In its loss simulation schedule, what is the amount of assumed loss in step 3? Q
ID: 2429627 • Letter: I
Question
In its loss simulation schedule, what is the amount of assumed loss in step 3?
Question 15 options:
$33,500
$43,500
$35,200
$42,500
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$33,500
$43,500
$35,200
$42,500
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The partnership of Wingler, Noris Rodgers, and Guthrie was formed several years ago as a architectural firm. Several partnersrecently had personal financial problems and decided to terminate operations and liquidate the business The following balance sheet ?mmarizec its financial information on January 5 at the beginning of thisprocess: Cash Accounts Receivable InventorY Land Building and Equipment (net! Total Assets $15,000 82,000 101,000 85,000 168 000 451,000 Liabilities Rodgers, Loan Wingler, Capital Norris, Capital Rodgers Capital Gu thrie, Capital Total Liabilties and Capital $74,000 35,000 120,000 88,000 74,000 51,000 The estimated liquidation expenses were Profit and loss allocation ratio according to the provisions of partnership agreement: 16,000 Wingler Norris Rodgers Guthrie 30% 10% 20% 40% The following transactions occurred during the liquidation Jan. 14 Collected 80% of the total accounts receivalbe with the rest judged to be uncollectible Feb. 23 Sold the land, building and equipment for Mar. 11 Made safe capital distributions Mar.29 Learned that Guthrie became personally in solvent Apr, 3 Paid al liabilities Jun. 30 Sold al ventory for Jul 13 Made safe capital distributions again Sep, 26 Paid liquidation expenses Nov, 4 Made final cash distrubtions to the partners based on the assimption thatall partners except Guthi are personally solvent. 80% 150,000 71,000 11,000Explanation / Answer
Part-1: Pre-distribution plan:
30%
10%
20%
40%
Winger
Norris
Rodgers
Guthrie
loan
35,000
Beg balance
$120,000
$88,000
$74,000
$60,000
Total balance
$120,000
$88,000
$109,000
$60,000
Note-1: Loss of 150,000 in (30%, 10%, 20%,40%)
-45000
-15000
-30000
-60000
Balance
$75,000
$73,000
$79,000
$0
Note-2: Loss of 150,000 in (30%,10%,20%)
-75000
-25000
-50000
0
Balance
$0
$48,000
$29,000
$0
Note-3: Loss of 43,500 in (10%,20%)
-14,500
-29,000
Balance
$0
$33,500
$0
$0
Note-1: Loss of $150,000 assumed allocation:
Profit/ loss sharing = a
30%
10%
20%
40%
Wingler
Norris
Rodgers
Guthrie
Beg balance
$120,000
$88,000
$74,000
$60,000
loan
35,000
Total capital balance = b
$120,000
$88,000
$109,000
$60,000
Maximum loss that can be allocated = b/a
$400,000
$880,000
$545,000
$150,000
(most vulnerable to loss)
Note-2: Loss of $150,000 assumed allocation:
Profit/ loss sharing = a (30:10:20 total 60)
30%
10%
20%
Wingler
norris
Rodgers
Capital balance after note-1, allocation= b
$75,000
$73,000
$79,000
= b/a
=75,000 / (30/60)
=73,000 / (10/60)
=79,000 / (20/60)
Maximum loss that can be allocated
$150,000
(most vulnerable to loss)
$438,000
$237,000
Note-3: Loss of $43,500 assumed allocation:
Profit/ loss sharing = a (10:20 total 30)
10%
20%
Norris
Rodgers
Capital balance after note-2, allocation= b
$48,000
$29,000
= b/a
=48,000 / (10/30)
=29,000 / (20/30)
Maximum loss that can be allocated
$43,500 (most vulnerable to loss)
$144,000
Part-B:
30%
10%
20%
40%
Cash
A/R
inventory
land, build &equip
liabilities
Wingler capital
norris capital
Rodgers capital and loan
Guthrie capital
Beg bal.
15,000
82,000
101,000
253,000
74,000
120,000
88,000
109,000
60,000
Received80% from A/R
65,600
(65,600)
loss of A/R, allocated to partners
(16,400)
(4,920)
(1,640)
(3,280)
(6,560)
Land sold
150,000
(150,000)
loss of land, build & equip, allocated to partners
(103,000)
(30,900)
(10,300)
(20,600)
(41,200)
Paid liabilities
(74,000)
(74,000)
Liquidation expenses
(16,000)
Sold inventory
71,000
(71,000)
loss of inventory, allocated to partners
(30,000)
(9,000)
(3,000)
(6,000)
(12,000)
Balance
211,600
-
-
-
-
75,180
73,060
79,120
240
Cash allocation as per part-A:
(140,600)
(31,800)
(58,600)
(50,200)
71,000
-
-
-
-
-
43,380
14,460
28,920
240
(71,000)
(35,500)
(11,833)
(23,667)
-
Liquidation expenses 11,000
(3,300)
(1,100)
(2,200)
(4,400)
balance
-
-
-
-
-
-
4,580
1,527
3,053
(4,160)
insolvent partners capital allocation
(2,080)
(693)
(1,387)
4,160
Current balance
-
-
-
-
-
-
2,500
833
1,667
-
Journal entries:
Account title
Debit
Credit
Cash
Wingler, Capital (30%*16,400 loss)
Norris, Capital (10%)
Rodgers, Capital (20%)
Guthrie, Capital (40%)
To Accounts Receivable
(losses allocated to partners)
65,000
4,920
1,640
3,280
6,560
82,000
Cash
Wingler, Capital (30%*16,400 loss)
Norris, Capital (10%)
Rodgers, Capital (20%)
Guthrie, Capital (40%)
To Land
To Build & equip
(losses allocated to partners)
150,000
30,900
10,300
20,600
41,200
85,000
168,000
Wingler, Capital
Norris, Capital
Rodgers, Capital
Rodgers, loan
To Cash
(Cash allocation as per part-A distribution)
31,800
58,600
35,000
15,200
140,600
Liabilities
To Cash
(paid liabilities)
74,000
74,000
Cash
Wingler, Capital (30%*30,000 loss)
Norris, Capital (10%)
Rodgers, Capital (20%)
Guthrie, Capital (40%)
To Inventory
(losses allocated to partners)
71,000
9,000
3,000
6,000
12,000
101,000
Wingler, Capital
Norris, Capital
Rodgers, Capital
To Cash
(Balance Cash allocation )
35,500
11,833
23,667
71,000
Wingler, Capital
Norris, Capital
Rodgers, Capital
To Guthrie, Capital
(insolvent partner allocation )
2,080
693
1,387
4,160
30%
10%
20%
40%
Winger
Norris
Rodgers
Guthrie
loan
35,000
Beg balance
$120,000
$88,000
$74,000
$60,000
Total balance
$120,000
$88,000
$109,000
$60,000
Note-1: Loss of 150,000 in (30%, 10%, 20%,40%)
-45000
-15000
-30000
-60000
Balance
$75,000
$73,000
$79,000
$0
Note-2: Loss of 150,000 in (30%,10%,20%)
-75000
-25000
-50000
0
Balance
$0
$48,000
$29,000
$0
Note-3: Loss of 43,500 in (10%,20%)
-14,500
-29,000
Balance
$0
$33,500
$0
$0
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