Chapter 17 Partnership Liquidation

E17-1 Simple Liquidation—Schedule of Cash Available

E 17-1
Simple Liquidation—Schedule of Cash Available
The Partnership of Folly and Frill is in the process of liquidation. On January 1, 2011
as follows:

Cash
Account Receivable
Lumber Inventory

On January 10, 2011, the lumber inventory is sold for $25.000, and during January,
collected. No further collections on the receivable are expected. Profts are shared
Frill.

REQUIRED : Prepare a schedule showing how the cash available on February 1, 201

Schedule of Capital Balances

Capital balances Januari 1, 2011

January losses: Lumber
($40.000 book value - $25.000 sales price)
Receivables
($25.000 - $21.000 collection)
Capital balance before distribution

Cash Distribution :
Account Payable
Folly
Frill
Total Cash

Cash Balance : Beginning balance, $10.000 + $25.000 + $21.000

E17-2 Liquidation—Journal Entries

E 17-2
 Liquidation—Journal Entries
After closing entries were made on December 31, 2011, the ledger of Mike, Nan, an
balances:

Cash
Inventory

Due to unsuccessful operations, the partners decide to liquidate the business. Duri
sold at cost for $10.000, and on January 31, 2012, all available cash is distributed. I
inventory items can be sold.

REQUIRED : Prepare all journal entries necessary to account for the transactions of

Sales of Inventory
Cash
Inventory
(To record sale of inventory items)

Distribution of Cash
Account Payable
Cash
(To record payment to creditors)

Mike Capital
Nan Capital
Okey Capital
Cash

To record distribution of available cash to partners computed as follow

Mike Capital
Nan Capital
Okey Capital
Totals

E 17-3 Liquidation—Cash distribution computation, safe payments schedule

Fred, Ethel, and Lucy have decided to liquidate their partnership. Account balances on January 1, 20
 The partners agree to keep a $10,000 contingency fund and to distribute available cash immediately

REQUIRED: Determine the amount of cash that should be paid to each partner

Jawaban:
30% Fred
1 Januari 2011 Balance $ 85,000
Contingency fund of $ 10,000 $ -3,000
Possible losses on
asset disposal $ 120,000 $ -36,000
$ 46,000
Loss on Ethel’s possible default
divided by 30/70 and 40/70 $ -6,000
Available cash is distributed $ 40,000

E 17-4 Liquidation—Cash distribution computation, safe payments schedule

Jan, Kim, and Lee announce plans to liquidate their partnership immediately. The assets, equities, an
sharing ratios are summarized as follows.

The other assets are sold for $120,000, and an overlooked bill for landscaping services of $5,000 is d
cannot pay her partnership debt at the present time, but she expects to have the money in a month

REQUIRED: Determine how cash should be distributed to creditors and partners

Jawaban:
Creditors
Beginning balance $ 60,000
Offset Kim’s loan
Loss on sale of assets $ 60,000
 Additional liabilities $ 5,000
$ 65,000
Distribute Kim’s debit balance
divided by 50/70 and 20/70
Available cash is distributed $ 65,000

E17-6 Safe Payments Schedule

A condensed balance sheet with profit sharing percentages for the Evers, Freda, and Grace partnership on Jan
Cash 100,000
Other assets 500,000

600,000
On January 2, 2011, the partners decide to liquidate the business, and during January they sell assets with a b

REQUIRED : Prepare a safe payments schedule to show the amount of cash to be distributed to each partner
except for a 10.000 contingency fund, is distributed immediately after the sal

JAWAB : Evers, Freda, and Grace Partnership

Safe Payment Schedule

40% Evers
Partner equities 100,000
Loss on sale of assets - 52,000
48,000
Possible losses - 84,000
- 36,000
Allocate Evers loss 36,000
0

Cash to distribute : Beginning cash balance 100.000 + sale of assets 170.000

Distribution of cash : Accounts Payable
Freda
Grace

E17-7 Statement of Partnership Liquidation

The partnership of Alice, Betty, and Carle became insolvent during 2011, and the partnership ledger shows th
all partnership assets have been converted into cash and all available cash distributed:
 Debit Credit
Accounts payable 30,000
Alice capital 20,000
Betty capital 120,000
Carle capital 70,000
120,000 120,000

Profit and loss sharing percentages for the three partners are Alice, 30 percent; Betty, 40 percent; and Carle,
The personal assets and liabilities of the partners are as follows :
Alice Betty
Personal assets 60,000 110,000
Personal liabilities 50,000 60,000

REQUIRED : Prepare a schedule to show the phase out of the partnership and final closing of the books if the

JAWAB : Schedule for Phase out of the Partnership

Capital balances
Creditor's recovery from Betty

Partnership recovery from Betty

Write off of Betty's deficit

Partnership recovery from Alice

Write off of Alice's deficit

Cash distribution to Carle

E17-8 Statement of partnership liquidation-Partner insolvency case

After all partnership assets were converted into cash and all available cash distributed to creditors,
the ledger of the Daniel, Eric, and Fred partnership showed the following balances :

Debit Credit
Accounts payable $ 20,000
Daniel capital (40%) 10,000
Eric capital (30%) 60,000
Fred capital (30%) $ 90,000
$ 90,000 $ 90,000

The percentages indicated are residual profit and loss sharing ratios. Personal assets and liabilities of the part

Daniel Eric
Personal assets $ 50,000 $ 50,000
Personal liabilities 45,000 40,000

The partnership creditors proceed against Fred for recovery of their claims, and the partners settle their claim
each other in accordance with UPA.

Required : Prepare a schedule to show the phaseout of the partnership and final closing of the books.

Jawaban :

Daniel, Eric, and Fred Partnership

Schedule for Phase-Out of Partnership

Daniel Capital Eric Capital

40% 30%
Capital balances $ 10,000 $ 60,000
Fred's payment to creditors
10,000 60,000
Fred's payment to the
partnership
10,000 60,000
Write-off of Fred's
deficit in the relative
profit sharing ration of
Daniel and Eric 4/7 : 3/7 - 17,143 - 12,857
- 7,143 47,143
Daniel's payment to the
partnership for his
Deficit 5,000
- 2,143 47,143
Write off of Daniel's
deficit to Eric 2,143 - 2,143
0 45,000

Payment to Eric - 45,000

-
 * Fred's personal assets of $ 100.000 less the $ 40.000 owed to his personal creditors, and less the $ 20.000 p
to partnership creditors, equals $ 40.000 available for his debit capital accounts balances.

E17-9 Statement of partnership liquidation-Partner insolvency case

The partnership of Ace, Ben, Cid and Don is dissolved on January 5, 2011, and the account balances at June 3
after all noncash assets are converted into cash, are as follows:

Debits Credits
Cash $ 200,000
Cid capital (20%) 170,000
Don capital (10%) 80,000
Account payable $ 400,000
Ace capital (50%) 40,000
Ben capital (20%) 10,000
$ 450,000 $ 450,000

Add Information

1. The percentages indicated represent the relevant profit and loss sharing ratios.
2. Personal assets and liabilities of the partners at June 30,2011, are as follows:

Personal Assets Personal Liabilities

Ace $ 600,000
Ben 100,000
Cid 400,000
Don 100,000

3. Ace pays $ 200.000 into the partnership, and partnership liabilities are paid on July 1, 2011.
4. On July 15,2011, Cid pays $ 100.000 into the partnership and Don pays $ 80.000. No further contributions
from either Cid or Don are possible.
5. Losses from the bankruptcy of Cid are divided among the solvent partners on July 15,2011.
6. Available cash is distributed and the partnership books are closed on July 31, 2011.

Required : Prepare a liquidation statement for the Ace, Ben, Cid, and Don partnership for the period June 3

Jawaban :

Ace, Ben, Cid, and Don

Statement of Partnership Liquidation
for the period June 30 to July 31, 2011
 Ace Capital
Cash Liabilities
50%
Balances $ 200,000 $ 400,000 $ 40,000
June 30, 2011
July 1, 2011
Investment of Ace 200,000 200,000
400,000 400,000 240,000
July 1, 2011
Payment of
Liabilities - 400,000 - 400,000
Balances July 1, 2011 - - 240,000

July 15, 2011

Investment of Cid 100,000
Investment of Don 80,000
180,000 240,000

Loss on Cid's - 50,000

Insolvency 180,000 190,000

Loss on Ben's - 10,000

Insolvency 180,000 - 180,000

July 31, 2011

Final distribution - 180,000 - 180,000
- -

P 17-1 Cash distribution plan and entries—Installment

Barney, Betty, and Rubble are partners in a business that is in the process of liquidation. On January 1, 2011,
Cash $ 25,000
Inventory 72,000
Supplies 18,000
The cash is distributed to partners on January 1, 2011. Inventory and supplies are sold for a lumpsum price of
2011, cash on hand is distributed to the partners in final liquidation of the business.

REQUIRED
Prepare the journal entry to distribute available cash on January 1, 2011. Include a safe pa
1.
as proper explanation of who should receive cash.

Notes: Assume that Barney, Betty, and Rubble are partners sharing profits and losses equa

BARNEY, BETTY, AND RUBBLE PARTNERSHIP

SCHEDULE OF SAFE PAYMENTS (AMOUNTS IN THOUSANDS)
 Partner's equities
Possible loss on noncash assets
(Book value of Inventory + Supplies)

Possible loss from Betty and Rubble

(Debit balance allocated to Barney)

Journal Entry:
Jan 1, 2011 Barney Capital
Cash

2. Prepare journal entries necessary on February 9, 2011, to record the sale of assets and dis
accounts.

Journal Entry:
Feb 9, 2011 Cash
Barney Capital
Betty Capital
Rubble Capital
Inventory
Supplies

3. Prepare the journal entry to distribute cash on February 10, 2011, in final liquidation of the

BARNEY, BETTY, AND RUBBLE PARTNERSHIP

STATEMENT OF PARTNERSHIP LIQUIDATION (AMOUNT IN THOUSAND)

Cash

Balances January 1, 2011 25

Distribute available cash (25)
(Safe payments schedule)
-
Sale of noncash assets 81
81
Final distribution to partners (81)
-

Journal Entry:
Feb 10, 2011 Barney Capital
 Betty Capital
Rubble Capital
Cash

P17-2 Cash distribution plan

Chan, Dickerson and Grunther Partnership

Cash Distribution Plan
vulnerability ranks

profit & loss loss

equity
ratio absorption
chen 80,000 ÷ 20% 400,000
dickerson 210,000 ÷ 30 700,000
grunther 205,000 ÷ 50 410,000

schedule of assumed loss absorption

chan dickerson
equities 80,000 210,000
loss to absorb chan (80,000) (120,000)
0 90,000
loss to absorb grunther
($ 5000 ÷ 5/8) (3,000)
87,000
cash distribution plan

priority loan from dickerson

creditors dickerson chan capital capital
first $ 90.000 100%
second $50.000 100%
third $37.000 100%
fourth $8.000 3÷8
remainder 20% 30%

P17-4 Installment Liquidation

 Gary, Henry, Ian, and Joseph Partnership
Cash Prediction Plan

Scedule of Vulnerability Ranks:

Gary Equity Henry Equity Ian Equity Joseph Equity

Capital Balance $ 300,000 $ 320,000 $ 100,000 $ 110,000

Loan to Henry $ (20,000)
Partner equity $ 300,000 $ 300,000 $ 100,000 $ 110,000
Divided by profit ra 40% 30% 20% 10%
Loss Absorption
Potential $ 750,000 $ 1,000,000 $ 500,000 $ 1,100,000
Vulnerability ranks 2 3 1 4

Schedule of Assumed Loss Absorption:

Gary Henry Ian Joseph
Equities $ 300,000 $ 300,000 $ 100,000 $ 110,000
Loss to absorb Ian’ $ (200,000) $ (150,000) $ (100,000) $ (50,000)
$ 100,000 $ 150,000 $ - $ 60,000
Loss to absorb Gary $ (100,000) $ (75,000) $ (25,000)
$ - $ 75,000 $ 35,000
Loss to absorp Henry’s equity $ (75,000) $ (25,000)
$ - $ 10,000

Cash Distribution Plan:

Priority
Contigency Fund Gary Henry
Liabilities
First $100,000 100%
Next $50,000 100%
Next $10,000
Next $100,000 3/4
Next $200,000 1/2 3/8
Reminder 40% 30%
(Profit and loss sharing ratios)
 Available cash to distribute ($200,000 + $100,000)

Priority
Contigency Fund Gary Henry
Liabilities
First $100,000 $100,000
Next $50,000 $50,000
Next $10,000
Next $100,000 $75,000
Next $40,000 $20,000 $15,000
Distribution to Partners $20,000 $ 90,000

P17-8 Installment liquidation—Safe payments schedule

Jason, Kelly, and Becky Pa

Statement of Partnership L
For Period January 1, 11 through F

Cash

Balance january 1 16,500

Offset loan to Jason
Collection of receivables 25,000
Liquidation expenses (2,000)
Predistribution balances 39,500
Cash distribution :
Creditors (21,000)
Partners - Schedule A (13,500)
Balance January 31 5,000
Liability discovered
Liquidation expenses (2,000)
Sale of remaining assets 108,000
Predistribution balances 111,000
Cash distribution :
Creditors 3,000
Partners - Schedule B (108,000)
Balances February 28 -

Schedule A
 Possible Losses

Partners' equity January 31

Allocate posiible losses 126,500

Allocate Jason's deficit

Safe payments to partners January 31

Schedule B

Partner's equity February 28

Safe payments to partners February 28
s of liquidation. On January 1, 2011, the ledger shows account balances

$ 10,000 Accounts Payable $ 15,000

25,000 Folly Capital 40,000
40,000 Frill Capital 20,000

d for $25.000, and during January, account receivable of $21.000 are

e are expected. Profts are shared 60 percent to Folly and 40 percent to

e cash available on February 1, 2011, should be distributed.

hedule of Capital Balances

60% Folly 40% Frill

$ 40,000 $ 20,000
$ 15,000 (9,000) (6,000)

4,000 (2,400) (1,600)

$ 28,600 $ 12,400

$ 15,000
28,600
12,400
$ 56,000

.000 + $21.000 = $ 56,000

1, 2011, the ledger of Mike, Nan, and Okey contained the following

$ 39,000 Accounts Payable $ 5,000

16,000 Mike Capital (40%) 15,000
Nan Capital (30%) 8,000
Okey Capital (30%) 27,000

cide to liquidate the business. During January some of the inventory is

2, all available cash is distributed. It is not known if the remaining

y to account for the transactions of the partnership during January 2012.

$ 10,000
$ 10,000

$ 5,000
$ 5,000

$ 12,600
6,200
25,200
$ 44,000

ash to partners computed as follows:

Capital — Posible Loss from Unsold = Balance
Balance Inventory
$ 15,000 $ 2,400 $ 12,600
8,000 1,800 6,200
27,000 1,800 25,200
$ 50,000 $ 6,000 $ 44,000

ents schedule

Account balances on January 1, 2011, are as follows:

tribute available cash immediately

each partner

30% Ethel 40% Lucy

$ 25,000 $ 90,000
$ -3,000 $ -4,000

$ -36,000 $ -48,000
$ -14,000 $ 38,000

$ 14,000 $ -8,000
$ - $ 30,000

ents schedule

mmediately. The assets, equities, and profit and loss

landscaping services of $5,000 is discovered. Kim

ects to have the money in a month or two.

s and partners

50% Jan 30% Kim 20% Lee

$ 59,000 $ 29,000 $ 52,000
$-20,000
$ -30,000 $-18,000 $ -12,000
 $ -2,500 $ -1,500 $ -1,000
$ 26,500 $-10,500 $ 39,000

$ -7,500 $ 10,500 $ -3,000

$ 19,000 $ - $ 36,000

s, Freda, and Grace partnership on January 1, 2011, shows the following :

Liabilities 80,000
Evers Capital (40%) 100,000
Freda Capital (40%) 250,000
Grace Capital (20%) 170,000
600,000
uring January they sell assets with a book value of 300.000 for 170.000

ash to be distributed to each partner if all available cash,

distributed immediately after the sale.

a, and Grace Partnership

Payment Schedule

40% Freda 20% Grace Total

250,000 170,000 520,000
- 52,000 - 26,000 - 130,000
198,000 144,000 390,000
- 84,000 - 42,000 - 210,000
114,000 102,000 180,000
- 24,000 - 12,000
90,000 90,000 180,000

ance 100.000 + sale of assets 170.000 - contingency fund 10.000 = 260.000

ounts Payable 80,000
90,000
90,000
260,000

, and the partnership ledger shows the following balances after

ash distributed:
percent; Betty, 40 percent; and Carle, 30 percent.

Carle
60,000
40,000

p and final closing of the books if the partnership creditors recover 30.000 from Betty.

e for Phase out of the Partnership

30% Alice 40% Betty 30% Carle Total

20,000 - 120,000 70,000 - 30,000
30,000 30,000
20,000 - 90,000 70,000 0
20,000 20,000
20,000 - 70,000 70,000 20,000
- 35,000 70,000 - 35,000
- 15,000 0 35,000 20,000
10,000 10,000
- 5,000 35,000 30,000
5,000 - 5,000
0 30,000 30,000
- 30,000 - 30,000
0 0

ash distributed to creditors,

g balances :
rsonal assets and liabilities of the partners are as follows :

Fred
$ 100,000
40,000

ms, and the partners settle their claims against

p and final closing of the books.

p
ship

Fred Capital
Total
30%
$ -90,000 $ -20,000
20,000 20,000
- 70,000 -

40,000 40,000
- 30,000 40,000

30,000
- 40,000

5,000
- 45,000

- 45,000
-
onal creditors, and less the $ 20.000 paid
ccounts balances.

1, and the account balances at June 30, 2011,

Personal Liabilities
$ 300,000
150,000
300,000
20,000

e paid on July 1, 2011.

ys $ 80.000. No further contributions

tners on July 15,2011.

July 31, 2011.

on partnership for the period June 30, 2011 to July 31, 2011.

on
quidation
y 31, 2011
 Ben Capital Cid Capital Don Capital
20% 20% 10%
$ 10,000 $ -170,000 $ -80,000

10,000 - 170,000 - 80,000

10,000 - 170,000 - 80,000

100,000
80,000
10,000 - 70,000 -

- 20,000 70,000
- 10,000 -

10,000
-

ss of liquidation. On January 1, 2011, the ledger accounts show the balances indicated:
Barney Capital $ 72,000
Betty Capital 28,000
Rubble Capital 15,000
pplies are sold for a lumpsum price of $81,000 on February 9, 2011, and on February 10,
he business.

on January 1, 2011. Include a safe payments schedule

rtners sharing profits and losses equally

 Possible Barney Betty Rubble
Losses Capital Capital Capital
72 28 15

(90) (30) (30) (30)

42 (2) (15)

(17) 2 15
25 - -

25,000
25,000

1, to record the sale of assets and distribution of the gain or loss to the partners’ capital

81,000
3,000
3,000
3,000
72,000
18,000

ary 10, 2011, in final liquidation of the business.

UNT IN THOUSAND)
Noncash Barney Betty Rubble
Assets Capital Capital Capital
90 72 28 15
- (25) - -
90 47 28 15
(90) (3) (3) (3)
- 44 25 12
- (44) (25) (12)
- - - -

44,000
 25,000
12,000
81,000

d Grunther Partnership
stribution Plan

vulnerability
rank
1
2
3

grunther total
205,000 495,000
(200,000) (400,000)
5,000 95,000

(5,000) (8,000)
0 87,000

grunther
capital

5÷8
50%
 seph Partnership
on Plan

Ian Joseph

100%

1/8
20% 10%
fit and loss sharing ratios)
 $300,000

Ian Joseph

$10,000
$25,000
$5,000
$ 40,000

Jason, Kelly, and Becky Partnership

Statement of Partnership Liquidation
For Period January 1, 11 through February 28, 2011

Noncash Priority 50% Jason 30% Kelly

Assets Liabilites Capital Capital
163,500 21,000 69,000 47,000
(14,000) (14,000)
(28,000) (1,500) (900)
(1,000) (600)
121,500 21,000 52,500 45,500

(21,000)
(1,100)
121,500 - 52,500 44,400
3,000 (1,500) (900)
(1,000) (600)
(121,500) (6,750) (4,050)
- 3,000 43,250 38,850

(3,000)
43,250 (38,850)
- -
50% Jason 30% Kelly 20% Becky
Equity Equity Equity

52,500 45,500 42,000

(63,250) (37,950) (25,300)
(10,750) 7,550 16,700
10,750 (6,450) (4,300)
- 1,100 12,400

43,250 38,850 25,900

43,250 38,850 25,900
20% Becky
Capital
43,000

(600)
(400)
42,000

(12,400)
29,600
(600)
-400
(2,700)
25,900

(25,900)
-