The following four friends entered into a bakery business over 10 years ago and the following profits
Question:
The following four friends entered into a bakery business over 10 years ago and the following profits and losses ratio for each partner is as follows: Annie (40%), Cathy (30%), Gwen (20%), and Sherry (10%). The partnership learned that Cathy has become insolvent and her creditors have filed a 30,000 claim against the assets of the partnership. To satisfy the legal obligation the partnership must liquidate. The estimate for liquidation expenses is $10,000. Before liquidation begins, the partnership balance sheet is below:
Cash………………………$20,000
Liabilities…………....... $140,000
Noncash Assets….......280,000
Cathy Loan……………..10,000
Annie, capital………….80,000
Cathy, capital………….15,000
Gwen, Capital………….45,000
Sherry, capital…………10,000
Total Assets $300,000 , Total liabilities and capital $300,000 The following transactions occurred the liquidation process:
1. Sold noncash assets with a book value of $280,000 for $230,000
2. Paid $10,000 liquidation expenses
3. Distributed safe payments to partners
4. Payment of all business liabilities
5. Determine that the deficit balances for any partner who is uncollectible,
6. Receipt of appropriate cash contributions from any solvent partner with a negative balance,
7. Distribution of final cash.
Requirement:
Use the information above and prepare a pre-distribution plan for the partnership. Prepare journal entries to record the actual liquidation transaction.
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Expert Answer:
