Description
made at the end of the liquidation process. Unless otherwise stated, assume that all solvent partners
will reimburse the partnership for their deficit capital balances.
Part A
The Simon, Haynes, and Jackson partnership presently reports the following accounts. Jackson is
personally insolvent and can contribute only an additional $3,000 to the partnership. Simon is also
insolvent and has no available funds.
LO4
LO1, LO3
Part B
Hough, Luck, and Cummings operate a local accounting firm as a partnership. After working
together for several years, they have decided to liquidate the partnership’s property. The partners have
prepared the following balance sheet:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000
Haynes, loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Simon, capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Haynes, capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,000)
Jackson, capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,000)
Cash . . . . . . . . . . . . . . . . . $ 20,000 Liabilities . . . . . . . . . . . . . . . . . . . $ 40,000
Hough, loan . . . . . . . . . . . . 8,000 Luck, loan . . . . . . . . . . . . . . . . . . 10,000
Noncash assets . . . . . . . . . . 162,000 Hough, capital (50%) . . . . . . . . . 90,000
Luck, capital (40%) . . . . . . . . . . . 30,000
Cummings, capital (10%) . . . . . . 20,000
Total assets . . . . . . . . . . . $190,000 Total liabilities and capital . . . . $190,000
The firm sells the noncash assets for $80,000; it will use $21,000 of this amount to pay liquidation
expenses. All three of these partners are personally insolvent.
Part C
Use the same information as in Part B, but assume that the profits and losses are split 2:4:4 to
Hough, Luck, and Cummings, respectively, and that liquidation expenses are only $6,000.
Part D
Following the liquidation of all noncash assets, the partnership of Redmond, Ledbetter, Watson, and
Sandridge has the following account balances:
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,000
Redmond, loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Redmond, capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,000)
Ledbetter, capital (10%) . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,000)
Watson, capital (30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Sandridge, capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Redmond is personally insolvent.
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