The partnership of Pavelski, Ovechin, and Oh has experienced operating losses for three consecutive years. The partners, who have shared profits and losses in the ratio of Steven Pavelski, 60 percent, Eddie Ovechin, 20 percent, and Kwan Oh, 20 percent, are considering liquidating the business. They ask you to analyze the effects of liquidation under various possibilities about the sale of the noncash assets. None of the partners has personal assets if they go into a deficit financial position. They present the following partnership balance sheet amounts at December 31, 2020:

Required

1. Prepare a summary of liquidation transactions (as illustrated in Exhibit 12–6) for each of the following situations:

a. The noncash assets are sold for $145,200.

b. The noncash assets are sold for $110,400.

2. What legal recourse do the remaining partners have to be reimbursed for deficit balances?

Transcribed Image Text:

Cash $ 27,000 Liabilities $113,400 Noncash assets 475,200 Steven Pavelski, capital 186,400 Eddie Ovechin, capital 120,000 Kwan Oh, capital 82,400 Total assets $502,200 Total liabilities and equity $502,200