Homework SourseThe partnership of Butler Osman and Ward was formed several
The partnership of Butler, Osman, and Ward was formed several years as a local tax preparation firm. Two partners have reached retirement age and the partners have decided to terminate operations and liquidate the business. Liquidation expenses of $38,000 are expected. The partnership balance sheet at the start of liquidation is as follows:
Prepare a predistribution plan for this partnership. -Done
The following transactions transpire in chronological order during the liquidation of the partnership:
1.)Collected 90 percent of the accounts receivable and wrote the remainder off as uncollectible.
2.)Sold the office equipment for $22,000, the building for $94,000, and the land for $136,000.
3.)Made safe capital distributions.
4.)Paid all liabilities in full.
5.)Paid actual liquidation expenses of $32,000 only.
6.) Made final cash distributions to the partners.
Prepare journal entries to record these liquidation transactions. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)
| Cash | $ | 34,000 | Liabilities | $ | 174,000 | ||
| Accounts receivable | 64,000 | Butler, loan | 34,000 | ||||
| Office equipment (net) | 54,000 | Butler, capital (25%) | 70,000 | ||||
| Building (net) | 130,000 | Osman, capital (25%) | 34,000 | ||||
| Land | 120,000 | Ward, capital (50%) | 90,000 | ||||
| Total assets | $ | 402,000 | Total liabilities and capital | $ | 402,000 | ||
Solution
1.
| BUTLER, OSMAN AND WARD | |||||||||||
| Statement of Partnership Liquidation | |||||||||||
| Event | Transaction | Cash | Acounts Receivable | Office Equipmet | Building | Land | Liabilities | Butler, Loan | Butler, capital 25% | Osman, capital 25% | Ward, capital 50% |
| Beginning Balances | 34000 | 64000 | 54000 | 130000 | 120000 | 174000 | 34000 | 70000 | 34000 | 90000 | |
| 1 | Colection of Accounts Receivable | 57600 | -64000 | -1600 | -1600 | -3200 | |||||
| Updated balances | 91600 | 0 | 54000 | 130000 | 120000 | 174000 | 34000 | 68400 | 32400 | 86800 | |
| 2 | Non-cash assets sold | 252000 | -54000 | -130000 | -120000 | -13000 | -13000 | -26000 | |||
| Updated balances | 343600 | 174000 | 34000 | 55400 | 19400 | 60800 | |||||
| 3 | Distribution of safe cash | -97600 | -24400 | -24400 | -48800 | ||||||
| Updated balances | 246000 | 174000 | 34000 | 31000 | -5000 | 12000 | |||||
| 4 | Payment of liabilities | -208000 | -174000 | -34000 | |||||||
| Updated balances | 38000 | 0 | 0 | 31000 | -5000 | 12000 | |||||
| 5 | Lquidation Expenses | -32000 | -8000 | -8000 | -16000 | ||||||
| Updated balances | 6000 | 0 | 0 | 23000 | -13000 | -4000 | |||||
| 6 | Final distribution | -6000 | -23000 | 13000 | 4000 | ||||||
| Updated balances | 0 | 0 | 0 | 0 | 0 | 0 | |||||
| 1. Los on accounts receivable of $6,400 (10% of $64,000) distributed to the partners as $16,00, $1,600 and $3,200. | |||||||||||
| 2. Los on sale of non-cash assets of $52,000 ($54,000+$130,000+$120,000 - $22,000 - $94,000 - $136,000) distributed to the partners as $13,000, $13,000 and $26,000 | |||||||||||
| 3. safe Cash = $343,600 - $174,000 - $34,000 - $38,000 = $97,600 distributed as $24,400, $24,400 and $48,800. |
