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    Personal Financial Problems for William's Creditors

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    Hardin, Sutton, and Williams has operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy William's creditors, the partnership has deiced to liquidate.

    The following balance sheet has been produced.

    Cash $10,000
    Non-cash assets 227,000
    Total assets $237,000

    Liabilities $80,000
    Hardin, capital 96,000
    Sutton, capital 45,000
    William, capital 16,000
    Total Liabilities and capital $237,000

    During the liquidation process the following transactions take place:

    -noncash assets are sold for $116,000
    -Liquidation expenses of $12,000 are paid. No further expense are expected.
    -Safe capital distributions are made to the partners.
    -Payment is made of all business liabilities.
    -Any deficit capital balance are deemed to be uncollectible.

    Required

    Develop a predistribution plan for this partnership, assuming $12,000 of liquidation expenses are expected to be paid.

    Compute safe cash payments after the non-cash assets have been sold and the liquidation expense have been paid.

    Prepare journal entries to record the actual liquidation transactions.

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    Solution Preview

    Hardin, Sutton, and Williams has operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy William's creditors, the partnership has deiced to ...

    Solution Summary

    Hardin, Sutton, and Williams has operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy William's creditors, the partnership has deiced to liquidate.

    The following balance sheet has been produced.

    Cash $10,000
    Noncash assets 227,000
    Total assets $237,000

    Liabilities $80,000
    Hardin, capital 96,000
    Sutton, capital 45,000
    William, capital 16,000
    Total Liabilities and capital $237,000

    During the liquidation process the following transactions take place:

    -noncash assets are sold for $116,000
    -Liquidation expenses of $12,000 are paid. No further expense are expected.
    -Safe capital distributions are made to the partners.
    -Payment is made of all business liabilities.
    -Any deficit capital balance are deemed to be uncollectible.

    Required

    Develop a predistribution plan for this partnership, assuming $12,000 of liquidation expenses are expected to be paid.

    $2.19

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