The partners in Newman Company decide to liquidate the fi rm when the balance sh

Question

The partners in Newman Company decide to liquidate the fi rm when the balance sheet shows the following. NEWMAN COMPANY Balance Sheet April 30, 2014 Assets Liabilities and Owners’ Equity Cash $ 30,000 Notes payable $ 20,000 Accounts receivable 25,000 Accounts payable 30,000 Allowance for doubtful accounts (2,000) Salaries and wages payable 2,500 Inventory 35,000 Mallory, capital 28,000 Equipment 20,000 Bosco, capital 13,650 Accumulated depreciation—equipment (8,000) Renteria, capital 5,850 $100,000 $100,000 The partners share income and loss 5:3:2. During the process of liquidation, the transactions below were completed in the following sequence. 1. A total of $55,000 was received from converting noncash assets into cash. 2. Gain or loss on realization was allocated to partners. 3. Liabilities were paid in full. 4. Cash was paid to the partners with credit balances. Instructions (a) Prepare a schedule of cash payments. (b) Prepare the entries to record the transactions. (c) Post to the cash and capital accounts. *P12-4B At April 30, partners’ capital balances

Explanation / Answer

(a) NEWMAN COMPANY Schedule of Cash Payments Item Cash + Noncash Assets = Liabilities + Mallory + Bosco + Renteria Balances before liquidation $30,000 + $70,000 = $52,500 + $28,000 + $13,650 + $5,850 Sale of noncash assets and allocation of loss (1) + (2) 55,000 + -70,000 =    -7,500 + -4,500 + -3,000 New balances 85,000 + 0 = 52,500 + 20,500 + 9,150 + 2,850 Pay liabilities (3) -52,500    = -52,500    New balances 32,500 + 0 = 0 + 20,500 + 9,150 + 2,850 Cash distribution to partners (4) -32,500 0 = 0 -20,500 + -9,150 + -2,850 Final balances $0 $0 $0 $0 $0 $0 (b) (1) Apr. 30 Cash 55,000 Allowance for Doubtful Accounts 2,000 Accumulated Depreciation 8,000 Loss on Realization 15,000 Accounts Receivable 25,000 Merchandise Inventory 35,000 Equipment 20,000 Noncash assets (net) $70,000 Sale proceeds 55,000 Loss on sale of noncash assets $15,000 (2) 30 Mallory, Capital ($15,000 X 50%) 7,500 Bosco, Capital ($15,000 X 30%) 4,500 Renteria, Capital ($15,000 X 20%) 3,000 Loss on Realization 15,000 (3) 30 Notes Payable 20,000 Accounts Payable 30,000 Wages Payable 2,500 Cash 52,500 (4) 30 Mallory, Capital ($28,000 – $7,500) 20,500 Bosco, Capital ($13,650 – $4,500) 9,150 Renteria, Capital ($5,850 – $3,000) 2,850 Cash 32,500 C Cash 4/30 Bal. 30,000 4/30 (3) 52,500 30 (1) 55,000 30 (4) 32,500 85,000 85,000 Mallory, Capital 4/30 (2) 7,500 4/30 Bal. 28,000 30 (4) 20,500 28,000 28,000 Bosco, Capital 4/30 (2) 4,500 4/30 Bal. 13,650 30 (4) 9,150 13,650 13,650 Renteria, Capital 4/30 (2) 3,000 4/30 Bal. 5,850 30 (4) 2,850 5,850 5,850

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