Determine how cash should be distributed to creditors and partners.

Determine how cash should be distributed to creditors and partners.

Simple liquidation—Schedule of Cash Available

The partnership of Flo and Fay is in the process of liquidation. On January 1, 2011, the ledger shows account balances as follows:

Cash $10,000 Accounts Payable $15,000

Accounts Receivable 25,000 Flo capital $40,000

Lumber inventory 40,000 Flay capital 20,000

On January 10, 2011, the lumber inventory is sold for $25,000, and during January, accounts receivable of $21,000 is collected. No further collections on the receivables are expected. Profits are shared 60 percent to Flo and 40 percent to Fay.

Required: Prepare a schedule showing how the cash available on February 1, 2011,should be distributed.

E 17-2

Liquidation—Journal entries

After closing entries were made on December 31, 2011, the ledger of Mac, Nan, and Obe contained the following balances:

Cash $39,000 Accounts Payable $5,000

Inventory $16,000 Mac capital (40%) $15,000

Nan capital (30%) 8,000

Obe capital (30%) 27,000

Due to unsuccessful operations, the partners decide to liquidate the business. During January some of the inventory is sold at cost for $10,000, and on January 31, 2012, all available cash is distributed. It is not known if the remaining inventory items can be sold.

Required: Prepare all journal entries necessary to account for the transactions of the partnership during January 2012.

E 17-3

Liquidation—Cash distribution computation, safe payments schedule

Fed, Ela, and Luc have decided to liquidate their partnership. Account balances on January 1, 2011, are as follows:

Cash $120,000 Accounts Payable $40,000

Other assets 120,000 Fed capital (30%) 85,000

$240,000 Ela capital (30%) 25,000

Luc capital (40%) 90,000

$240,000

The Partners agree to keep a $10,000 contingency fund and to distribute available cash immediately.

Required: Determine the amount of cash that should be paid to each partner.

E 17-4

Liquidation—Cash distribution computation, safe payments schedule

Jan, Kim, and Lee announce plans to liquidate their partnership immediately. The assets, equities, and profit-and-loss sharing ratios are summarized as follows.

Loan to Kim 20,000 accounts payable 60,000

Other Assets 180,000 Jan Capital (50%) 59,000

200,000 Kim Capital (30%) 29,000

Lee capital(20%) 52,000

200,000

The other assets are sold for $120,000, and an overlooked bill for landscaping services of $5,000 is discovered. Kim cannot pay her partnership debt at the present time, but she expects to have the money in a month or two.

Required: Determine how cash should be distributed to creditors and partners.


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