On June 3,2010, the firm of McAdams, Cooper, and Zhang decided to liquidate thei

Question

On June 3,2010, the firm of McAdams, Cooper, and Zhang decided to liquidate their partnership. The partners have capital balances of $14,000,$84,000 and $118,00, respectively. The cash balance is $29,000, the book values of noncash assets total $242,000 and liabilities total $55,000. The partners share income and losses in the ratio of 1:2:2.

1. Prepare a statement of partnership liquidation, covering the period June 3-29,2010, for each of the following independent assumptions:
a. All of the noncash assets are sold for $290,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners.
b. All of the noncash assets are sold for $132,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.

2. Assume the partner with the capital deficiency in part (b) above declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner's deficiency and (b) distribute the remaining cash.

Explanation / Answer

Cash Account Balance $29,000 creditors 55000 all non cash assets $290,000 Balance $264,000 Total $319,000 $319,000 Realisation Account Non cash assets $242,000 Liabilities 55000 cash--creditors $55,000 cash-sale of assets $290,000 profit on realisation $48,000 $345,000 $345,000 Capital Accounts Mcadams cooper Zhang Balances $14,000 $84,000 $118,000 profit on realisation $9,600 $19,200 $19,200 $23,600 $103,200 $127,200 cash $23,600 $103,200 $127,200 Balances Nil Nil Nil 2. allassets are sold for $132000 and creditors paid Realisation Accounts Non cash assets $242,000 Liabilities $55,000 cash-creditors $55,000 cash-sale of assets $132,000 Loss on realisation $110,000 $297,000 $297,000 cash Balance $29,000 creditors $55,000 realisation-assets $132,000 Cooper $4,000 Transferred to $114,000 Zhang $4,000 partners capitals Total $169,000 $169,000 capital accounts Mcadams cooper Zhang $14,000 $84,000 $118,000 Loss on realisation- ($22,000) ($44,000) ($44,000) Balance ($8,000) $40,000 $74,000 cash $40,000 $74,000 Balance    Nil Nil Nil Note:Mcdams is having a nagative capitalof $8000, so he has to bring $8000 into the business.as he is bankrupt the loss of his capital will be shared betweeen cooper and Zhang in their profit sharing ratios, that is equal. So each partner has to introduce $4000 each to conpensate the capital loss of Mcadams. For adjusting the capital loss between the other two partners Cooper capital $4,000 Zhang capital $4,000       Mcadams capital $8,000 Final accounts settlement cooper capital $40,000 Zhang capital $74,000         cash $114,000

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