Question

A partnership has the following account balances at the date of termination: Cash, $93,000; Noncash Assets, $725,000; Liabilities, $363,000; Bell, capital (50 percent of profits and losses), $215,000; Mann, capital (30 percent), $150,000; Scott, capital (20 percent), $90,000. The following transactions occur during liquidation: Noncash assets with a book value of $565,000 are sold for $465,000 in cash. A creditor reduces his claim against the partnership from $120,000 to $100,000, and this amount is paid in cash. The remaining noncash assets are sold for $130,000 in cash. The remaining liabilities of $243,000 are paid in full. Liquidation expenses of $21,000 are paid in cash. Cash remaining after the above transactions have occurred is distributed to the partners. Prepare a statement of partnership liquidation to determine how much cash each partner receives from the liquidation of the partnership. (Amounts to be deducted should be entered with a minus sign.)

Answer 1

Bell, Mann, and Scott Partnership

Statement of Partnership Liquidation

Bell Mann Scott Total

Capital account balances $215,000 $150,000 $90,000 $455,000

Share of net loss (55,000) (33,000) (22,000) (110,000)

Capital account balances $160,000 $117,000 $68,000 345,000

Cash payment -160,000 -117,000 -68,000 -345,000

Ending balance $0 $0 $0 $0

Step-by-step explanation:

a) Data and Calculations:

Assets:

Cash, $93,000

Non-cash Assets, $725,000

Total assets $818,000

Liabilities, $363,000

Bell, capital $215,000

Mann, capital $150,000

Scott, capital $90,000

Total liabilities and owners capital $818,000

Profit and Loss Sharing Ratios:

Bell = 50%

Mann = 30%

Scott = 20%

Loss arising from the sale of non-cash assets and liabilities:

Book Value Cash Collected/Paid Loss/Gain

$565,000 $465,000 -$100,000

$160,000 $130,000 -$30,000

Gain from adjustment of liabilities:

$120,000 $100,000 $20,000

Net Loss to be shared among partners $110,000

Cash account

Balance $93,000

Non-assets 465,000

Non-assets 130,000 595,000

Liabilities (100,000)

Liabilities (243,000) (344,000)

Distributable balance $345,000