Problem:
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.