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Chapter 17
PARTNERSHIP LIQUIDATION
Answers to Questions
1

Dissolution of a partnership terminates the partnership as a legal entity, but the partnership business may
continue under a new agreement. When a partnership is liquidated, however, the partnership is terminated
both as a legal and as a business entity. Thus, a partnership may be dissolved without liquidation, but it
may not be liquidated without dissolution.

2

A simple partnership liquidation is the liquidation of a solvent partnership in which all partners have equity
capital and all gains and losses are realized and recognized before any distributions are made to the
partners. In simple partnership liquidations, only one cash distribution is made and the amounts distributed
to individual partners are equal to their predistribution capital account balances.

3

The priority ranking for the distribution of assets in liquidation pursuant to UPA is
Rank I
Rank II

Amounts owed to creditors other than partners and
amounts owed to partners other than for capital and profits
Amounts due to partners after all assets have been liquidated and liabilities paid.

4

Normally if a partner has loaned money to the partnership, those liabilities are repaid before any capital
distributions. However if a partner is owed money and they have a debit (negative) capital balance, the
liability is deducted from the capital shortfall, rather than be distributed.

5

The assumptions for determining distributions to partners prior to recognition of all gains and losses on
liquidation are (1) all partners are personally bankrupt such that no partner could contribute personal assets
into the partnership and (2) all noncash assets are possible losses and should be considered actual losses for
purposes of determining amounts to be distributed. In addition, liquidation expenses and probable loss
contingencies should be estimated and assumed to be actual losses for purposes of determining advance
distributions.

6

Capital balances represent one factor in determining a partner’s equity, but loans and advances payable to
and receivable from the partnership are factors that must also be considered in calculating safe payments.
Partner equities, rather than capital balances, are used in safe payment schedules in order to avoid making
distributions to partners that may end up with debit capital balances; i.e., owing money to the partnership.

7

Safe payment computations per se do not affect ledger account balances. Actual cash distributions based on
safe payments computations do reduce partnership assets and equities and require recognition in ledger
accounts.

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17-2

Partnership Liquidation

8

A statement of partnership liquidation is a summary of transactions and balances for a partnership during
its liquidation stage. Such statements provide continuous records of liquidation events. Interim liquidation
statements are particularly helpful in showing the progress that has been made toward liquidation to date
and in identifying remaining assets to be liquidated and liabilities to be paid. Interim liquidation statements
are helpful to partners and creditors in providing a basis for current decisions as well as future planning.
Liquidation statements are important legal documents for partnership liquidations that come under the
jurisdiction of a court.

9

Available cash may be distributed to partners according to their profit and loss sharing ratios only when
nonpartner liabilities have been satisfied and partner equities (capital and loan balances combined) are
aligned with the relative profit and loss sharing ratios of the partners. In the absence of loans or advances
payable to or receivables from individual partners, cash can be distributed to partners in their profit and
loss sharing ratios when capital balances are in the relative profit and loss sharing ratios of the partners and
all nonpartner liabilities have been paid.

10

Vulnerability ranks are an ordering of partners on the basis of the adequacy of their equities in the
partnership to absorb possible partnership losses. The ordering is typically from the most vulnerable to the
least vulnerable. Vulnerability ranks are used in the preparation of assumed loss absorption schedules,
which, in turn, are used in the construction of cash distribution plans.


11

Partnership insolvency occurs when partnership liabilities exceed partnership assets. In this case, all
available cash is distributed to partnership creditors. Individual partners will be called upon to use their
personal assets to satisfy the remaining claims of the partnership creditors.

12

Partners with credit capital balances after all partnership assets have been distributed in liquidation have a
claim against partners with debit capital balances. If the partners with debit balances are personally solvent,
they should pay amounts equal to their debit balances into the partnership so that partners with credit
balances can receive their partnership claims in full. If partners with debit capital balances are insolvent,
the partners with credit balances will absorb the losses of the insolvent partners with debit capital balances
in relation to their relative profit and loss sharing ratios.

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Chapter 17

17-3

SOLUTIONS TO EXERCISES
Solution E17-1
Schedule of Capital Balances
Capital balances January 1, 2011
$15,000

January losses: Lumber
($40,000 book value- $25,000 sales price)
Receivables
4,000
($25,000 - $21,000 collection)
Capital balances before distribution

60% Folly
$40,000
(9,000)

40% Frill
$20,000
(6,000)

(2,400)

(1,600)

$28,600

Cash distribution:
Accounts payable
Folly
Frill
Total cash

$12,400

$15,000

28,600
12,400
$56,000

Cash balance: Beginning balance, $10,000 + $25,000 + $21,000 = $56,000
Solution E17-2
Sale of inventory
Cash

$10,000

Inventory
To record sale of inventory items.
Distribution of cash
Accounts payable
Cash
To record payment to creditors.

$10,000

$ 5,000
$ 5,000

Mike capital
$12,600
Nan capital
6,200
Okey capital
25,200
Cash

$44,000
To record distribution of available cash to partners computed as
follows:
Capital
Possible Loss from
Unsold Inventory
= Balance
Balance
Mike capital
$15,000
$2,400
$12,600
Nan capital
8,000
1,800
6,200
1,800
25,200
Okey capital
27,000
Totals
$50,000
$6,000
$44,000
Solution E17-3
January 1 balances
Contingency fund of $10,000
Possible losses on
asset disposal ($120,000)
Loss on Ethel’s possible

defaulta divided 3/7 and 4/7

30% Fred
$85,000
(3,000)

30% Ethel
$25,000
(3,000)

40% Lucy
$90,000
(4,000)

(36,000)
46,000

(36,000)
(14,000)

(48,000)
38,000

14,000

(8,000)

(6,000)

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Partnership Liquidation

17-4

Available cash is distributed
40,000
0
30,000
Notice that Ethel would have a debit balance in her capital account if the
contingencies occurred and if the assets were a total loss. In order to
determine how much cash is available for distribution, Fred and Lucy’s
balances must absorb Ethel’s debit balance.

a

Solution E17-4
Beginning balances
Offset Kim’s loan
Loss on sale of assets
($180,000 - $120,000)
Additional liability
Distribute Kim’s debit
balance 5/7, 2/7
Cash distribution

Creditors

$60,000

50% Jan
$59,000

30% Kim
$29,000
(20,000)

20% Lee
$52,000

5,000
65,000

(30,000)
(2,500)
26,500

(18,000)
(1,500)
(10,500)

(12,000)
(1,000)
39,000

$65,000

(7,500)

$19,000

10,500
0

(3,000)
$36,000

Kim owes $7,500 to Jan and $3,000 to Lee.

Solution E17-5
Schedule to Correct Capital Accounts

December 31, 2011 balance
Undervalued inventory
Corrected balances

($15,000)

Ali
Capital
(40%)
$60,000
6,000
$66,000

Bart
Capital
(20%)
$25,000

3,000
$28,000

Carrie
Capital
(40%)
$65,000
6,000
$71,000

The capital balances are adjusted for the error in computing net income in the
partners’ residual equity ratios.

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Chapter 17

17-5

Solution E17-6
Evers, Freda, and Grace Partnership
Safe Payment Schedule
Partner equities
Loss on sale of assets
Possible lossesa
Allocate Evers’ loss
a


40% Evers
$100,000
(52,000)
48,000
(84,000)
(36,000)
36,000
0

40% Freda
$250,000
(52,000)
198,000
(84,000)
114,000
(24,000)
$ 90,000

20% Grace
$170,000
(26,000)
144,000
(42,000)
102,000
(12,000)
$ 90,000

Total
$520,000

(130,000)
390,000
(210,000)a
180,000
$180,000

Remaining noncash assets of $200,000 plus contingency fund of $10,000 equals
$210,000 possible losses.

Cash to distribute: Beginning cash balance of $100,000 plus $170,000 from sale
of assets less $10,000 contingency fund equals $260,000.
Distribution of cash:

Accounts payable
Freda
Grace

$ 80,000
90,000
90,000
$260,000

Solution E17-7
Schedule for Phase-out of the Partnership
Capital balances
Creditors’ recovery
from Betty

30% Alice
$ 20,000


Partnership recovery
from Alice

30% Carle
$ 70,000

20,000

30,000
(90,000)

70,000

20,000
(35,000)
(15,000)

20,000
(70,000)
70,000
0

70,000
(35,000)
35,000

Partnership recovery
from Betty a
Write-off of Betty’s deficit


40% Betty
$(120,000)

Total
$(30,000)
30,000
0
20,000
20,000
20,000

10,000
35,000
30,000
(5,000)
Write-off of Alice’s deficit
30,000
30,000
(30,000)
Cash distribution to Carle
(30,000)
0
0
a
Betty’s personal net assets after partnership creditor recovery are $80,000
personal assets - $60,000 personal liabilities = $20,000.
10,000
(5,000)
5,000

0

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Partnership Liquidation

17-6

Solution E17-8
Daniel, Eric, and Fred Partnership
Schedule for Phase-out of Partnership

Capital balances
Fred’s payment to creditors

40% Daniel
Capital
$10,000

30% Eric
Capital
$60,000

10,000

60,000


30% Fred
Capital
$(90,000)
20,000
(70,000)

10,000

60,000

40,000
(30,000)

40,000
40,000

(17,143)
(7,143)

(12,857)
47,143

30,000
0

40,000

Fred’s payment to the
Partnership
Write-off of Fred’s

deficit in the relative
profit sharing ratio of
Daniel and Eric 4/7:3/7
Daniel’s payment to the
partnership for his
Deficit
Write off of Daniel’s
deficit to Eric
Payment to Eric
a

5,000
(2,143)
2,143
0

Total
$(20,000)
20,000
0

5,000
45,000

47,143
(2,143)
45,000
(45,000)
0


0
(45,000)
0

Fred’s personal assets of $100,000 less the $40,000 owed to his personal creditors,
and less the $20,000 paid to partnership creditors, equals $40,000 available for
his debit capital account balance.

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Chapter 17

17-7

Solution E17-9
Ace, Ben, Cid, and Don
Statement of Partnership Liquidation
for the period June 30 to July 31, 2011

Balances
June 30, 2011
July 1, 2011
Investment of Ace
July 1, 2011
Payment of
Liabilities
Balances

July 1, 2011
July 15, 2011
Investment of Cid
Investment of Don
Loss on Cid’s
Insolvency a
Loss on Ben’s
Insolvency
July 31, 2011
Final distribution

Cash

Liabilities

Ace (50%)
Capital

Ben(20%)
Capital

$200,000

$400,000

$ 40,000

$10,000

$(170,000)


$(80,000)

200,000
400,000

400,000

200,000
240,000

10,000

(170,000)

(80,000)

(400,000)

(400,000)
240,000

10,000

(170,000)

(80,000)

0


0

100,000
80,000
180,000

240,000

180,000
180,000

Cid (20%)
Capital

Don (10%)
Capital

100,000

(180,000)
0
() Debit capital balance or deduct.
a

10,000

(70,000)

(50,000)
190,000


(20,000)
(10,000)

70,000
0

(10,000)
180,000

10,000
0

80,000
0

(180,000)
0

Allocating Cid’s insolvency to Ace & Ben:
70,000*2/7 = 20,000 Ben

70,000*5/7 = 50,000 Ace,

Solution E17-10
Denver, Elsie, Fannie and George Partnership
Safe Payment Schedule
January 31, 2011
Possible
Losses

Partner’s equity at 1/1
January profit/loss
transactions:
Inventory sale
Land sale
Partner’s equity at 1/31
Possible losses — noncash
Possible losses — contingent
Possible losses — Fannie
Possible losses — George

$395,000
20,000

Denver
(20%)
$150,000
(6,000)
20,000
$164,000
(79,000)
(4,000)
$ 81,000
(13,000)
$ 68,000
(2,667)
$ 65,333

Elsie
(10%)

$80,000

Fannie
(50%)
$140,000

George
(20%)
$78,000

(3,000)
(15,000)
10,000
50,000
$87,000
$175,000
(39,500) (197,500)
(2,000)
(10,000)
$45,500 $(32,500)
(6,500)
32,500
$39,000
$
0
(1,333)
$37,667

(6,000)
20,000

$92,000
(79,000)
(4,000)
$ 9,000
(13,000)
$(4,000)
4,000
$
0

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Partnership Liquidation

17-8

Solution E17-12 (cont’d)
Payments of $103,000 can be safely made to Denver and Elsie in the amounts
shown above.
$ 523,000
Check:
Cash availablea
Accounts payable
$(400,000)
Contingencies
(20,000)
Available to partners

$ 103,000
a

(250,000 land + 45,000 inv. + 28,000 rec. + 200,000 cash)

Solution E17-11
1

b

2

d

3

a

Supporting computations for Questions 1-3: See cash distribution plan
that follows.
Vulnerability Rankings
Partners’
Equitiesa
Quen
$45,000
Reed
$25,000
Stacy
$25,000






30%
50%
20%

Loss Absorption
Potential
$150,000
50,000
125,000

Schedule of Assumed Loss Absorption
Quen
Predistribution equities
$ 45,000
Loss to absorb Reed
(15,000)
30,000
Loss to absorb Stacy
$15,000/40%
(22,500)
Balance
$ 7,500
Cash Distribution Plan
Priority
Creditors
First $50,000

100%
Next $7,500
Next $37,500
Remainder
a

Reed
$ 25,000
(25,000)
0

Quen
Capital

Reed
Capital

100%
60%
30%

50%

Vulnerability
Ranks
3
1
2

Stacy

$ 25,000
(10,000)
15,000

Total
$ 95,000
(50,000)
45,000

(15,000)
0

(37,500)
$ 7,500

Stacy
Loan

Stacy
Capital

26.667%

13.333%
20%

Equity balance = Equity +/- loans to/from

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Chapter 17

17-9

Solution E17-12
1

d
Answer b is correct for situations in which all partners have equity in
partnership assets; in other words, credit capital balances.

2

d

3

c
The debit balance in Maris’s capital account should be charged against
the loan payable to Maris.

4

d
Possible
Losses
Net capital balances

Possible loss on inventories

$100,000

Gwen’s debit balance 50:50
Distribution of cash after
payment of accounts payable

5

0

25% Bill
Capital
$45,000
(25,000)
20,000
(5,000)

25% Sissy
Capital
$35,000
(25,000)
10,000
(5,000)

$15,000

$ 5,000


40% Frank
Capital
$220,000

40% Helen
Capital
$155,000

c
Possible
Losses
Net capital balances
Noncash assets:
Accounts receivable
Inventories
Plant assets — net
Contingency fund

$ 60,000
85,000
200,000
5,000
$350,000

Allocate Dick’s possible deficit
Distribution of cash after
payment of $60,000 liabilities

6


50% Gwen
Capital
$40,000
(50,000)
(10,000)
10,000

20% Dick
Capital
$ 50,000

(70,000)
(20,000)
20,000
0

(140,000)
80,000
(10,000)

(140,000)
15,000
(10,000)

$ 70,000

$

5,000


c
Capital balances
Wayne’s contribution
Vance’s personal net assets
Vance’s remaining deficit divided 3/7
to Unsel and 4/7 to Wayne

30% Unsel 30% Vance 40% Wayne
Capital
Capital
Capital
$90,000
$(60,000) $(100,000)
70,000
90,000
(60,000)
(30,000)
39,000a
90,000
(21,000)
(30,000)
(9,000)
81,000

21,000
0

Wayne’s remaining personal net assets
to offset his deficit capital balance
Wayne’s final deficit allocated to

Unsel and uncollectible
Amount of Unsel’s partnership equity
that should be recoverable

(12,000)
(42,000)

81,000

40,000b
(2,000)

(2,000)

2,000

$79,000

Personal net assets= personal assets- personal liabilities
(100,000 - 61,000) = 39,000
b
(190,000 – 70,000 – 80,000) = 40,000
a

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Partnership Liquidation

17-10

SOLUTIONS TO PROBLEMS
Solution P17-1
1

Journal entry to distribute available cash on January 1
Barney capital
$25,000
Cash
$25,000
To distribute available cash to Barney computed as follows:
Safe Payments Schedule January 1, 2011
Possible
Barney
Betty
Losses
Partners’ capital
balances
Allocation of possible
losses
Allocate deficits to
Barney
Safe payments to
Barney

2


$90,000

Rubble

$72,000

$28,000

$15,000

(30,000)
42,000

(30,000)
(2,000)

(30,000)
(15,000)

(17,000)

2,000

15,000

0

0


$25,000

Journal entry to record sale of assets on February 9
Cash
$81,000
Barney capital
3,000
Betty capital
3,000
Rubble capital
3,000
Inventory
$72,000
Supplies
18,000
To record sale of inventory items and supplies and recognize gain
or loss.

3

Journal entry to distribute cash on February 10
Barney capital
$44,000
Betty capital
25,000
Rubble capital
12,000
Cash
$81,000
To distribute cash to partners in final liquidation. [Amounts are

equal to final capital account balances.]

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Chapter 17

17-11

Solution P17-2
Chan, Dickerson, and Grunther Partnership
Cash Distribution Plan
Vulnerability ranks
Equity
$ 80,000
210,000
205,000

Chan
Dickerson
Grunther





Profit and
Loss Ratio

20%
30
50

Loss
Absorption
$400,000
700,000
410,000

Vulnerability
Rank
1
3
2

Schedule of assumed loss absorption
Chan
$80,000
(80,000)
0

Equities
Loss to absorb Chan
Loss to absorb Grunther
($5,000  5/8)

Dickerson
$210,000
(120,000)

90,000

Grunther
$205,000
(200,000)
5,000

Total
$495,000
(400,000)
95,000

(3,000)
$ 87,000

(5,000)
0

(8,000)
$ 87,000

Chan
Capital

Dickerson
Capital

Grunther
Capital


20%

100%
3/8
30%

5/8
50%

Cash distribution plan

First $90,000
Second $50,000
Third $37,000
Fourth $8,000
Remainder

Priority
Creditors
100%

Loan from
Dickerson
100%

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Partnership Liquidation

17-12

Solution P17-3
Fred, Flint, and Wilma Partnership
Cash Distribution Plan
Vulnerability Ranking
Partnership
Equity
Fred
$75,000
Flint
20,000
Wilma
60,000





Profit and
Loss Ratio
30%
20%
50%

Schedule of Assumed Loss Absorption
30% Fred
Predistribution equity

$75,000
Assumed loss to absorb Flint
(30,000)
$20,000  20%
45,000
Assumed loss to absorb Wilma
(6,000)
$10,000  5/8
$39,000

Loss Absorption
Potential
$250,000
100,000
120,000

Vulnerability
Ranking
3
1
2

20% Flint
$20,000

50% Wilma
$60,000

Total
$155,000


(20,000)
0

(50,000)
10,000

(100,000)
55,000

(10,000)
0

(16,000)
$ 39,000

30% Fred

20% Flint

50% Wilma

100%
3/8
30%

20%

5/8
50%


Cash Distribution Plan
First $20,000
Next $39,000
Next $16,000
Remainder

Priority
Creditors
100%

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Chapter 17

17-13

Solution P17-4
1

Gary, Henry, Ian, and Joseph Partnership
Cash Predistribution Plan
Schedule of Vulnerability Ranks:

Capital
Loan to
Partner

Divided
ratio

balance
Henry
equity
by profit

Loss absorption
potential
Vulnerability ranks

Gary
Equity

Henry
Equity

Ian
Equity

Joseph
Equity

$300,000

$100,000

$


110,000

$300,000

$320,000
(20,000)
$300,000

$100,000

$

110,000

40%

30%

20%

10%

$750,000

$1,000,000

$500,000

$1,100,000


2

3

1

4

Gary
$300,000

Henry
$300,000

Ian
$100,000

Joseph
$110,000

(200,000)
100,000

(150,000)
150,000

(100,000)
0

(100,000)

0

(75,000)
75,000

(25,000)
35,000

(75,000)
0

(25,000)
$ 10,000

Schedule of Assumed Loss Absorption:
Equities
Loss to absorb Ian’s
equity
Loss to absorb Gary’s
equity
Loss to absorb Henry’s
equity

(50,000)
60,000

Cash Distribution Plan:

First $100,000
Next $50,000

Next $10,000
Next $100,000
Next $200,000
Remainder

2

Priority
Liabilities
100%

Contingency
Fund

Gary

Henry

Joseph

100%
100%
3/4
1/4
1/2
3/8
1/8
40%
30%
20%

10%
(Profit and loss sharing ratios)

Available cash to distribute ($200,000 + $100,000)

First $100,000
Next
50,000
Next
10,000
Next
100,000
Next
40,000
Distribution to
partners

Ian

Priority
Contingency
Liabilities
Fund
$100,000
$50,000

$300,000

Gary


Henry

Ian

20,000

75,000
$15,000

$10,000
25,000
5,000

$20,000

$90,000

$40,000

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Partnership Liquidation

17-14


Solution P17-5
Eli, Joe, and Ned, Consultants
Statement of Partnership Liquidation
for the month ended August 31, 2011

July 31 balances
Receivables:
Collections
Assumption
Write-off
Liabilities paid
Expenses paid
Furniture:
Sold
to Joe
Donated
Predistribution
balances
To partners

Noncash
Assets
$47,000

Cash
$13,000
8,000

Accounts
Payable

$6,000

(8,000)
(3,000)
(1,000)

(6,000)
(3,000)
15,000

20% Eli
Capital
$24,000

30% Joe
Capital
$15,000

50% Ned
Capital
$15,000

(200)

(300)

(3,000)
(500)

(600)


(900)

(1,500)

(2,000)

(5,000)

(600)
(1,200)

(3,000)
(1,000)
(900)
(1,800)

19,400
(19,400)
0

7,100
(7,100)
0

500
(500)
0

(6,000)

(25,000)
(4,000)
(6,000)

27,000
(27,000)
0

0

0

(1,500)
(3,000)

Solution P17-6
Jones, Smith, and Tandy Partnership
Statement of Partnership Liquidation
for the liquidation period January 1, 2011 to March 31, 2011
Noncash
Assets
$215,000

Accounts
Payable
$80,000

Cash
Balances
$ 15,000

January 2011
Inventories sold
20,000
(65,000)
(14,000)
Receivables collections
14,000
Predistribution balance
49,000
136,000
80,000
Cash distribution to
(40,000)
creditors
(40,000)
Balances January 31
February 2011
Land sold
Land and buildings sold
Receivables collections
Balances February 28
March 2011
Write-off of furniture
and fixtures
Predistribution balance
Cash distribution:
Creditors
Partners
Balances March 31


9,000

136,000

40,000

20%
Jones
Capital
$40,000
(9,000)

30%
Smith
Capital
$60,000

50%
Tandy
Capital
$50,000

(13,500)

(22,500)

31,000

46,500


27,500

31,000

46,500

27,500

60,000
40,000
3,000
112,000

(40,000)
(70,000)
( 6,000)
20,000
40,000

4,000
(6,000)
( 600)
28,400

6,000
10,000
(9,000)
(15,000)
( 900) ( 1,500)
42,600

21,000

112,000

( 20,000)
0
40,000

( 4,000)
24,400

( 6,000)
36,600

(10,000)
11,000

(24,400)
0

(36,600)
0

(11,000)
0

(40,000)
(72,000)
0


(40,000)
0

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Chapter 17

17-15

Solution P17-7
1

Cash distribution plan for Lin, Mary, and Nell partnership
Vulnerability ranks
Capital
Balances
Lin
Mary
Nell

$55,000
12,000
20,000
$87,000

Profit
Loss

Equity in and Loss Absorption Vulnerability
Partnership
Ratio
Potential
Ranking
$55,000
12,000
20,000
$87,000

50%
30
20

$110,000
40,000
100,000

3
1
2

Schedule of assumed loss absorption
Mary
Nell
Total
Lin
Predistribution equities
$55,000
$12,000

$20,000
$87,000
Assumed loss to absorb Mary’s
(12,000)
( 8,000)
equity 50/30/20
(20,000)
(40,000)
35,000
0
12,000
47,000
Assumed loss to absorb Nell’s
(12,000)
equity 50/20
(30,000)
(42,000)
$ 5,000
0
$ 5,000
Cash distribution plan
Priority
Creditors
100%

First $55,000
Next $5,000
Next $42,000
Remainder
2


Lin

Mary

Nell

100%
5/7
50%

30%

2/7
20%

Cash of $25,000 is realized from inventories and receivables with a
$45,000 book value
Cash balance December 31, 2011
Realized during 2012

$47,000
25,000
72,000
(10,000)
$62,000

Less: Amount reserved for contingencies
Cash available for distribution
Lin, Mary, and Nell Partnership

Schedule of January 2012 Cash Distribution
Cash
Available

Priority
Creditors

Lin

Mary

Nell

Total

Cash to be distributed $62,000
Payments to creditors
Remainder
To Lin
Remainder
To Lin (5/7) and
Nell (2/7)

(55,000)

$55,000

$55,000

7,000

(5,000)

$5,000

5,000

2,000
(2,000)

1,429

$ 571

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Partnership Liquidation

17-16
Cash distribution

0

$55,000

$6,429


0

$ 571

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Chapter 17

17-17

Solution P17-8
Jason, Kelly, and Becky Partnership
Statement of Partnership Liquidation
for the period January 1, 2011 through February 28, 2011

Balances January 1
Offset loan to Jason
Collection of
receivables
Liquidation expenses
Predistribution
balances
Cash distribution:
Creditors

Partners —
Schedule A
Balances January 31
Liability discovered
Liquidation expenses
Sale of remaining
assets
Predistribution
balances
Cash distribution:
Creditors
Partners — Schedule B
Balances February 28

Cash
$ 16,500

(

25,000
2,000)
39,500

Noncash
Assets
$163,500
(14,000)
(28,000)
121,500


(21,000)
( 13,500)
5,000

50%
Priority
Jason
Liabilities Capital
$21,000
$69,000
(14,000)
( 1,500)
( 1,000)
21,000

111,000

(
(

900)
600)

20%
Becky
Capital
$43,000
(
(


600)
400)

52,500

45,500

42,000

52,500
(1,500)
(1,000)

( 1,100)
44,400
( 900)
( 600)

(12,400)
29,600
( 600)
( 400)

( 6,750)

( 4,050)

( 2,700)

43,250


38,850

25,900

(38,850)
0

(25,900)
0

(21,000)

121,500

0
3,000

( 2,000)
108,000

30%
Kelly
Capital
$47,000

(121,500)
0

3,000

(108,000)
0

3,000
(3,000)

$43,250
0

Schedule A
Possible
Losses
Partners’ equity January 31
Allocate possible losses

$126,500

Allocate Jason’s deficit
Safe payments to partners
January 31

50%
Jason
Equity
$52,500
(63,250)
(10,750)
10,750

30%

Kelly
Equity
$45,500
(37,950)
7,550
(6,450)

20%
Becky
Equity
$42,000
(25,300)
16,700
(4,300)

0

$ 1,100

$12,400

$43,250
$43,250

$38,850
$38,850

$25,900
$25,900


Schedule B
Partners’ equity February 28
Safe payments to partners February 28

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Partnership Liquidation

17-18

Solution P17-9
Roger, Susan, and Tom Partnership
Statement of Partnership Liquidation
for the period January 1, 2011 through February 28, 2011

Balances January 1
Offset loan to Susan
Sale of assets
Predistribution
balances
Cash distribution:
Creditors
Partners —
Schedule A
Balances January 31
Sale of remaining
assets

Offset loan to
Roger capital
Predistribution
balances
Cash distribution:
Partners —
Schedule B
Balances February 28

Priority
Liabilities
$40,100

40,000

Noncash
Assets
$140,000
(10,000)
(40,000)

60,000

90,000

40,100

Cash
$20,000


(40,100)

Roger
Loan
$5,000

30%
Roger
Capital
$ 9,900

5,000

9,900

35,000

5,000

9,900

(2,814) (17,086)
32,186
42,914

60,000

(40,100)

(19,900)

0

90,000

21,000

(90,000)

0

(20,700) (20,700) (27,600)
(5,000)

21,000

30%
40%
Susan
Tom
Capital Capital
$45,000 $60,000
(10,000)

0

0

5,000
(5,800) 11,486


15,314

(9,000) (12,000)
$ (5,800) $ 2,486 $ 3,314

(21,000)
0

Note: Roger owes Susan $2,486 and Tom $3,314. These balances remain on the
partnership books until it is determined if Roger is personally solvent and
able to pay $5,800 to the other partners.
Schedule A
Possible
Losses
Partners’ equity January 1
Allocate possible losses

$90,000

Allocate Roger’s deficit
Safe payments to partners
January 31

30%
Roger
Equity

30%
Susan
Equity


40%
Tom
Equity

$14,900
(27,000)
(12,100)
12,100

$35,000
(27,000)
8,000
(5,186)

$60,000
(36,000)
24,000
(6,914)

$ 2,814

$17,086

$11,486
(2,486)
$ 9,000

$15,314
(3,314)

$12,000

0

Schedule B
Partners’ equity February 28
Allocate Roger’s deficit
Safe payments to partners February 28

$(5,800)
5,800
0

Note: Since cash was distributed to Susan and Tom in January and since Roger
has negative equity, the distribution in February is necessarily in the 3/7
and 4/7 relative profit and loss sharing ratio of Susan and Tom.

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Chapter 17

17-19

Solution P17-10
Cash
$21,000


Balances October 1
Write-off Rob’s loan
against capital
Collected accounts
Receivable
40,000
Sale of inventory
50,000
Sale of equipment
60,000
Payment of bank loan
and accrued interest (50,600)
Payment of accounts
Payable
(80,000)
Liquidation expenses
(2,000)
Predistribution
Balances
38,400
October 31 distribution
33,400
Balance November 1
5,000
Sale of equipment
38,000
Accounts receivable
10,000
Inventory to Val
Write-off remaining

inventory
Liquidation expenses
(800)
Predistribution
balances
52,200
Cash distributed
(52,200)
Balances
---

Noncash
Assets
$348,000

30% Rob
Liabilities Capital
$130,000
$43,600

50% Tom
Capital
$150,000

20% Val
Capital
$45,400

(15,000)


(15,000)

(44,000)
(60,000)
(55,000)

(1,200)
(3,000)
1,500

(2,000)
(5,000)
2,500

(800)
(2,000)
1,000

(180)

(300)

(120)

(600)

(1,000)

(400)


(50,000)
(80,000)
174,000

---

25,120

144,200

43,080

174,000
(95,000)
(19,000)
(20,000)

25,120
(17,100)
(2,700)
(3,000)

(33,400)
110,800
43,080
(28,500) (11,400)
(4,500) (1,800)
(5,000) (12,000)

(40,000)


(12,000)
(240)

(20,000)
(400)

(8,000)
(160)

(9,920)

52,400
(45,314)
7,086

9,720
(6,886)
2,834

---

(9,920)

Schedule of Safe Payments
30% Rob
October 31
Partners’ equity
October 31, 2011
Possible losses

Possible loss on
contingency fund
Possible loss from Rob
allocated 5/7 and 2/7 (rounded)
Possible loss from Val
Cash distribution
November 30
Partners’ equity
November 30
Possible loss from
Rob’s debit balance 5/7 and 2/7
Cash distribution

$174,000
5,000

50% Tom

20% Val

$25,120
(52,200)

$144,200
(87,000)

$43,080
(34,800)

(1,500)

(28,580)

(2,500)
54,700

(1,000)
7,280

28,580
0

(20,414)
34,286
(886)
33,400

(8,166)
(886)
886
0

$(9,920)
9,920
0

$ 52,400

$ 9,720

(7,086)

$ 45,314

(2,834)
$ 6,886

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Partnership Liquidation

17-20

Solution P17-11
1

Closing entry
Revenue
Jee capital
Moore capital
Olsen capital
Expenses

$200,000
25,000
75,000
100,000
$400,000


To close revenue and expense items and distribute loss to partners
as follows:
20% Jee
40% Moore
40% Olsen
Net Loss
$(200,000)
$ 25,000
Salaries
(50,000) $ 25,000
Loss to divide
(250,000)
(50,000)
(100,000)
$(100,000)
Divided 20:40:40
250,000
Loss allocated
0
$(25,000)
$(75,000)
$(100,000)
2

Cash distribution plan
Vulnerability ranks

Jee: $250,000 balance
- $25,000 loss
Moore: $450,000 balance

- $75,000 loss
Olsen: $370,000 balance
- $100,000 loss

Equity

Loss
Absorption

Vulnerability
Rank

$225,000/20%

$1,125,000

3

$375,000/40%

937,500

2

$270,000/40%

675,000

1


Assumed loss absorption
Predistribution
equities
Loss to absorb Olsen

Jee

Moore

Olsen

Total

$ 225,000
(135,000)
90,000

$375,000
(270,000)
105,000

$270,000
(270,000)
0

$870,000
(675,000)
195,000

(52,500)

37,500

(105,000)
0

Loss to absorb Moore
$105,000  40/60
$

(157,500)
$ 37,500

Cash distribution plan
First $80,000
Second $37,500
Third $157,500
Remainder
3

Priority
Creditors
100%

Jee

Moore

Olsen

100%

2/6
20%

4/6
40%

40%

Jee

Moore

Olsen

$37,500
6,000
$43,500

$12,000
$12,000

0

Cash distribution schedule

First
Second
Third

$ 80,000

37,500
18,000
$135,500

Priority
Creditors
$80,000
$80,000

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Chapter 17

17-21

Solution P17-12
Beams, Plank, and Timbers Partnership
Statement of Partnership Liquidation
for the period January 1, 2012 to March 31, 2012

Cash
Balances January 1
$120,000
Collection of
receivables
100,000
Sale of inventory

100,000
Predistribution
balances
320,000
January distribution
(schedule 1)
Creditors
(250,000)
Plank
( 60,000)
Balances February 1
10,000
Plant assets to Beams
and loss
distribution
Sale of inventory
60,000
Liquidation expenses
paid
( 2,000)
Liability discovered
Predistribution
balances
68,000
February distribution
(schedule 2)
Creditors
( 8,000)
Plank
(30,000)

Timbers
(20,000)
Balances March 1
10,000
Sale of plant assets
and write-off
110,000
Liquidation expenses
paid
( 5,000)
Predistribution
balances
115,000
March distribution
(115,000)
Liquidation completed
March 31
0

Noncash
Assets
$560,000

Liabilities
$250,000

(100,000)
( 80,000)
380,000


250,000

50%
Beams
Capital
$170,000

30%
Plank
Capital
$180,000

20%
Timbers
Capital
$ 80,000

10,000

6,000

4,000

180,000

186,000

84,000

(60,000)

126,000

84,000

(250,000)
380,000
(60,000)

0

( 3,000)

( 2,000)

(30,000)

(18,000)

(12,000)

8,000

( 1,000)
( 4,000)

( 600)
( 2,400)

( 400)
( 1,600)


8,000

90,000

102,000

90,000

72,000

(20,000)
48,000

(45,000)

(27,000)

(18,000)

( 2,500)

( 1,500)

( 1,000)

42,500
(42,500)

43,500

(43,500)

29,000
(29,000)

(120,000)

200,000

180,000
(50,000)
( 5,000)

68,000

( 8,000)
(30,000)
200,000
(200,000)

0

0

0

0

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0


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Partnership Liquidation

17-22

Solution 17-12 (continued)
Schedule 1
Beams, Plank, and Timbers Partnership
Schedule of Safe Payments to Partners
January Distribution
Possible
Losses
Noncash assets
Contingency reserve
Possible losses
Distribution 50:30:20

$380,000
10,000
390,000
(390,000)
0

Distribution of Beams’
deficit 60:40
Safe payment to Plank


Beams
Capital
$180,000
(195,000)
( 15,000)
15,000
0

Plank
Capital

Timbers
Capital

$186,000

$84,000

(117,000)
69,000

(78,000)
6,000

( 9,000)
$ 60,000

( 6,000)
0


Schedule 2
Beams, Plank, and Timbers Partnership
Schedule of Safe Payments to Partners
February Distribution

Noncash assets
Contingency reserve
Possible losses
Distribution 50:30:20
Distribution of Beams’
deficit 60:40
Safe payment to Plank and
Timbers

Possible
Losses

Beams
Capital

Plank
Capital

Timbers
Capital

$200,000
10,000
210,000

(210,000)
0

$ 90,000

$102,000

$68,000

(105,000)
( 15,000)
15,000
0

( 63,000)
39,000

(42,000)
26,000

( 9,000)

( 6,000)

$ 30,000

$20,000

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