Source: ADVANCED ACCOUNTING 10th edition (Joe B. Hoyle, Thomas F.

Schaefer,
Timothy S. Doupnik)
(Estimated Time: 30 to 40 Minutes) For the past several years, the Andrews, Caso,
Quinn, and Sheridan
partnership has operated a local department store. Based on the provisions of the
original articles of partnership,
all profits and losses have been allocated on a 4:3:2:1 ratio, respectively. Recently,
both Caso
and Quinn have undergone personal financial problems and, as a result, are now
insolvent. Casos creditors
have filed a $20,000 claim against the partnerships assets, and $22,000 is being
sought to repay
Quinns personal debts. To satisfy these legal obligations, the partnership property
must liquidate. The
partners estimate that they will incur $12,000 in expenses to dispose of all noncash
assets.
At the time that active operations cease and the liquidation begins, the following
partnership balance
sheet is produced. All measurement accounts have been closed out to arrive at the
current capital
balances.
Cash . . . . . . . . . . . . . . . . . . . . $ 20,000 Liabilities . . . . . . . . . . . . . . . . . . . $140,000
Noncash assets . . . . . . . . . . . . 280,000 Caso, loan . . . . . . . . . . . . . . . . . . 10,000
Andrews, capital (40%) . . . . . . . . 76,000
Caso, capital (30%) . . . . . . . . . . . 14,000
Quinn, capital (20%) . . . . . . . . . . 51,000
Sheridan, capital (10%) . . . . . . . . 9,000
Total assets . . . . . . . . . . . . . $300,000 Total liabilities and capital . . . . . $300,000
During the lengthy liquidation process, the following transactions take place:
Sale of noncash assets with a book value of $190,000 for $140,000 cash.
Payment of $14,000 liquidation expenses. No further expenses are expected.
Distribution of safe capital balances to the partners.
Payment of all business liabilities.

 Sale of the remaining noncash assets for $10,000.

Determination of deficit capital balances for any insolvent partners as
uncollectible.
Receipt of appropriate cash contributions from any solvent partner who is
reporting a negative capital
balance.
Distribution of final cash.
Required
a. Using the information available prior to the start of the liquidation process,
develop a predistribution
plan for this partnership.
b. Prepare journal entries to record the actual liquidation transactions

Caso, Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Caso, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
To record offset of loan against capital balance in anticipation
of liquidation.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Andrews, Capital (40% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Caso, Capital (30% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

Quinn, Capital (20% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Sheridan, Capital (10% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Noncash Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
To record sale of noncash assets and allocation of $50,000 loss.
Andrews, Capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600
Caso, Capital (30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200
Quinn, Capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,800
Sheridan, Capital (10%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000
To record payment of liquidation expenses
Quinn, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
To record distribution of available cash based on safe capital balance.
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
To record extinguishment of all partnership debts.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Andrews, Capital (40% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Caso, Capital (30% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
Quinn, Capital (20% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000
Sheridan, Capital (10% of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Noncash Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
To record sale of remaining noncash assets and allocation
Andrews, Capital (47 of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,971
Quinn, Capital (27 of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,486
Sheridan, Capital (17 of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,743
Caso, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,200
To record write-off of deficit capital balance of insolvent partner.

Quinn, Capital (27 of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,486

Sheridan, Capital (17 of loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,743

Caso, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,200
To record write-off of deficit capital balance of insolvent partner.

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,143
Sheridan, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,143
To record contribution made to eliminate deficit capital balance.

Andrews, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,429

Quinn, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,714
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,143
To record distribution of remaining cash according to final capital
balances.