After 25 years of operations, the Starke, Lannister, and Targaryen partnership has decided to liquidate. At that
Question:
After 25 years of operations, the Starke, Lannister, and Targaryen partnership has decided to liquidate. At that time, 1/1/20x2, the partnership balance sheet is as follows:
Starke, Lannister, and Targaryen, Partners | |||
Balance Sheet | |||
as of 12/31/20x1 | |||
Assets | Liabilities and Partners’ Capital | ||
Cash | $100,000 | Liabilities | $175,000 |
Noncash assets | 350,000 | Starke, Capital | 50,000 |
Lannister, Capital | 100,000 | ||
Targaryen, Capital | 125,000 | ||
Total assets | $450,000 | Total Liabs & Capital | $450,000 |
In accordance with the Articles of Partnership, the partners agreed to share profits and losses as follows:
Starke, Capital | 30% |
Lannister, Capital | 30% |
Targaryen, Capital | 40% |
During the liquidation process, the following transactions take place:
March 1, 20x1 - Noncash assets are sold for $125,000.
March 15, 20x1 - Liquidation expenses of $25,000 are paid. No further expenses are expected.
March 30, 20x1 – All business liabilities paid.
April 1, 20x1 – Partnership is dissolved, and any remaining cash is allocated to the partners, as appropriate.
Required
Prepare the formal Schedule of Liquidation for the partnership. (Note: Assume that a deficit balance in a partner’s capital account will be uncollectible).
Prepare the related journal entries associated with liquidating the partnership.
Optional Bonus Questions #2 (8 points)
Explain the purpose of the formal Articles of Partnership.
List at least 8 provisions that should be discussed in the Articles of Partnership
If the Articles of Partnership fails to discuss the partners’ income/loss sharing ratios, how must income/losses be allocated among the partners?
What are the risks to the partners, if the partnership is formed without a formal written Articles of Partnership agreement? (Please be brief, no more than 4 sentences)
Advanced Accounting
ISBN: 978-1305084858
12th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng