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 $40,000 Liabilities $25,000

Other Assets 50,000 Parks, Loan 10,000

Cook, Capital 30,000

Parks, Capital 10,000

Argo, Capital 15,000

Total $90,000 Total $90,000

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

are all personally insolvent.

Required:

A. The partners wish to distribute the $40,000 in cash. Record in journal entry form the distribution

of the available cash.

B. Record in journal entry form the completion of the liquidation process, assuming that

the other assets of $50,000 are sold for $15,000.

Do I need to be taking care of the liabilities first as in taking the $40,000 cash and divvying it up between liabilities and Parks loan? Or do I need to be taking the loan out of Parks capital balance, leaving him with a (20,000) capital balance and taking care of the potential loss following that?