After the accounts are closed on April 10, 2014, prior to liquidating the partnership, the capital accounts of Zach Fairchild, Austin Lowes, and Amber Howard are $42,000, $7,500, and $36,500, respectively. Cash and noncash assets total $23,500 and $84,500, respectively. Amounts owed to creditors total $22,000. The partners share income and losses in the ratio of 1:1:2. Between April 10 and April 30, the noncash assets are sold for $48,500, the partner with the capital deficiency pays the deficiency to the partnership, and the liabilities are paid.
Instructions
1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
2. Assume the partner with the capital deficiency 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.
Answer:
FAIRCHILD, LOWES, AND HOWARD
Statement of Partnership Liquidation
For the Period April 10–30, 2014
Noncash
Capital
Fairchild Lowes Howard
Cash + Assets = Liabilities + (1/4) + (1/4) + (2/4)
Balances before realization $23,500 $84,500 $22,000 $42,000 $ 7,500 $36,500
Sale of assets and division of loss +48,500 –84,500 — –9,000 –9,000 –18,000
Balances after realization $72,000 $ 0 $22,000 $33,000 $(1,500) $18,500
Payment of liabilities –22,000 — –22,000 — — —
Balances after payment of liabilities $50,000 $ 0 $ 0 $33,000 $(1,500) $18,500
Receipt of deficiency +1,500 — — — +1,500 —
Balances $51,500 $ 0 $ 0 $33,000 $ 0 $18,500
Cash distributed to partners –51,500 — — –33,000 — –18,500
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Zach Fairchild, Capital 500
Amber Howard, Capital 1,000
Austin Lowes, Capital 1,500
Zach Fairchild, Capital* 32,500
Amber Howard, Capital** 17,500
Cash 50,000
1.
a.
b.
c.
d.
2. a.
The $1,500 deficiency of Lowes would be divided between the other partners, Fairchild and Howard, in their
income-sharing ratio (1:2 respectively). Therefore, Fairchild would absorb 1/3 of the $1,500 deficiency, or $500,
and Howard would absorb 2/3 of the $1,500 deficiency, or $1,000.
b.
*$33,000 – $500
**$18,500 – $1,000
Instructions
1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
2. Assume the partner with the capital deficiency 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.
Answer:
FAIRCHILD, LOWES, AND HOWARD
Statement of Partnership Liquidation
For the Period April 10–30, 2014
Noncash
Capital
Fairchild Lowes Howard
Cash + Assets = Liabilities + (1/4) + (1/4) + (2/4)
Balances before realization $23,500 $84,500 $22,000 $42,000 $ 7,500 $36,500
Sale of assets and division of loss +48,500 –84,500 — –9,000 –9,000 –18,000
Balances after realization $72,000 $ 0 $22,000 $33,000 $(1,500) $18,500
Payment of liabilities –22,000 — –22,000 — — —
Balances after payment of liabilities $50,000 $ 0 $ 0 $33,000 $(1,500) $18,500
Receipt of deficiency +1,500 — — — +1,500 —
Balances $51,500 $ 0 $ 0 $33,000 $ 0 $18,500
Cash distributed to partners –51,500 — — –33,000 — –18,500
Final balances $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Zach Fairchild, Capital 500
Amber Howard, Capital 1,000
Austin Lowes, Capital 1,500
Zach Fairchild, Capital* 32,500
Amber Howard, Capital** 17,500
Cash 50,000
1.
a.
b.
c.
d.
2. a.
The $1,500 deficiency of Lowes would be divided between the other partners, Fairchild and Howard, in their
income-sharing ratio (1:2 respectively). Therefore, Fairchild would absorb 1/3 of the $1,500 deficiency, or $500,
and Howard would absorb 2/3 of the $1,500 deficiency, or $1,000.
b.
*$33,000 – $500
**$18,500 – $1,000
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