Question

Liquidation schedule—one negative capital account with no capital contribution
The ABC partnership reports the following condensed balance sheet:

Cash	$580,000		Liabilities	$800,000
Noncash assets	1,200,000		Partner A, capital	450,000
			Partner B, capital	450,000
			Partner C, capital	80,000
Total assets	$1,780,000		Total liabilities and partner capital	$1,780,000

The partners wish to liquidate the partnership. The noncash assets are sold for $900,000 with the loss distributed to the partners in the ratio of 30%/30%/40% to partner A, B, and C, respectively. The liabilities are paid in full. Assume that any partners with a negative balance in their respective Capital Accounts are insolvent and, therefore, do not make any capital contribution to the partnership (i.e., remaining partners must absorb the negative Capital Account according to their profit sharing formula). Prepare a schedule detailing the liquidation of the assets, repayment of the liabilities, and distribution of the remaining cash to the partners.

HINT: Use a negative sign with answers that reduce account balances.

Liquidation Schedule of ABC Partnership  -----Capital Accounts----- CashNoncash AssetsLiabilities ABCCapital account, prior to liquidation$Answer$Answer$Answer $Answer$Answer$AnswerSale of noncash assetsAnswerAnswerAnswer AnswerAnswerAnswer AnswerAnswerAnswer AnswerAnswerAnswerAllocation of deficitAnswerAnswerAnswer AnswerAnswerAnswer AnswerAnswerAnswer AnswerAnswerAnswerPayment of creditorsAnswerAnswerAnswer AnswerAnswerAnswer AnswerAnswerAnswer AnswerAnswerAnswerDistribution to partnersAnswerAnswerAnswer AnswerAnswerAnswerPost-liquidation balances$Answer$Answer$Answer $Answer$Answer$Answer

Answer 1

				30%	30%	40%
				Partners' Capital Accounts
Debit (Credit)	Cash	Noncash Assets	Liabilities	A	B	C
Balance prior to liquidation	580000	1200000	800000	450000	450000	80000
Sale of noncash assets	900000	-1200000	0	-90000	-90000	-120000
	1480000	0	800000	360000	360000	-40000
Allocation of deficit	0	0	0	-20000	-20000	40000
	1480000	0	800000	340000	340000	0
Payment of creditors	-800000	0	-800000	0	0	0
	680000	0	0	340000	340000	0
Distribution to partners	-680000	0	0	-340000	-340000	0
Post-liquidation balances	0	0	0	0	0	0