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:

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 $98,000 for $66,000.

Paid all liabilities.

Distributed cash based on safe capital balances again.

Sold remaining noncash assets for $53,000.

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.

Part C

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

Cash $ 66,000 Liabilities $ 46,000 Noncash assets 231,000 Frick, capital (60%) 135,000 Wilson, capital (20%) 37,000 Clarke, capital (20%) 79,000 Total assets $ 297,000 Total liabilities and capital $ 297,000

Explanation / Answer

Part A) Pre Distribution Plan; Total Assets   $      297,000.00 Less: Liabilities   $        46,000.00 Assets available for distribution $      251,000.00 Capital Sharing Ratio Frick $       0.60 $      150,600.00 Wilson $       0.20 $        50,200.00 Clarke $       0.20 $        50,200.00 Part B Step 1: Distribute cash based on capital Balance unpaid Frick $ 135,000.00 $        35,498.00 $        99,502.00 $           5,378.00 $        94,124.00 $ 71,534.00 $ 22,590.00 Wilson $    37,000.00 $           9,729.00 $        27,271.00 $           1,474.00 $        25,797.00 $ 19,606.00 $    6,191.00 Clarke $    79,000.00 $        20,773.00 $        58,227.00 $           3,148.00 $        55,079.00 $ 41,860.00 $ 13,219.00 Total $ 251,000.00 $      185,000.00 $      175,000.00 Cash $    66,000.00 Non Cash Assets $        66,000.00 Less: Liabilities $        46,000.00 Less: Liquidation Exp $        10,000.00 Balance Cash $        10,000.00 (Distributed) Remaining net assets $      133,000.00 Part C Entries Liquidation A/c Dr. $      231,000.00 To Fixed Assets $      231,000.00 Liquidation A/c Dr. $        66,000.00 To Cash $        66,000.00 Liabilities A/c Dr. $        46,000.00 To Liquidation A/c $        46,000.00 Frick Capital A/c Dr. $      135,000.00 Wilson Capital A/c Dr. $        37,000.00 Clarke Capital A/c Dr. $        79,000.00 To Liuidation A/c $      251,000.00

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