firm expects to sell 25,000 units of its product at $11 per unit

$26.00

Description

Following is a series of independent cases. In each situation, indicate the cash distribution to be
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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