Cash $ 19,000 Liabilities $ 71,000 Accounts receivable 86,000 Rodgers, loan 39,000 Inventory 105,000 Wingler, capital (30%) 126,000 Land 87,000 Norris, capital (10%) 92,000 Building and equipment (net) 170,000 Rodgers, capital (20%) 76,000 Guthrie, capital (40%) 63,000 Total assets $ 467,000 Total liabilities and capital $ 467,000
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as a local architectural firm. Several partners have recently undergone personal financial problems and have decided to terminate operations and liquidate the business. The following balance sheet is drawn up as a guideline for this process:
| Cash | $ | 19,000 | Liabilities | $ | 71,000 |
| Accounts receivable | 86,000 | Rodgers, loan | 39,000 | ||
| Inventory | 105,000 | Wingler, capital (30%) | 126,000 | ||
| Land | 87,000 | Norris, capital (10%) | 92,000 | ||
| Building and equipment (net) | 170,000 | Rodgers, capital (20%) | 76,000 | ||
| Guthrie, capital (40%) | 63,000 | ||||
| Total assets | $ | 467,000 | Total liabilities and capital | $ | 467,000 |
When the liquidation commenced, liquidation expenses of $14,000 were anticipated as being necessary to dispose of all property.
Part A
Prepare a predistribution plan for this partnership.
Part B
The following transactions transpire during the liquidation of the Wingler, Norris, Rodgers, and Guthrie partnership:
- Collected 80 percent of the total accounts receivable with the rest judged to be uncollectible.
- Sold the land, building, and equipment for $152,000.
- Distributed safe payments of cash.
- Learned that Guthrie, who has become personally insolvent, will make no further contributions.
- Paid all liabilities.
- Sold all inventory for $78,000.
- Distributed safe payments of cash again.
- Paid actual liquidation expenses of $11,000 only.
- Made final cash disbursements to the partners based on the assumption that all partners other than Guthrie are personally solvent.
Prepare
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