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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Liquidating partnerships—deficiency

Prior to liquidating their partnership, Wakefield and Barns had capital accounts of $105,000 and $55,000, respectively. The partnership assets were sold for $40.000. The partnership had no liabilities. Wakefield and Darns share income and losses equally.

  1. a. Determine the amount of Barns's deficiency.
  2. b. Determine the amount distributed to Wakefield, assuming that Barns is unable to satisfy the deficiency.

a.

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

Liquidating Partnership

The winding up of process of partnership is called liquidation of partnership. At the time of liquidation of partnership realization of account is prepared.

To determine:  The amount of B’s deficiency.

Explanation

The amount of B’s deficiency is as follows:

B’s equity prior to liquidation $55,000
Realization of asset sales $40,000
Book value of assets (sum of capital accounts) (1) $160,000
Loss on liquidation $(1,20,000)
B’s share of loss [50% × ($120,000)] ($60,000)
B’s deficiency ($5,000)

Table (1)

Calculation of Book Value of Assets

b.

To determine
 The amount distributed to W.

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