P 17-1 Cash distribution plan and entries—Installment
Barney, Betty, and Rubble are partners in a business that is in the process of liquidation. On January 1, 2011, the ledger accounts show the balances indicated: Cash $25,000 Barney capital $72,000 Inventory 72,000 Betty capital 28,000 Supplies 18,000 Rubble capital 15,000
The cash is distributed to partners on January 1, 2011. Inventory and supplies are sold for a lumpsum price of $81,000 on February 9, 2011, and on February 10, 2011, cash on hand is distributed to the partners in final liquidation of the business. REQUIRED 1. Prepare the journal entry to distribute available cash on January 1, 2011. Include a safe payments schedule as proper explanation of who should receive cash. 2. Prepare journal entries necessary on February 9, 2011, to record the sale of assets and distribution of the gain or loss to the partners’ capital accounts. 3. Prepare the
P 17-4 Installment liquidation The partnership of Gary, Henry, Ian, and Joseph is preparing to liquidate. Profit and loss sharing ratios are shown in the summarized balance sheet at December 31, 2011, as follows: Cash $200,000 Other liabilities $100,000 Inventories 200,000 Gary capital (40%) 300,000 Loan to Henry 20,000 Henry capital (30%) 320,000 Other assets 510,000 Ian capital (20%) 100,000 Joseph capital (10%) 110,000 $930,000 $930,000 REQUIRED 1. The partners anticipate an installment liquidation. Prepare a cash distribution plan as of January 1, 2012, that includes a $50,000 contingency fund to help the partners predict when they will be included in cash distributions. 2. During January 2012, the inventories are sold for $100,000, the other liabilities are paid, and $50,000 is set aside for contingencies. The partners agree that loan balances should be closed to capital accounts and that remaining cash (less the contingency fund) should be distributed to partners. How much cash should each partner receive?
P 17-6 Installment liquidation Jones, Smith, and Tandy are partners in a furniture store that began liquidation on January 1, 2011, when the ledger contained the following account balances: Debit Credit
Cash $ Accounts receivable Inventories Land Buildings Accumulated depreciation—buildings Furniture and fi xtures Accumulated depreciation—furniture and fi xtures
15,000 20,000 65,000 50,000 100,000 40,000 50,000
Accounts payable Jones capital (20%) Smith capital (30%) Tandy capital (50%) 300,000
30,000 80,000 40,000 60,000 50,000 300,000
The following transactions and events occurred during the liquidation process: January Inventories were sold for $20,000 cash, collections on account totaled
$14,000, and half of the amount due to creditors was paid. February Land costing $40,000 was sold for $60,000, the remaining land and buildings were sold for $40,000, half of the remaining receivables were collected, and the remainder were uncollectible. March The remaining liabilities were paid, and available cash was distributed to the partners in fi nal liquidation. REQUIRED: Prepare a statement of liquidation for the Jones, Smith, and Tandy partnership
P 17-7 Installment liquidation The after-closing trial balance of the Lin, Mary, and Nell partnership at December 31, 2011, was as follows: Debit Credit
Cash $ 47,000 Receivables—net 25,000 Inventories 20,000 Plant assets—net 50,000 Accounts payable $ 55,000 Lin capital (50%) 55,000 Mary capital (30%) 12,000 Nell capital (20%) 20,000 Total $ 142,000 $142,000 ADDITIONAL INFORMATION 1. The partnership is to be liquidated as soon as the assets can be converted into cash. Cash realized on conversion of assets is to be distributed as it becomes available, except that $10,000 is to be held to provide for contingencies during the l iquidation period. 2. Profits and losses on liquidation are to be divided in the percentages indicated in the trial balance. REQUIRED 1. Prepare a cash distribution plan for the Lin, Mary, and Nell partnership. 2. If $25,000 cash is realized from the receivables and inventories during January 2012, how should the cash be distributed at the end of January? (Assume that this is the first distribution of cash during the liquidation period.).
Solution P17-1 1
Entries on trustee’s books: March 1, 2008
Cash Accounts receivable — net Inventories Land Buildings — net Intangible assets Accounts payable Note payable — unsecured Revenue received in advance Wages payable Mortgage payable Estate equity To record custody of Scott Corporation in liquidation.
$ 4,000 8,000 36,000 20,000 100,000 26,000 $50,000 40,000 1,000 3,000 80,000 20,000
March 2008
Cash Estate equity
$ 7,200 800
Accounts receivable — net To record collection of receivables and recognize loss. Cash Estate equity
$ 8,000
$ 19,400 16,600
Inventories To record sale of inventories at a loss. Cash Estate equity
$36,000
$ 90,000 30,000
Land Buildings — net To record sale of land and buildings at a loss. Estate equity
$ 20,000 100,000
$ 26,000
Intangible assets To write off intangible assets at a loss. Estate equity Administrative expenses payable — new To accrue trustee expenses.
$ 26,000
$ 8,200 $ 8,200
2
Scott Corporation in Trusteeship Balance Sheet at March 31, 2008 Assets
Cash
$120,600
Liabilities And Deficit
Accounts payable Note payable — unsecured Revenue received in advance Wages payable Mortgage payable Administrative expenses payable — new Total liabilities Less: Estate deficit
$ 50,000 40,000 1,000 3,000 80,000 8,200 182,200 (61,600)
Total liabilities less deficit
$120,600
Statement of Cash Receipts and Disbursements from March 1 to March 31, 2008 Cash balance, March 1, 2008 Add: Cash receipts Collections of receivables Sale of inventories Sale of land and buildings
$ 4,000
$ 7,200 19,400 90,000
Less: Cash disbursements (none)
116,600 120,600 0
Cash balance, March 31, 2008
$120,600
Statement of Changes in Estate Equity from March 1 to March 31, 2008 Estate equity, March 1, 2008
$20,000
Less: Loss on uncollectible receivables Loss on sale of inventories Loss on sale of land and buildings Loss on write-off of intangibles Administrative expenses Estate deficit, March 31, 2008
$ 800 16,600 30,000 26,000 8,200
81,600 $61,600
3
Entries on trustee’s books: April 2008
Mortgage payable $80,000 Cash $80,000 To record payment of secured creditors from proceeds from sale of land and buildings. Administrative expenses payable — new Revenue received in advance Wages payable Cash To record payment of priority liabilities.
$ 8,200 1,000 3,000 $12,200
Accounts payable $15,800 Note payable — unsecured 12,600 Cash $28,400 To record payment of $.32 per dollar to unsecured creditors (available cash of $28,400 divided by unsecured claims of $90,000). Accounts payable Note payable — unsecured Estate equity To write off remaining liabilities and close trustee’s records.
$34,200 27,400 $61,600
