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The partners of Dunn, Carson & Devlin LLP shared net income and losses in a 3:2:

ID: 2420959 • Letter: T

Question

The partners of Dunn, Carson & Devlin LLP shared net income and losses in a 3:2:1 ratio, respectively. They decided to appoint a liquidator to liquidate the partnership. On May 31, 2013, the partnership's accounting records included cash, $42,500; other assets, $129,500; liabilities, $20,000; Dunn, capital, $75,000; Carson, capital, $55,000; and Devlin, capital, $22,000. The liquidator estimated that three months would be required to realize the other assets and that liquidation costs would amount to $4,500.

a.Prepare a cash distribution program showing how available cash should be paid to creditors and partners in the course of liquidation. A working paper is not required.

b.Prepare a journal entry to record cash payments to creditors and to partners on May 31, 2013, totaling $38,000.

Explanation / Answer

A./

CASH AVAILABLE IN BALANCE SHEET = $42500

LESS LIQUIDATION EXPENSES = ($4500)

AVAILABLE CASH FOR DISTRIBUTION = $38000

LESS CASH PAID TO CREDITORS = ($20000)

BALANCE AVAILABLE FOR PARTNERS = $18000

AS WE HAVE ON $18000 AVAILABLE FOR DISTRIBUTION TO PARTNESRS, FIRST $10000 WILL BE PAID TO CARSON AND THAN $8000 WILL BE PAID TO DUNN & CARSON EQUALY I;E $4000 TO DUNN & $4000 TO CARSON.

SO FROM THE $18000 AVAILABLE $14000 WILL BE PAID TO CARSON AND $4000 WILL BE PAID TO DUNN

B./

CREDITORS A/C......................................DR $20000

   TO CASH A/C $20000

DUNN'S CAPITAL A/C........................................DR $4000

CARSON'S CAPITAL A/C...................................DR $14000

   TO CASH A/C $18000

DUNN CARSON DEVLIN Capital balances (equities) before liquidation $75000 $55000 $22000 Income-sharing ratio 3 2 1 Capital per unit of income sharing $25000 $27500 $22000 First cash of $10000 ($2500 * 4 = $10000) to CARSON ------- ($2500) ---------- Capital per unit of income sharing $25000 $25000 $22000 Next $18000 to DUNN and CARSON: $3000 x 3 or $9000 to DUNN, and $3000 x 3 or $9000 to CARSON ($3000) ($3000)    Capital per unit of income sharing $22000 $22000 $22000 Any cash in excess of $28000 may be paid to DUNN, CARSON, and DEVLIN in the 3:2:1 ratio.
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