0.3 0.25 1. First $14,000 /% 2. Next $4,500 10/ 3. Next $28,500 1% 4. Remainder % %Exercise 16-2 John, Jake, and Joe are partners with capital accounts of $93,000, $85,000, and $65,000 respectively. They share profits and losses in the ratio of 30:40:30. When the partners decide to liquidate, the business has $76,000 in cash, noncash assets totaling $267,000, and $100,000 in liabilities. The noncash assets are sold for $278,000, and the creditors are paid. (a) Prepare a schedule of partnership liquidation. (Enter credit balance of an account and credit posting to an account with negative sign preceding the number, e.g. -45 or parentheses, e.g. (45).) Noncash Capital Balances Cash Assets Liabilities John Jake Joe Account Balances Cash Distribution Payment to Creditors Sale of Assets $ $1 $Exercise 16-1 The CPA Partnership operated by Cook, Parks, and Argo is being liquidated. A balance sheet prepared at this stage in their liquidation process is presented below. Cash $41,000 Liabilities $19,000 Other Assets 45,000 Parks, Loan 9,000 Cook, Capital 33,000 Parks, Capital 9,000 Argo, Capital 16,000 Total $86,000 Total $86,000 The partners share profits and losses 30% (Cook), 50% (Parks), and 20% (Argo). The partners are all personally insolvent. (a) Your answer is partially correct. Try again. The partners wish to distribute the $41,000 in cash. Record in journal entry form the distribution of the available cash. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Liabilities Cash (To record payment of liabilities) Cook, Capital x Cash (To record distribution to partners)