Case 7.1 – 15 points
Case 7.2 – 30 points
Case 7.3 – 15 points
Total (60 points)
Joe, Jim, and Jay have been partners for several years. The partners allocate all profits and losses on
a 4:4:2 basis, respectively. Now, each partner has become personally insolvent and, the three
partners have decided to liquidate the business in hopes of solving their personal financial issues.
As of September 1, the partnership’s balance sheet is as follows:
Liabilities and Capital
$ 35,000 Liabilities
132,000 Joe, capital
122,000 Jim, capital
Land, building, and equipment (net)
71,000 Jay, capital
$ 360,000 Total liabilities and capital $ 360,000
Prepare journal entries for the following transactions (if no entry is required for a transaction/
event, indicate "No journal entry required"):
1. Sold all inventory for $80,000 cash (1 point).
2. Paid $14,700 in liquidation expenses (1 point).
3. Paid $64,000 of the partnership’s liabilities (1 point).
4. Collected $84,000 of the accounts receivable (1 point).
5. Distributed safe cash balances; the partners anticipate no further liquidation expenses (5
6. Sold remaining accounts receivable for 35 percent of face value (2 points).
7. Sold land, building, and equipment for $41,000 (1 point).
8. Paid all remaining liabilities of the partnership (1 point).
9. Distributed cash held by the business to the partners (2 points).
On January 1, the partners Mary, Helen, and Jane (who share profits and losses in the ratio of 5:3:2,
respectively) decide to liquidate their partnership. The trial balance at this date is as follows:
Machinery and equipment, net
The partners plan a program of piecemeal conversion of the partnership’s assets to minimize
liquidation losses. All available cash, less an amount retained to provide for future expenses, is to
be distributed to the partners at the end of each month. A summary of the liquidation transactions
January Collected $58,000 of the accounts receivable; the balance is deemed uncollectible.
Received $45,000 for the entire inventory.
Paid $9,000 in liquidation expenses.
Paid $72,000 to the outside creditors after offsetting a $9,000 credit memorandum
received by the partnership on January 11.
Retained $17,000 cash in the business at the end of January to cover any unrecorded
liabilities and anticipated expenses. The remainder is distributed to the partners.
February Paid $10,000 in liquidation expenses.
Retained $5,000 cash in the business at the end of the month to cover unrecorded
liabilities and anticipated expenses.
Received $153,000 on the sale of all machinery and equipment.
Paid $12,000 in final liquidation expenses.
Retained no cash in the business.
Prepare a schedule to compute the safe installment payments made to the partners at the end of
each of these three months. (30 points)
The partnership of Susan, Tim, James, and Michelle was formed several years ago as a law firm.
Several partners have 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:
Building and equipment (net)
Liabilities and Capital
Susan, capital (30%)
Tim, capital (10%)
James, capital (20%)
Michelle, capital (40%)
Total liabilities and capital
When the liquidation commenced, liquidation expenses of $15,000 were anticipated as being
necessary to dispose of all property.
Prepare a pre-distribution plan for this partnership (15 points).
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