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Personal Financial Problems for William's Creditors

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.

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