CHAPTER 15

PARTNERSHIPS: TERMINATION AND LIQUIDATION

Answers to Questions
1. A dissolution refers to the cessation of a partnership. In many cases, this process is simply
a preliminary step in the transfer of business property to a newly formed partnership.
Therefore, a dissolution does not necessarily affect the operations of the business. In a
liquidation, however, actual business activities must cease. Partnership property is sold with
the remaining cash distributed to creditors and to any partners with positive capital
balances. Dissolution refers to changes in the composition of a partnership whereas
liquidation is the selling of a partnership's assets.
2. Many reasons can exist that would lead to the termination and liquidation of a partnership.
The business might simply have failed to generate sufficient profits or the partners may
elect to enter other lines of work. Liquidation can also be required by the death, retirement,
or withdrawal of one of the partners. In such cases, liquidation is often necessary to settle
the partner's interest in the business. The bankruptcy of an individual partner can also force
the termination of the business as can the bankruptcy of the partnership itself.
3. During the liquidation process, monitoring the balance of the partners' capital accounts
becomes of paramount importance. That amount will eventually indicate either the cash to
be received by the partners as final distributions or the additional contributions that they are
required to pay. Consequently, all liquidation gains and losses are recorded directly as
changes to these capital balances. Such recording enhances the informational value of the
accounts. As an additional factor, the computation of a net income figure is of diminished
importance since normal operations have ceased.
4. Final distributions made to the various partners are based solely on their ending capital
account balances unless the partners have agreed otherwise. If any partner has a deficit
balance, an additional contribution should be made to offset the negative amount. In some
situations, a question may arise as to whether compensation for a deficit will ever be
forthcoming from the responsible party. The remaining partners may choose to allocate the
available cash immediately based on the assumption that the deficit balance eventually will
prove to be a total loss.
5. A schedule of liquidation provides financial data about the liquidation process as it has
progressed to date. Information to be presented includes the balances of all remaining
assets, the liability total, and the capital account of each partner. In addition, the allocation
of all gains and losses incurred in the liquidation process as well as the payment of
expenses should be evident.
6. From a legal viewpoint, any partner who incurs a negative (or deficit) capital balance is
obligated to make an additional contribution to offset that amount.

7. A safe capital balance is the amount of a partner's capital account that exceeds all possible
needs of a partnership as it goes through liquidation. A partner should, therefore, be able to
receive this balance immediately without endangering the future amount to be received by
any other party connected with the liquidation. Safe capital balances are computed by
projecting a series of assumptions whereby the partnership undergoes maximum losses
during the remainder of the liquidation process. All noncash assets are assumed to have no
resale value, liquidation expenses are set at the largest possible estimation, and all
partners are viewed as personally insolvent. Any capital balance that would remain after this
series of anticipated events can be distributed to the partners immediately without incurring
any risk.
8. The marshaling of assets doctrine is a provision within the Uniform Partnership Act that
indicates the priority of claims when a partner becomes personally insolvent. By providing a
ranking of these claims, an orderly and fair distribution of available property can be made.
The marshaling of assets provision states:
Where a partner has become bankrupt or his estate is insolvent, the claims against his
separate property shall rank in the following order:
(I) Those owing to separate creditors,
(II) Those owing to partnership creditors,
(III) Those owing to partners by way of contributions.
9. A partner's personal creditors do have a limited claim against partnership assets. Recovery
is possible but only if payment of all partnership debts is assured and the insolvent partner
has a positive capital balance.
10. For distribution purposes, the Uniform Partnership Act states that loans from partners rank
ahead of the partners capital balances. Thus, the handling of loans in a liquidation would
seem to be obvious: When money becomes available for the partners, all loans from
partners should be repaid before any amount is given to a partner because of a safe capital
balance.
A problem arises, though, in the above solution if a partner (especially if the partner is
currently insolvent) has made a loan to a partnership but has a potentially negative capital
balance. The final capital balance may require a contribution to the partnership that the
partner may be unable or unwilling to make. If the Uniform Partnership Act is followed
precisely, a partner could collect money on a loan while still having an obligation to the
partnership because of a negative capital balance.
To avoid this problem, in practice a partners loan balance is usually merged with that
partners capital balance to minimize the chance of a negative capital balance occurring.
This particular partner may get less money from the liquidation because of this treatment
but the other partners are better protected.

11. A proposed schedule of liquidation is used by the accountant to determine the allocation of
any cash balances generated during the early stages of liquidation. Often, sufficient cash
will be collected to pay all liabilities as well as potential liquidation expenses. Additional cash
should then be distributed to the partners to allow them immediate use of their funds. A
proposed schedule of liquidation can be produced to determine the allocation of this
available cash. The statement is based on anticipating a series of assumed losses from the
current day forward: all remaining noncash assets are scrapped, maximum liquidation
expenses are incurred, and each partner is personally insolvent. The ending balances that
would result from these simulated transactions represent safe capital balances. This
amount of cash can be distributed presently and the partners will still retain enough capital
to absorb all future losses.
12. A predistribution plan is produced based on an assumed series of losses. Each loss is
calculated to eliminate in turn the capital balance of one of the partners. In this manner, the
accountant can determine the vulnerability to losses exhibited by each capital account.
When the last balance is eliminated, the accountant will have established a series of losses
that exactly offsets each balance. The predistribution plan is then developed by measuring
the effects that are created if the losses do not occur. In effect, the accountant works
backwards through the assumed losses to create a pattern of available cash, the
predistribution plan.

Answers to Problems
1. C
2. A
3. D
4. B
5. B
Reported balances
Potential loss from
Cassidy deficit
(split 5/8:3/8)
Cash distributions

Angela, Capital

Woodrow, Capital

Cassidy, Capital

$19,000

$18,000

$(12,000)

(7,500)
$11,500

(4,500)
$13,500

12,000
-0-

6. B
Bell
Reported balances
$50,000
Loss on sale of assets ($110,000)
split on a 4:3:2:1 basis
(44,000)
Adjusted balances
$ 6,000
Potential loss from Dennard
deficit (split 4:3:1)
(4,000)
Minimum cash distributions
$2,000

Hardy
$56,000

Dennard
$14,000

Suddath
$80,000

(33,000)
$23,000

(22,000)
$(8,000)

(11,000)
$69,000

(3,000)
$20,000

8,000
$ -0-

(1,000)
$68,000

7. A
8. A
Reported balances .....................................
Loss on sale of assets ($22,000) split
on a 4:3:3 basis ........................................
Adjusted balances .....................................
Anticipated liquidation expenses ($12,000)
split on a 4:3:3 basis ...............................
Anticipated maximum loss on inventory
($31,000) split on a 4:3:3 basis ...............
Potential balances .....................................
Potential loss from Art deficit (split 3:3) .
Current cash distribution ..........................

Art
$18,000

Raymond
$25,000

Darby
$26,000

(8,800)
$ 9,200

(6,600)
$18,400

(6,600)
$19,400

(4,800)

(3,600)

(3,600)

(12,400)
$(8,000)
8,000
$ -0-

(9,300)
$ 5,500
(4,000)
$ 1,500

(9,300)
$ 6,500
(4,000)
$ 2,500

9. D Since the partnership currently has total capital of $400,000, the $30,000
that is available would indicate maximum potential losses of $370,000.
A
$100,000

B
$120,000

Reported balances
Anticipated loss ($370,000) split on
a 2:3:5 basis
(74,000)
Potential balances
$ 26,000
Potential loss from C's deficit (split 2:3)
(2,000)
Current cash distribution
$ 24,000

(111,000)
$ 9,000
(3,000)
$ 6,000

C
$180,000
(185,000)
$ (5,000)
5,000
$
-0-

10. C A predistribution plan should be created.

Maximum Losses That Can Be Absorbed
Kevin
Michael
Brendan
Jonathan

$59,000/40%
$39,000/30%
$34,000/10%
$34,000/20%

$147,500
130,000
340,000
170,000

(most vulnerable to losses)

The assumption is made that a $130,000 loss occurs.

Kevin
Reported balances ..........................$59,000
Assumed loss ($130,000) split on
a 4:3:1:2 basis .............................(52,000)
Adjusted balances ............................$ 7,000

Michael Brendan
$39,000
$34,000
(39,000)
$
-0-

Jonathan
$34,000

(13,000)
$21,000

(26,000)
$ 8,000

Maximum Losses That Can Now Be Absorbed

Kevin
$7,000/4/7
$12,250 (most vulnerable to losses)
Brendan
$21,000/1/7
147,000
Jonathan
$8,000/2/7
28,000
Kevin
Reported balances .......................................$7,000
Assumed loss ($12,250) split on a
4:1:2 basis ................................................(7,000)
Adjusted balances
$ -0-

Brendan
$21,000

Jonathan
$8,000

(1,750)
$19,250

(3,500)
$4,500

Maximum Losses That Can Now Be Absorbed

Brendan
Jonathan

$19,250/1/3
$4,500/2/3

$57,750
6,750

(most vulnerable to losses)

The assumption is made that a $6,750 loss occurs.

Brendan
Jonathan
Reported balances..............................................
$19,250
$4,500
Assumed loss ($6,750) split on a 1:2 basis ....
(2,250)
(4,500)
Adjusted balances .............................................
$17,000
$ -011. C To work this problem, a predistribution schedule is necessary. That
schedule, which is computed below, is as follows:

First $3,000 goes to Menton

Next $15,000 goes to Menton (2/3) and Hoehn (1/3)

Next $42,000 goes to Carney (4/7), Menton (2/7), and Hoehn (1/7)
All remaining cash goes to Carney (4/10), Pierce (3/10), Menton (2/10),
and Hoehn (1/10)

Beginning balances
Assumed loss of $90,000 (see
Schedule 1)(4:3:2:1)
Step one balances
Assumed loss of $42,000 (see
Schedule 2) (allocated on
a 4:0:2:1 basis)
Step two balances
Assumed loss of $15,000 (see
Schedule 3) (allocated on a
0:0:2:1 basis)
Step three balances

Carney
Pierce
$60,000 $27,000

Menton
$43,000

(36,000) (27,000)
$24,000
$ -0-

(18,000)
(9,000)
$25,000 $11,000

(24,000)
$ -0-

$ - 0$ -0-

(12,000)
$13,000

(6,000)
$ 5,000

- 0$ - 0-

(10,000)
$ 3,000

(5,000)
$ - 0-

- 0$ - 0-

Hoehn
$20,000

Partner
Carney
Pierce
Menton
Hoehn

Schedule 1
Maximum Loss
Capital Balance/
That Can
Loss Allocation
Be Absorbed
$60,000/40%
$150,000
$27,000/30%
$ 90,000 (most vulnerable)
$43,000/20%
$215,000
$20,000/10%
$200,000

Partner
Carney
Menton
Hoehn

Schedule 2
Maximum Loss
Capital Balance/
That Can
Loss Allocation
Be Absorbed
$24,000/(4/7)
$ 42,000 (most vulnerable)
$25,000/(2/7)
$ 87,500
$11,000/(1/7)
$ 77,000

Partner
Menton
Hoehn

Schedule 3
Maximum Loss
Capital Balance/
That Can
Loss Allocation
Be Absorbed
$13,000/(2/3)
$ 19,500
$ 5,000/(1/3)
$ 15,000 (most vulnerable)

12. C The $16,000 available cash can be distributed but should be done under the
assumption that all deficit balances will be total losses. After offsetting
Jones' loan, the two deficits total $4,000. Fuller and Rogers, the two
partners with positive capital balances, share profits in a 30:20 relationship
(the equivalent of a 60%:40% ratio). Fuller would absorb $2,400 of the
potential loss with Rogers being allocated $1,600. The remaining capital

balances ($10,600 and $5,400) are safe capital balances and those amounts
can be immediately distributed.
13. (8 Minutes) (Payment of safe capital balances)
$6,800 to Cleveland and $1,200 to Pierce
Since the partnership currently has total capital of $350,000, the $8,000 that is
available would indicate maximum potential losses of $342,000.
Nixon
Reported balances ..............................
$170,000
Anticipated loss ($342,000) split
on a 5:3:2 basis ..............................
(171,000)
Potential balances ...............................
$ (1,000)
Potential loss from Nixon's deficit (split 3:2) 1,000
Current cash distribution ...................
$
-0-

Cleveland

Pierce

$110,000

$70,000

(102,600)
$ 7,400
(600)
$6,800

(68,400)
$ 1,600
(400)
$ 1,200

14. (20 Minutes) (Final settlement of a partnership being liquidated)

Part a.

Brown gets $21,000, Fish gets $12,000, and Stone gets $2,000.

Reported balances ......................................

Loss on sale of land ($10,000) split
on a 4:3:3 basis.......................................
Cash distribution .........................................
Part b.

Brown
$25,000

Fish
$15,000

Stone
$5,000

(4,000)
$21,000

(3,000)
$12,000

(3,000)
$2,000

Fish
$15,000

Stone
$5,000

Brown gets $16,429 and Fish gets $8,571

Brown
Reported balances ......................................
$25,000
Loss on sale of land ($20,000) split on
a 4:3:3 basis............................................
(8,000)
Adjusted balances .......................................
$17,000
Potential loss from Stone's deficit (split 4:3)
(571)
Cash distribution .........................................
$16,429
Part c.

(6,000)
$ 9,000
(429)
$ 8,571

(6,000)
$(1,000)
1,000
$
-0-

Brown gets $10,714 and Fish gets $4,286

Brown
Reported balances ......................................
$25,000
Loss on sale of land ($30,000) split on
a 4:3:3 basis............................................
(12,000)
Adjusted balances .......................................
$13,000
Potential loss from Stone's deficit (split 4:3)
(2,286)
Cash distribution .........................................
$10,714

Fish
$15,000
(9,000)
$ 6,000
(1,714)
$ 4,286

Stone
$5,000
(9,000)
$(4,000)
4,000
$
-0-

15. (10 Minutes) (Distribution made of contribution made by partner with deficit
balance)
The entire $20,000 goes to Atkinson.
Atkinson
Reported balances
Capital contribution
Adjusted balances
Potential loss from Dennsmore
and Rasputin ($60,000) split
on a 4:3 basis
Adjusted balances
Potential loss from Kaporale
($5,714)
Cash distribution

Kaporale Dennsmore

$60,000
-0$60,000

$20,000
-0$20,000

$(30,000)
-0$(30,000)

(34,286)
$25,714

(25,714)
$(5,714)

30,000
$
-0-

5,714
-0-

-0$ -0-

(5,714)
$20,000

Rasputin
$(50,000)
20,000
$(30,000)

30,000
-0-0$ -0-

16. (8 Minutes) (Determine safe capital balances)

Ball gets $143, Eaton gets $1,429, and Lake gets $3,428.
Ace
Reported balances .......................
$25,000
Maximum losses on land and building
($85,000) split on a 3:3:2:2 basis
(25,500)
Estimated liquidation expenses
($5,000) split 3:3:2:2....................
(1,500)
Potential balances ........................
$(2,000)
Potential loss from Ace ($2,000) split
on a 3:2:2 basis ..........................
2,000
Cash distributions ........................
$
0

Ball
$28,000

Eaton
$20,000

Lake
$22,000

(25,500)

(17,000)

(17,000)

(1,500)
$ 1,000

(1,000)
$ 2,000

(1,000)
$ 4,000

(857)
143

(571)
$ 1,429

(572)
$ 3,428

Saunders,
Capital

Ferris,
Loan &
Capital

200,000
(38,400)

230,000
(38,400)

17. (15 Minutes) (Prepare a proposed schedule of liquidation)

HARDWICK, SAUNDERS, AND FERRIS

Proposed Schedule of Liquidation
Other
Assets

Hardwick,
Accounts Loan and
Payable
Capital

Cash
Beginning
balances
90,000 820,000
210,000
270,000
Sold assets
200,000 (328,000)
(51,200)
Assumed: loss
on remaining
assets
(492,000)
(196,800)
Paid liabilities (210,000)
(210,000)
Safe balances
80,000
0
0
22,000

(147,600) (147,600)
14,000

44,000

Of the available $80,000, $22,000 will go to Hardwick, $14,000 to Saunders, and

$44,000 to Ferris.

18. (7 Minutes) (Amount of cash needed to assure payments to all partners)

Watson is the partner most vulnerable to a loss. A loss of only $50,000 would
completely eliminate Watson's capital balance:
Miller
$50,000/60% = $ 83,333 loss to eliminate capital
Tyson
$50,000/20% = $250,000 loss to eliminate capital
Watson $10,000/20% = $ 50,000 loss to eliminate capital
Thus, if the loss on disposal is less than $50,000, all partners will retain
positive capital balances and receive some cash in liquidation. Because of
this, since "other assets" are $140,000, they must be sold for any amount over
$90,000 for all partners to get cash.
19. (5 Minutes) (Determine safe capital balances)
Maximum potential losses are $128,000, $8,000 in liquidation expenses and a
complete $120,000 loss on the noncash assets. Such a loss would reduce the
capital balances to: Babb $8,800, Whitaker ($5,600), and Edwards ($1,200).
Babb must retain sufficient capital ($6,800) to be able to absorb the possible
losses of Whitaker and Edwards. The remaining $2,000 is a safe capital
balance for Babb.
20. (10 Minutes) (Determine amount to be contributed by partner with a deficit
balance)
White and Blue are both insolvent and have negative capital balances (after
offsetting the loan from White) totaling $15,000. Absorption by the other
partners of these losses would be as follows (on a 30:10:20 basis):
Partner
Black
Green
Brown

Share of Loss
New Capital Balance
30/60 x $15,000 = $7,500
$ (4,500)
10/60 x $15,000 = $2,500
$ (5,500)
20/60 x $15,000 = $5,000
$10,000

Black, who is also insolvent, now has a deficit capital of $4,500 that would
have to be absorbed by Brown and Green (on a 10:20 basis):
Partner
Green
Brown

Share of Loss
New Capital Balance
10/30 x
$4,500 = $1,500
$ (7,000)
20/30 x
$4,500 = $3,000
$ 7,000

Thus, Green must contribute $7,000 that will go to Brown.

21. (50 Minutes) (Compute effects of a liquidation under a variety of

circumstances)
a. Dobbs receives the entire $10,000.
Maximum potential losses of $250,000 on noncash assets would be allocated
as follows:
Partner
Share of Loss
New Capital Balance
Adams
2/10 x $250,000 = $50,000
$ 30,000
Baker
3/10 x $250,000 = $75,000
$(45,000)
Carvil
3/10 x $250,000 = $75,000
$(15,000)
Dobbs
2/10 x $250,000 = $50,000
$ 40,000
Maximum total potential losses of $60,000 to be absorbed from Baker and
Carvil above would then be allocated as follows on a 2:2 basis:
Adams
2/4 x $60,000 = $30,000
-0Dobbs
2/4 x $60,000 = $30,000
$ 10,000
Absorbing the final loss would leave Dobbs with a safe capital balance of
$10,000.
b. Adams receives the entire $10,000.
Maximum potential losses of $250,000 on noncash assets would be allocated
as follows:
Partner
Adams
Baker
Carvil
Dobbs

Share of Loss
New Capital Balance
2/10 x $250,000 = $50,000
$ 30,000
2/10 x $250,000 = $50,000
$(20,000)
3/10 x $250,000 = $75,000
$(15,000)
3/10 x $250,000 = $75,000
$ 15,000

Maximum total potential losses of $35,000 to be absorbed from Baker and

Carvil above would be allocated as follows on a 2:3 basis:
Adams
Dobbs

2/5 x $35,000 = $14,000

3/5 x $35,000 = $21,000

$ 16,000
$ (6,000)

Absorbing the final $6,000 loss from Dobbs would leave Adams with a safe
capital balance of $10,000.
c. Adams receives $57,500 and Dobbs gets $22,500.
The $50,000 loss on sale of the building would be allocated as follows:
Partner
Adams
Baker
Carvil
Dobbs

Share of Loss
10% x $50,000 = $5,000
30% x $50,000 = $15,000
30% x $50,000 = $15,000
30% x $50,000 = $15,000

New Capital Balance

$ 75,000
$ 15,000
$ 45,000
$ 75,000

21. c. (continued)
Maximum potential loss of $130,000 on the land would be allocated as follows:
Partner

Share of Loss

Adams
Baker
Carvil
Dobbs

10% x $130,000 = $13,000

30% x $130,000 = $39,000
30% x $130,000 = $39,000
30% x $130,000 = $39,000

New Capital Balance

$ 62,000
$ (24,000)
$ 6,000
$ 36,000

Maximum potential loss of $24,000 to be absorbed from Baker would be

allocated as follows on a 1:3:3 basis:
Adams
Carvil
Dobbs

1/7 x $24,000 = $3,428

3/7 x $24,000 = $10,286
3/7 x $24,000 = $10,286

$ 58,572
$ (4,286)
$ 25,714

Maximum potential loss of $4,286 to be absorbed from Carvil would be

allocated as follows on a 1:3 basis:
Adams
Dobbs

1/4 x $4,286 = $1,072

3/4 x $4,286 = $3,214

$57,500
$22,500

These amounts represent safe capital balances for distribution purposes.

d. The land and building must be sold for over $115,000 to ensure that Carvil will
receive some cash.
Adams
Beginning balances
$ 80,000
Assumed loss of $100,000 (see
Schedule 1) (1:3:4:2)
(10,000)
Step One balances
$ 70,000
Assumed loss of $35,000 (see
Schedule 2) (allocated on a
1:0:4:2 basis)
(5,000)
Step Two balances
$ 65,000
Assumed loss of $90,000 (see
Schedule 3) (allocated on a
1:0:0:2 basis)
(30,000)
Step Three balances
$ 35,000

Baker
$ 30,000
$

(30,000)
-0-

Carvil
$ 60,000

Dobbs
$ 90,000

(40,000)
$ 20,000

(20,000)
$ 70,000

(20,000)
-0-

(10,000)
$ 60,000

- 0-0-

- 0- 0-

- 0- 0-

(60,000)
$
- 0-

21. d. (continued)
PREDISTRIBUTION PLAN
The first $35,000 available goes to Adams. Next $90,000 is split between
Adams and Dobbs on a 1:2 basis. Next $35,000 is split between Adams, Carvil,
and Dobbs on a 1:4:2 basis. All remaining cash is split between Adams, Baker,
Carvil, and Dobbs on the original profit and loss ratio.
Total cash of $125,000 ($35,000 + $90,000) has to be available before Carvil will
receive any cash. Since the partnership already has $10,000 cash in excess of
its liabilities, the land and building must be sold for over $115,000 to ensure
Carvil of receiving some amount.
As another approach to the problem, Carvil's capital balance is eliminated
through the $100,000 Step One loss and the $35,000 Step Two loss. Thus,
avoiding a complete $135,000 loss ensures that Carvil will receive cash. Since
the land and buildings have a book value of $250,000, such losses would be
avoided by receiving over $115,000.
Schedule 1
Partner
Adams
Baker
Carvil
Dobbs

Capital Balance/
Loss Allocation
$80,000/10%
$30,000/30%
$60,000/40%
$90,000/20%

Schedule 2
Partner
Adams
Carvil
Dobbs

Capital Balance/
Loss Allocation
$70,000/(1/7)
$20,000/(4/7)
$70,000/(2/7)

Schedule 3
Partner
Adams
Dobbs

Capital Balance/
Loss Allocation
$65,000/(1/3)
$60,000/(2/3)

Maximum Loss
That Can
Be Absorbed
$800,000
$100,000 (most vulnerable)
$150,000
$450,000
Maximum Loss
That Can
Be Absorbed
$490,000
$ 35,000 (most vulnerable)
$245,000
Maximum Loss
That Can
Be Absorbed
$195,000
$ 90,000 (most vulnerable)

22. (30 Minutes) (Prepare a predistributlon plan)

An assumed series of losses is simulated which eliminates each partner's
capital account in turn:
Larson
Norris
Spencer
Harrison
Beginning balances
$ 15,000
$ 60,000
$ 75,000
$ 41,250
Assumed loss of $75,000 (see
Schedule 1) (allocated on a
2:3:2:3 basis)
(15,000)
(22,500)
(15,000)
(22,500)
Step One balances
$ -0$ 37,500
$ 60,000
$ 18,750
Assumed loss of $50,000 (see
Schedule 2) (allocated on a
0:3:2:3 basis)
- 0(18,750)
(12,500)
(18,750)
Step Two balances
$
-0$ 18,750
$ 47,500
$
-0Assumed loss of $31,250 (see
Schedule 3) (allocated on a
0:3:2:0 basis)
-0(18,750)
(12,500)
-0Step Three balances
$
-0$
-0$ 35,000
$
-0PREDISTRIBUTION PLAN
First $55,000 goes to pay liabilities ($47,000) and liquidation expenses
(estimated at $8,000).
Next $35,000 available goes to Spencer.
Next $31,250 is split between Norris and Spencer on a 3:2 basis.
Next $50,000 is split among Norris, Spencer, and Harrison on a 3:2:3 basis.
All remaining cash is split among Larson, Norris, Spencer, and Harrison on
the original profit and loss ratio.
Schedule 1
Partner
Larson
Norris
Spencer
Harrison

Capital Balance/
Loss Allocation
$15,000/20%
$60,000/30%
$75,000/20%
$41,250/30%
Schedule 2

Partner
Norris
Spencer
Harrison

Partner
Norris
Spencer

Capital Balance/
Loss Allocation
$37,500/(3/8)
$60,000/(2/8)
$18,750/(3/8)
Schedule 3
Capital Balance/
Loss Allocation
$18,750/(3/5)
$47,500/(2/5)

Maximum Loss
That Can
Be Absorbed
$ 75,000 (most vulnerable)
$200,000
$375,000
$137,500
Maximum Loss
That Can
Be Absorbed
$100,000
$240,000
$ 50,000 (most vulnerable)
Maximum Loss
That Can
Be Absorbed
$ 31,250 (most vulnerable)
$118,750

23. (20 Minutes) (Prepare and use a predistribution plan)

Part a.
Maximum Losses That Can Be Absorbed
Able*
Moon
Yerkl

$50,000/.2
$60,000/.3
$50,000/.5

$250,000
200,000
100,000 (most vulnerable to losses)

*Able's balance includes capital and the loan to the partnership.

The assumption is made that a $100,000 loss occurs.
Able
Reported balances
$50,000
Assumed loss ($100,000) split on a 2:3:5 basis (20,000)
Adjusted balances
$30,000

Moon
$60,000
(30,000)
$30,000

Yerkl
$50,000
(50,000)
$
0

Maximum Losses That Can Now Be Absorbed

Able
Moon

$30,000/.4
$30,000/.6

$75,000
50,000 (most vulnerable to losses)

The assumption is made that a $50,000 loss occurs.

Reported balances
Assumed loss ($50,000) split on a 2:3 basis
Adjusted balances

Able
$30,000
(20,000)
$10,000

Moon
$30,000
(30,000)
$
0

PREDISTRIBUTION PLAN

The first $62,000 will go to pay liquidation expenses ($12,000) and liabilities
($50,000).
The next $10,000 goes entirely to Able (to pay off loan).
The next $50,000 is split between Able and Moon based on a 2:3 basis,
respectively.
All remaining cash will be divided among the partners according to their
profit and loss ratio.

Part b.
After this sale, the partnership has $76,000 in cash. The first $62,000 should be
held for the liabilities and the liquidation expenses. The next $10,000 goes to
Able. The remaining $4,000 is divided between Able ($1,600 or 40%) and Moon
($2,400 or 60%).
24. (25 Minutes) (Produce a predistribution plan for a partnership liquidation)

Maximum Losses That Can Be Absorbed

Simpson
Hart
Bobb
Reidl

$18,000/20%
$40,000/40%
$48,000/20%
$135,000/20%

$ 90,000 (most vulnerable to losses)

100,000
240,000
675,000

The assumption is made that a $90,000 loss occurs.

Simpson
Reported balances
$18,000
Assumed loss ($90,000) split
on a 2:4:2:2 basis
(18,000)
Adjusted balances
$
0

Hart
$40,000

Bobb
$48,000

Reidl
$135,000

(36,000)
$ 4,000

(18,000)
$30,000

(18,000)
$117,000

Maximum Losses That Can Now Be Absorbed

Hart
Bobb
Reidl

$4,000/4/8
$30,000/2/8
$117,000/2/8

$ 8,000 (most vulnerable to losses)

120,000
468,000

The assumption is made that an $8,000 loss occurs.

Hart
Reported balances
$4,000
Assumed loss ($8,000) split on a 4:2:2 basis (4,000)
Adjusted balances
$
0

Bobb
$30,000
(2,000)
$28,000

Reidl
$117,000
(2,000)
$115,000

Maximum Losses That Can Now Be Absorbed

Bobb
Reidl

$28,000/2/4
$115,000/2/4

56,000 (most vulnerable to losses)

230,000

The assumption is made that a $56,000 loss occurs.

Reported balances
Assumed loss ($56,000) split on a 2:2 basis
Adjusted balances

Bobb
$28,000
(28,000)
$
0

Reidl
$115,000
(28,000)
$ 87,000

PREDISTRIBUTION PLAN

The first $59,000 goes to pay liabilities and expected liquidation expenses.
The next $87,000 goes entirely to Reidl.
The next $56,000 is split evenly between Bobb and Reidl.
The next $8,000 is split among Hart (4/8), Bobb (2/8), and Reidl (2/8).
All remaining cash is split among the partners according to their original
profit and loss ratio.

25. (30 Minutes) (Determine the ramifications of a variety of liquidation situations)

Part A.
(a) $48,000. Maximum losses of $100,000 on the noncash assets would
increase Milburn's deficit balance by $40,000 (or 40%). Maximum losses
would not create any other deficit balances.
(b) All $19,000 should go to Thomas. As Ross and Thomas view the current
situation, maximum potential losses total $108,000: $100,000 on the
noncash assets and $8,000 on Milburn's deficit balance. In determining safe
capital balances, these assumed losses would be allocated on a 4:2 basis
or $72,000 to Ross and $36,000 to Thomas. Since such a loss would entirely
eliminate Ross' capital account, only Thomas has a safe capital balance at
the current time.
(c) The minimum cash payment to Thomas would be $35,667 ($19,000 +
$16,667). As shown in (b) above, the available $19,000 is distributed to
Thomas, thus reducing that partner's capital balance to $39,000. A loss of
$59,000 on the noncash assets would further reduce this partner's balance
by $11,800 ($59,000 x 20%) to $27,200. That same loss would reduce Ross'
capital to $45,400 and Milburn's deficit to ($31,600). The minimum cash
amount would be caused by Milburn's failure to contribute this $31,600 so
that it has to be absorbed by Ross (4/6 or $21,067) and Thomas (2/6 or
$10,533). The remaining safe capital balance of $16,667 would be paid to
Thomas.
Part B.
(a) Carton will have to contribute $7,429. The $29,000 in deficits will have to be
absorbed by Sampson and Carton on a 4:3 basis. Thus, Carton will be
allocated $12,429 of this amount which creates a deficit of $7,429.
(b) Klingon will have to contribute $19,667 [$17,000 + (20/90 x $12,000)] that will
be distributed as follows:
Creditors
Sampson
Carton

$15,000
$ 3,667
$ 1,000

Since Romulan is insolvent, the remaining partners will have to absorb the
$12,000 deficit on a 4:2:3 basis. This allocation increases Klingon's deficit
by 2/9 of $12,000 or $2,667. Klingon must contribute an amount equal to the
new deficit balance of $19,667. The first $15,000 will go to the creditors that
remain after the $9,000 in partnership cash is distributed. The remaining
$4,667 is distributed to the two partners in accordance with their remaining
positive capital balances after absorbing Romulan's loss, 4/9 to Sampson
and 3/9 to Carton. Sampson has a postive capital balance of $3,667 [$9,000
($12,000 x 4/9)] and Carton has a positive capital balance of $1,000
[$5,000 ($12,000 x 3/9)].

25. (continued)
(c) Sampson should receive $500. If Klingon is insolvent, the $17,000 deficit
balance will have to be absorbed by the remaining three partners on a 4:3:1
basis. This loss would decrease Sampson's capital balance by $8,500 (4/8)
to $500.
26. (25 Minutes) (Prepare journal entries for a partnership liquidation)
JOURNAL ENTRIES
a. Cash .............................................................................
March, Capital (2/6 of loss) .......................................
April, Capital (3/6) .......................................................
May, Capital (1/6) ........................................................
Inventory ................................................................

56,000
6,000
9,000
3,000
74,000

b. March, Capital (2/6 of expenses) ..............................

April, Capital (3/6) .......................................................
May, Capital (1/6) ........................................................
Cash .......................................................................

2,500
3,750
1,250

c. Liabilities .....................................................................
Cash .......................................................................

40,000

d. Cash .............................................................................
Accounts Receivable ............................................

45,000

e.
Partner
March
April
May

Current Capital
Adjusted
$16,500
$62,250
$41,750

7,500
40,000
45,000

Share of
Potential
Maximum Loss*
Capital
2/6 x $77,000 = $25,667 $ (9,167)
3/6 x $77,000 = $38,500
$23,750
1/6 x $77,000 = $12,833
$28,917

*Maximum losses could be suffered on the remaining $39,000 in accounts

receivable and the $38,000 in land, building, and equipment.
Based on the above potential losses, March would have a deficit capital
balance of $9,167 which in turn has to be allocated to the two partners having
positive capital balances:
Partner
April
May

Potential Capital
(above)
$23,750
$28,917

Share of
March's Deficit
3/4 x $9,167 = $6,875
1/4 x $9,167 = $2,292

Potential
Capital
$16,875
$26,625

26. (continued)
As the above amounts represent safe capital balances, payments can be
presently made to these two partners.
April, Capital ...............................................................
16,875
May, Capital .................................................................
26,625
Cash .......................................................................
43,500
f. Cash (30%) ..................................................................
March, Capital (2/6 of loss) .......................................
April, Capital (3/6)........................................................
May, Capital (1/6).........................................................
Accounts Receivable ............................................

11,700
9,100
13,650
4,550

g. Cash ............................................................................
March, Capital (2/6 of loss) .......................................
April, Capital (3/6) .......................................................
May, Capital (1/6) ........................................................
Land, Building and Equipment ............................

17,000
7,000
10,500
3,500

h. Liabilities .....................................................................
Cash .......................................................................

21,000

39,000

38,000
21,000

i. Since $28,700 cash remains and each partner has a positive capital
balance, the money left can be distributed based on these ending totals.
March, Capital .............................................................
April, Capital ...............................................................
May, Capital .................................................................
Cash .......................................................................

400
21,225
7,075
28,700

27. (30 Minutes) (Determine liquidation proceeds necessary to give partner a

specified amount)
The other assets must be sold for at least $50,000.
For this creditor to get $5,000 from Z's portion of partnership property, $27,000
in cash above the current level must first be generated for creditors and
liquidation expenses. Based on the predistribution schedule below, the next
$10,000 is received solely by Y. A third $8,000 would be split evenly between Y
and Z (giving Z $4,000 of the $5,000 needed). Z needs $1,000 from the next
cash generated in order to satisfy this personal claim. Since the next level
(Step Two balances) is split on a 3:1:1 basis, Z is entitled to 1/5 of the
proceeds. Thus, $5,000 must be collected for Z to receive $1,000. For Z's
creditor to get $5,000, the other assets have to be sold for $50,000 ($27,000 +
$10,000 + $8,000 + $5,000).
A predistribution plan must be developed to generate this information:
Beginning capital
Assumed loss of $120,000 (see
Schedule 1) (5:3:1:1)
Step One balances
Assumed loss of $70,000 (see
Schedule 2) (allocated on a
0:3:1:1 basis)
Step Two balances
Assumed loss of $8,000 (see
Schedule 3) (allocated on a
0:0:1:1 basis)
Step Three balances

W
X
$ 60,000 $ 78,000
$

(60,000) (36,000)
-0- $ 42,000

- 0- 0-

(42,000)
$
- 0-

- 0- 0-

- 0- 0-

Y
$ 40,000

Z
$ 30,000

(12,000)
$ 28,000

(12,000)
$ 18,000

(14,000)
$ 14,000

(14,000)
$ 4,000

(4,000)
$ 10,000

(4,000)
- 0-

PREDISTRIBUTION PLAN

Current cash of $30,000 goes to creditors.

Next $27,000 generated goes to remaining creditors ($12,000) and to pay
liquidation expenses estimated at ($15,000).
Next $10,000 goes to Y.
Next $8,000 goes to Y and Z on a 1:1 basis.
Next $70,000 goes to X, Y, and Z on a 3:1:1 basis.
Any remaining cash is split among all four partners based on a 5:3:1:1
basis.

27. (continued)
Schedule 1
Partner
W
X
Y
Z

Capital Balance/
Loss Allocation
$60,000/50%
$78,000/30%
$40,000/10%
$30,000/10%

Maximum Loss to
Be Absorbed
$120,000 (most vulnerable)
$260,000
$400,000
$300,000

Capital Balance/
Loss Allocation
$42,000/(3/5)
$28,000/(1/5)
$18,000/(1/5)

Maximum Loss to
Be Absorbed
$ 70,000 (most vulnerable)
$140,000
$ 90,000

Capital Balance/
Loss Allocation
$14,000/(1/2)
$ 4,000/(1/2)

Maximum Loss to
Be Absorbed
$ 28,000
$ 8,000 (most vulnerable)

Schedule 2
Partner
X
Y
Z
Schedule 3
Partner
Y
Z

28. (35 Minutes) (Determine monthly safe capital payments)

VAN, BAKEL, AND COX PARTNERSHIP
Safe Installment Payments to Partners
January 31, 2009
Profit and loss ratio

Total
100%

Preliquidation capital balances $282,000

Add (deduct) loans
(10,000)
272,000
January losses (Schedule 1)
(28,000)
Equity of partnership
January 31, 2009
244,000
Potential losses (Schedule 1)
(199,000)
45,000
Potential lossVan's deficit balance
(Bakel 3/5; Cox 2/5)
-0Safe payments to partners
$45,000

Van
50%

Bakel
30%

Cox
20%

$118,000
(30,000)
88,000
(14,000)

$ 90,000
20,000
110,000
(8,400)

$74,000
-074,000
(5,600)

74,000
(99,500)
(25,500)

101,600
(59,700)
41,900

68,400
(39,800)
28,600

25,500
$ -0-

(15,300)
$ 26,600

(10,200)
$18,400

Schedule 1
Computation of Actual and Potential Liquidation Losses
January 2009
Actual
Potential
Losses
Losses
Collection of accounts receivable ($66,000 $51,000)
$15,000
Sale of inventory ($52,000 $38,000) ............................
14,000
Liquidation expenses ......................................................
2,000
Gain resulting from January credit memorandum
reducing liability to creditors ....................................
(3,000)
Machinery and equipment, net .......................................
$189,000
Potential unrecorded liabilities and anticipated expenses
10,000
Totals ...........................................................................
$ 28,000 $199,000

28. (continued)
VAN, BAKEL, AND COX PARTNERSHIP
Safe Installment Payments to Partners
February 28, 2009
Total
Equity of partnership
January 31, 2009 (above) .. $244,000
Safe payments (above) ...........
(45,000)
February liquidation expenses
(3,000)
Equity of partnership
February 28, 2009 ..............
196,000
Potential liabilities and expenses (6,000)
Potential loss on machinery and
equipment .......................... (189,000)
1,000
Potential lossVan's deficit balance
(Bakel 3/5; Cox 2/5) ...........
- 0Safe payments to partners .....
$ 1,000

Van

Bakel

Cox

$74,000
-0(1,500)

$101,600
(26,600)
(900)

$68,400
(18,400)
(600)

72,500
(3,000)

74,100
(1,800)

49,400
(1,200)

(94,500)
(25,000)

(56,700)
15,600

(37,800)
10,400

25,000
$ -0-

(15,000)
$ 600

(10,000)
$ 400

VAN, BAKEL, AND COX PARTNERSHIP

Safe Installment Payments to Partners
March 31, 2009
Total
Equity of partnership
February 28, 2009 (above)... $196,000
Safe payments (above)..............
(1,000)
Loss on sale of machinery and
equipment ($189,000 $146,000) (43,000)
Liquidation expenses
(5,000)
Safe payments to partners
$147,000

Van

Bakel

Cox

$72,500
-0-

$74,100
(600)

$49,400
(400)

(21,500)
(2,500)
$48,500

(12,900)
(1,500)
$59,100

(8,600)
(1,000)
$39,400

29. (35 Minutes) (Determine cash distributions for four different partnership
liquidations)
Part A
Beginning balances
Contribution by Jackson
Capital balances
Elimination of Jackson's deficit
(40:20 basis)
Final distribution

Part B
Beginning balances
$82,000 loss on disposal (allocated on a
50:40:10 basis)
Liquidation expenses (50:40:10 basis)
Capital balances
Allocation of Luck's deficit (50:10 basis)
Final distribution

Part C
Beginning balances
$82,000 loss on disposal (allocated on a
2:4:4 basis)
Liquidation expenses (2:4:4 basis)
Capital balances
Allocation of Cummings' deficit balance
(2:4 basis)
Capital balances
Allocation of Luck's deficit balance
Final distribution

Simon,
Capital
$16,000
- 0$16,000
(6,000)
$10,000
Hough,
Loan and
Capital
$82,000
(41,000)
(10,500)
30,500
(1,000)
$29,500
Hough,
Loan and
Capital
$82,000

Haynes,
Loan and
Capital
$ 4,000
- 0$ 4,000
(3,000)
$ 1,000

Jackson,
Capital
($12,000)
3,000
($ 9,000)
$

9,000
- 0-

Luck,
Loan and Cummings,
Capital
Capital
$40,000
$20,000
(32,800)
(8,400)
(1,200)
1,200
$ - 0-

(8,200)
(2,100)
9,700
(200)
$ 9,500

Luck,
Loan and Cummings,
Capital
Capital
$40,000
$20,000

(16,400)
(1,200)
$64,400

(32,800)
(2,400)
$ 4,800

(32,800)
(2,400)
($15,200)

(5,067)
$59,333
(5,333)
$54,000

(10,133)
($ 5,333)
5,333
$ - 0-

15,200
-0- 0$ - 0-

29. (continued)
Part D

Beginning balances
Allocation of Redmond's
deficit balance (10:30:40
basis)
Capital balances
$32,000 contribution by
Ledbetter and $3,000 contribution by Watson
Final distribution*

Redmond,
Loan and Ledbetter,
Capital
Capital

Watson,
Capital

Sandridge,
Capital

($16,000) ($30,000)

$ 3,000

$15,000

(2,000)
($32,000)

(6,000)
($3,000)

(8,000)
$ 7,000

32,000
$ - 0-

3,000
$ - 0-

- 0$ 7,000

16,000
-0- 0$ - 0-

*Remaining $28,000 is used to pay liabilities.

30. (40 Minutes) (Produce a schedule of liquidation)

FRICK, WILSON, AND CLARKE
Schedule of Partnership Liquidation
Final Balances

Beginning balances

Cash
$48,000

Noncash
Assets
$177,000

Liabilities
$35,000

Frick,
Capital
(60%)
$101,000

Wilson,
Capital
(20%)
$28,000

Clarke,
Capital
(20%)
$61,000

Distribution of $4,000 (cash in excess of liabilities and estimated liquidation expenses) in accordance with predistribution plan Schedule 1

Updated balances
Noncash assets sold
Updated balances
All liabilities are paid
Updated balances

(4,000)
$44,000
48,000
$92,000
(35,000)
$57,000

$177,000
(80,000)
$97,000
$97,000

$35,000
$35,000
(35,000)
$-0-

$101,000
(19,200)
$81,800

$28,000
(6,400)
$21,600

(4,000)
$57,000
(6,400)
$50,600

$81,800

$21,600

$50,600

Distribution of $48,000 (cash in excess of liabilities and estimated liquidation expenses) in accordance with predistribution plan Schedule 1:

First $23,333 (remainder of first

distribution)
Next $22,667
Next $2,000
Updated balances
Noncash assets sold
Updated balances
Paid liquidation expenses
Updated balances
Final distribution based on ending
capital account balances
Ending balance

(23,333)
(22,667)
(2,000)
$9,000
44,000
$53,000
(7,000)
$46,000
(46,000)
$-0-

$97,000
(97,000)

$-0-

(17,000)
(1,200)
$63,600
(31,800)

(400)
$21,200
(10,600)

(23,333)
(5,667)
(400)
$21,200
(10,600)

$10,600
(1,400)
$9,200

$10,600
(1,400)
$9,200

(9,200)
$-0-

(9,200)
$-0-

$-0-

$-0-

$-0-

$-0-

$31,800
(4,200)
$27,600

$-0-

$-0-

(27,600)
$-0-

30. (continued)
Schedule 1
Development of Predistribution Schedule

Beginning balances ................................

Loss of $140,000 assumedSchedule 2
(allocated on a 60:20:20 basis) ...........
Step One balances ..................................
Loss of $22,667 assumedSchedule 3
(allocated on a 60:20 basis) ................
Step Two balances ..................................

Frick,
Capital
$101,000

Wilson,
Capital
$28,000

Clarke,
Capital
$61,000

(84,000)
$ 17,000

(28,000)
$
-0-

(28,000)
$33,000

(17,000)
- 0-

- 0- 0-

(5,667)
$27,333

PREDISTRIBUTION PLAN

Payment of liabilities and liquidation expenses must be assured. Next

$27,333 goes to Clarke.
Next $22,667 is split between Frick and Clarke on a 60:20 basis.
Any further cash is split among Frick, Wilson, and Clarke on a 60:20:20
basis.
Schedule 2

Partner
Frick
Wilson
Clarke

Capital Balance/
Loss Allocation
$101,000/60%
$ 28,000/20%
$ 61,000/20%

Maximum Loss
That Can
Be Absorbed
$168,333
$140,000 (most vulnerable to loss)
$305,000

Schedule 3

Partner
Frick
Clarke

Capital Balance/
Loss Allocation
$17,000/(60/80)
$33,000/(20/80)

Maximum Loss
That Can
Be Absorbed
$ 22,667 (most vulnerable to loss)
$132,000

31. (50 Minutes) (Produce a predistribution plan and journal entries for a
partnership liquidation)
Rodgers,
Part A
Wingler,
Norris,
Loan and
Guthrie,
Capital
Capital
Capital
Capital
Beginning balances ...............
$120,000
$88,000
$109,000
$60,000
Loss of $150,000 assumed (allocated on a 30:10:20:40
basis) see Schedule 1 .........
(45,000)
(15,000)
(30,000)
(60,000)
Step One balances ..................
$ 75,000
$73,000
$ 79,000
$
-0Loss of $150,000 assumed (allocated on a 30:10:20 basis)
see Schedule 2 .....................
(75,000)
(25,000)
(50,000)
-0Step Two balances ..................
$
-0$48,000
$ 29,000
$
-0Loss of $43,500 assumed
(allocated on a 10:20 basis) see
Schedule 3 ...........................
-0(14,500)
(29,000)
-0Step Three balances ...............
$
-0$33,500
$
-0$
-0PREDISTRIBUTION PLAN

Payment of all liabilities and liquidation expenses must be assured.

Next $33,500 goes entirely to Norris.
Next $43,500 is allocated to Norris (10/30) and Rodgers (20/30).
Next $150,000 is allocated to Wingler (30/60), Norris (10/60), and Rodgers
(20/60).
Any further cash distributions are divided on the original profit and loss
ratio:
Wingler (30%), Norris (10%), Rodgers (20%), and Guthrie (40%).
Schedule 1

Partner

Capital Balance/
Loss Allocation

Wingler
Norris
Rodgers
Guthrie

$120,000/30%
$ 88,000/10%
$109,000/20%
$ 60,000/40%

Maximum Loss
That Can Be
Absorbed
$400,000
$880,000
$545,000
$150,000 (most vulnerable to loss)

31. a. (continued)
Schedule 2

Partner
Wingler
Norris
Rodgers

Capital Balance/
Loss Allocation
$75,000/(30/60)
$73,000/(10/60)
$79,000/(20/60)

Maximum Loss
That Can Be
Absorbed
$150,000 (most vulnerable to loss)
$438,000
$237,000

Schedule 3

Partner
Norris
Rodgers

Capital Balance/
Loss Allocation
$48,000/(10/30)
$29,000/(20/30)

Maximum Loss
That Can Be
Absorbed
$144,000
$ 43,500 (most vulnerable to loss)

31. (continued)
Part B
Cash ............................................................................. 65,600
Wingler, Capital (30% of $16,400 loss) ...............
4,920
Norris, Capital (10%) .............................................
1,640
Rodgers, Capital (20%) .........................................
3,280
Guthrie, Capital (40%) ...........................................
6,560
Accounts Receivable ......................................
Receivables are collected with losses allocated
to partners.

82,000

Cash ....................................................................... 150,000

Wingler, Capital (30% of $103,000 loss) ............. 30,900
Norris, Capital (10%) ............................................ 10,300
Rodgers, Capital (20%) ........................................ 20,600
Guthrie, Capital (40%) .......................................... 41,200
Land .................................................................
85,000
Building and Equipment ................................
168,000
Land, building and equipment are sold with
losses allocated to partners.
Wingler, Capital .................................................... 31,800
Norris, Capital ...................................................... 58,600
Rodgers, Loan ..................................................... 35,000
Rodgers, Capital .................................................. 15,200
Cash ..................................................................
140,600
Above entry distributes safe capital balances as
shown below (see predistribution plan in part A)
based on a current cash balance of $230,600.

First $90,000 is held to pay liabilities ($74,000) and estimated liquidation

expenses ($16,000).
Next $33,500 goes entirely to Norris.
Next $43,500 is split between Norris ($14,500) and Rodgers ($29,000).
Remaining $63,600 is allocated to Wingler ($31,800), Norris ($10,600)
and Rodgers ($21,200).

No journal entry is currently required by Guthrie's insolvency.

Liabilities ...................................................
Cash .......................................................
All liabilities are paid.

74,000
74,000

31. b. (continued)
Cash ..................................................................
71,000
Wingler, Capital (30% of $30,000 loss) ..........
9,000
Norris, Capital (10%) .......................................
3,000
Rodgers, Capital (20%) ...................................
6,000
Guthrie, Capital (40%) .....................................
12,000
Inventory.....................................................
Inventory is sold with loss allocated to partners.

101,000

Wingler, Capital.................................................
35,500
Norris, Capital...................................................
11,833
Rodgers, Capital...............................................
23,667
Cash............................................................
71,000
Above entry distributes available cash according to predistribution
plan. Although $87,000 in cash is being held, $16,000 must be
retained to pay liquidation expenses. The remaining $71,000 is
divided among Wingler, Norris, and Rodgers on a 30:10:20 basis.
According to the predistribution plan, a total of $150,000 must be
divided on this ratio but only $63,600 was allocated in this manner
in the first distribution above. Therefore, all $71,000 (making a total
of $134,600) is paid out on this 30:10:20 basis.
Wingler, Capital (30% of expenses)................
Norris, Capital (10%)........................................
Rodgers, Capital (20%)....................................
Guthrie, Capital (40%)......................................
Cash............................................................
Liquidation expenses are paid.

3,300
1,100
2,200
4,400
11,000

Wingler, Capital (30/60 of deficit)....................

2,080
Norris, Capital (10/60)......................................
693
Rodgers, Capital (20/60)..................................
1,387
Guthrie, Capital..........................................
4,160
To eliminate the deficit balance of insolvent partner as computed
on the next page.

31. b. (continued)
CAPITAL ACCOUNT BALANCES

Beginning balances.................
Loss on accounts receivable.
Loss on land, building, and
equipment ..............................
Cash distribution.....................
Loss on inventory....................
Cash distribution.....................
Liquidation expenses..............
Subtotal ..............................
Guthrie insolvent......................
Current balances......................

Wingler,
Capital
$120,000
(4,920)

Norris,
Capital
$88,000
(1,640)

(30,900)
(31,800)
(9,000)
(35,500)
(3,300)
4,580
(2,080)
$2,500

(10,300)
(58,600)
(3,000)
(11,833)
(1,100)
1,527
(693)
$ 834

Rodgers,
Loan and Guthrie,
Capital
Capital
$109,000
$60,000
(3,280)
(6,560)
(20,600)
(50,200)
(6,000)
(23,667)
(2,200)
3,053
(1,387)
$1,666

Wingler, Capital............................................................
2,500
Norris, Capital..............................................................
834
Rodgers, Capital..........................................................
1,666
Cash
.................................................................
To distribute remaining cash based on final capital balances.

(41,200)
-0(12,000)
-0(4,400)
(4,160)
4,160
$ -0-

5,000