The partnership of Frick, Wilson, and Clarke has elected to cease all operations

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:

A. Prepare a predistribution plan for this partnership

B. The following transactions occur in liquidating this business:
1. Distributed cash based on safe capital balances immediately to the partners. Liquidation expenses of $9,000 are estimated as a basis for this computation.
2. Sold noncash assets with a book value of $118,000 for $71,000.
3. Paid all liabilities.
4. Distributed cash based on safe capital balances again.
5. Sold remaining noncash assets for $63,000.
6. Paid actual liquidation expenses of %7,000 only.
7. Distributed remaining cash to the partners and closed the financial record of the business permanently.

Produce a final statement of liquidation for this partnership using the predistribution plan to determine payments of cash to partners based on safe capital balances.

C. Prepare journal entries to record the liquidation transactions reflected in the final statement of liquidation.

Cash $71,000 Liabilities $ 39,000 Noncash Assets 291,000 Frick, capital (60%) 177,000 Wilson, capital (20%) 47,000 Clarke, capital (20%) 99,000 Total assets $362,000 Toal liabilities and capital $362,000

Explanation / Answer

Final Balances Cash Noncash Assets Liabilities Frick, Capital (60%) Wilson, Capital (20%) Clarke, Capital (20%) Beginning balances 71,000 2,91,000 39,000 1,77,000 47,000 99,000 Distribution -71000 0 0          -38,907        -10,331            -21,762 Updated balances 0 2,91,000 39,000 1,38,093 36,669 77,238 Noncash assets sold 71000 -118000 0 -28200 -9400 -9400 Updated balances 71,000 1,73,000 39,000 1,09,893 27,269 67,838 All liabilities are paid -39000 0 -39000 0 0 0 Updated balances 32,000 1,73,000 0 1,09,893 27,269 67,838 First (remainder of first distribution) -32000 0 0          -17,154          -4,257            -10,589 Updated balances 0 1,73,000 0 92,739 23,012 57,249 Noncash assets sold 63000 -173000 0          -58,967        -14,632            -36,401 Updated balances 63,000 0 0 33,772 8,380 20,848 Paid liquidation expenses -7000 0 0 -4200 -1400 -1400 Updated balances 56,000 0 0 29,572 6,980 19,448 Final distribution based on ending capital account balances -56000 0 0 -29572 -6980 -19448 Ending balance 0 0 0 0 0 0 Journal Entries 1 Frick, Capital Dr              38,907 Wilson, Capital Dr              10,331 Clarke, capital Dr              21,762         To        cash            71,000 2 Cash Dr 71000 Frick, Capital Dr 28200 Wilson, Capital Dr 9400 Clarke, capital Dr 9400         To       Non Cash Assets 118000 3 Liabilities Dr 39000        To cash 39000 4 Frick, Capital Dr              17,154 Wilson, Capital Dr 4,257 Clarke, capital Dr              10,589         To        cash 32000 5 Cash Dr 63000 Frick, Capital Dr              58,967 Wilson, Capital Dr              14,632 Clarke, capital Dr              36,401         To       Non Cash Assets 173000 6 Frick, Capital Dr 4200 Wilson, Capital Dr 1400 Clarke, capital Dr 1400         To        cash 7000 7 Frick, Capital Dr 29,572 Wilson, Capital Dr 6,980 Clarke, capital Dr 19,448         To        cash 56,000

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