The partnership of Frick, Wilson, and Clarke has elected to cease all operations
ID: 2571106 • Letter: T
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: Cash $ 60,000 Liabilities $ 43,000 Noncash assets 207,000 Frick, capital (60%) 120,000 Wilson, capital (20%) 33,000 Clarke, capital (20%) 71,000 Total assets $ 267,000 Total liabilities and capital $ 267,000 Part A Prepare a predistribution plan for this partnership Part B The following transactions occur in liquidating this business: Distributed cash based on safe capital balances immediately to the partners. Liquidation expenses of $10,000 are estimated as a basis for this computation. Sold noncash assets with a book value of $90,000 for $60,000. Paid all liabilities. Distributed cash based on safe capital balances again. Sold remaining noncash assets for $49,000. Paid actual liquidation expenses of $8,000 only. Distributed remaining cash to the partners and closed the financial records 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.
Explanation / Answer
PART A:
For preparing the predistribution plan we first caluclate the order of partnership elimination based on their capital accounts and the profit sharing ratio.
The lowest capital contributor is eliminated first and so on. This is shown below.
Now we go ahead with the preparation of predistribution plan.
The balance available will be adjusted to the remaining partner.
PART B
Ranking of partners for elimination Frick Wilson Clarke 120000 33000 71000 Profit sharing ratio 60% 20% 20% Maximum loss absorbable 200000 165000 355000 Order of elimination 2 1 3Related Questions
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