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
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 |
Get Answers For Free
Most questions answered within 1 hours.