Schaefer,
Timothy S. Doupnik)
(Estimated Time: 30 to 40 Minutes) For the past several years, the Andrews, Caso,
Quinn, and Sheridan
partnership has operated a local department store. Based on the provisions of the
original articles of partnership,
all profits and losses have been allocated on a 4:3:2:1 ratio, respectively. Recently,
both Caso
and Quinn have undergone personal financial problems and, as a result, are now
insolvent. Casos creditors
have filed a $20,000 claim against the partnerships assets, and $22,000 is being
sought to repay
Quinns personal debts. To satisfy these legal obligations, the partnership property
must liquidate. The
partners estimate that they will incur $12,000 in expenses to dispose of all noncash
assets.
At the time that active operations cease and the liquidation begins, the following
partnership balance
sheet is produced. All measurement accounts have been closed out to arrive at the
current capital
balances.
Cash . . . . . . . . . . . . . . . . . . . . $ 20,000 Liabilities . . . . . . . . . . . . . . . . . . . $140,000
Noncash assets . . . . . . . . . . . . 280,000 Caso, loan . . . . . . . . . . . . . . . . . . 10,000
Andrews, capital (40%) . . . . . . . . 76,000
Caso, capital (30%) . . . . . . . . . . . 14,000
Quinn, capital (20%) . . . . . . . . . . 51,000
Sheridan, capital (10%) . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . $300,000 Total liabilities and capital . . . . . $300,000
During the lengthy liquidation process, the following transactions take place:
Sale of noncash assets with a book value of $190,000 for $140,000 cash.
Payment of $14,000 liquidation expenses. No further expenses are expected.
Distribution of safe capital balances to the partners.
Payment of all business liabilities.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,143
Sheridan, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,143
To record contribution made to eliminate deficit capital balance.