Question

On November 1, 2016, the firm of Sails, Welch, and Greenberg decided to liquidate their partnership. The partners have capital balances of $57,800, $72,050, and $10,390, respectively. The cash balance is $32,470, the book values of noncash assets total $127,810, and liabilities total $20,040. The partners share income and losses in the ratio of 2:2:1.

Required:

1.

Prepare a statement of partnership liquidation, covering the period November 1–30, 2016, for each of the following independent assumptions:

a.

All of the noncash assets are sold for $155,360 in cash, the creditors are paid, and the remaining cash is distributed to the partners.*

b.

All of the noncash assets are sold for $54,690 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.*

* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for sale of assets, payment of liabilities, receipt of deficiency, or cash distribution rows, the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0".

2.

Assume the partner with the capital deficiency in part (b) declares bankruptcy and is unable to pay the deficiency. Journalize the entries on Nov. 30 to (a) allocate the partner’s deficiency and (b) distribute the remaining cash. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

CHART OF ACCOUNTS

Sails, Welch, and Greenberg

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable
113	Allowance for Doubtful Accounts
114	Interest Receivable
115	Notes Receivable
116	Inventory
117	Supplies
118	Office Supplies
119	Prepaid Insurance
120	Land
123	Building
124	Accumulated Depreciation-Building
125	Equipment
126	Accumulated Depreciation-Equipment
129	Asset Revaluations
133	Patent

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Sales Tax Payable
214	Interest Payable
215	Notes Payable

	EQUITY
310	Sails, Capital
311	Sails, Drawing
312	Welch, Capital
313	Welch, Drawing
314	Greenberg, Capital
315	Greenberg, Drawing
330	Income Summary

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Salary Expense
521	Advertising Expense
522	Depreciation Expense-Building
523	Depreciation Expense-Equipment
526	Repairs Expense
529	Selling Expenses
531	Rent Expense
533	Insurance Expense
534	Supplies Expense
535	Office Supplies Expense
536	Credit Card Expense
537	Cash Short and Over
538	Property Tax Expense
539	Miscellaneous Expense
710	Interest Expense

Labels and Amount Descriptions

Labels
For Period November 1–30, 2016
For the Year Ended November 30, 2016
Amount Descriptions
Balances after payment of liabilities
Balances after realization
Balances before realization
Capital additions
Cash distributed to partners
Final balances
Less partner withdrawals
Net income for the year
Payment of liabilities
Receipt of deficiency
Sale of assets and division of gain
Sale of assets and division of loss

Statements of Partnership Liquidation

1. a. Prepare a statement of partnership liquidation, covering the period November 1–30, 2016. Assume that all of the noncash assets are sold for $155,360 in cash, the creditors are paid, and the remaining cash is distributed to the partners. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for sale of assets, payment of liabilities, receipt of deficiency, or cash distribution rows, the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0".

Sails, Welch, and Greenberg

Statement of Partnership Liquidation

1		Cash +	Noncash Assets =	Liabilities +	Capital, Sails (2/5) +	Capital, Welch (2/5) +	Capital, Greenberg (1/5)
2
3
4
5
6
7
8

1. b. Prepare a statement of partnership liquidation, covering the period November 1–30, 2016. Assume that all of the noncash assets are sold for $54,690 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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers (balance deficiencies, payments, cash distributions, divisions of loss), use a minus sign. If there is no amount to be reported for sale of assets, payment of liabilities, receipt of deficiency, or cash distribution rows, the cell can be left blank. However, in the balance rows, a balance of zero MUST be indicated by entering "0".

Sails, Welch, and Greenberg

Statement of Partnership Liquidation

1		Cash +	Noncash Assets =	Liabilities +	Capital, Sails (2/5) +	Capital, Welch (2/5) +	Capital, Greenberg (1/5)
2
3
4
5
6
7
8	Balances
9
10

Journal

Assume the partner with the capital deficiency in part (b) declares bankruptcy and is unable to pay the deficiency. Journalize the entries on Nov. 30 to (a) allocate the partner’s deficiency and (b) distribute the remaining cash. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6

Answer 1

1.A	Sails, Welch, and Greenberg
	Statement of Partnership Liquidation
		Cash	Noncash Assets	Liabilities	Capital, Sails (2/5)	Capital, Welch (2/5)	Capital, Greenberg (1/5)
	Opening Balance	$32,470	$155,360	$20,040	$57,800	$72,050	$10,390
	Payment to Liabilities	$12,430	$155,360	0	$57,800	$72,050	$10,390
	Payment towards capital	0	$127,810	0	$0	$0	$0
1.B	Sails, Welch, and Greenberg
	Statement of Partnership Liquidation
		Cash	Noncash Assets	Liabilities	Capital, Sails (2/5)	Capital, Welch (2/5)	Capital, Greenberg (1/5)
	Opening Balance	$32,470	$54,690	$20,040	$57,800	$72,050	$10,390
	Payment to Liabilities	$12,430	$54,690	0	$57,800	$72,050	$10,390
	Payment towards capital	0	$3,034	0	$26,848	$26,848	$10,390
	Balance c/f from Greenberg	0	3034	0	$1,517	$1,517	0
	Balance	0	0	0	$29,435	$43,685	0