Professional Documents
Culture Documents
The title of each problem is followed by the estimated time in minutes required for completion and by a
difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
Pr. 3–1 Doris, Elsie & Frances Partnership (20 minutes, easy)
Journal entries for liquidation of an insolvent general partnership having a partner who is
unable to pay entire capital deficit to the partnership.
Pr. 3–2 Olmo, Perez & Quinto LLP (20 minutes, easy)
Journal entries for liquidation of a solvent limited liability partnership having an almost
insolvent partner who cannot pay entire loan from partnership or capital deficit.
Pr. 3–3 Hal, Ian, Jay & Kay LLP (20 minutes, easy)
Preparation of cash distribution program for a liquidating limited liability partnership.
Pr. 3–4 Carson & Worden LLP (20 minutes, easy)
Cash distribution program for liquidation of a limited liability partnership, and journal entries
for realization of assets and distributions of cash to creditors and partners.
Pr. 3–5 Luke, Mayo & Nomura LLP (20 minutes, easy)
Given the statement of realization and liquidation for a limited liability partnership, prepare
journal entries for the liquidation.
Pr. 3–6 Luna, Nava & Ruby LLP (30 minutes, easy)
Compute total loss from liquidation of a limited liability partnership, prepare a statement of
realization and liquidation, and prepare journal entries for the liquidation.
Pr. 3–7 Haye & Lee LLP (20 minutes, easy)
Partners accept bonds in exchange for certain limited liability partnership assets and withdraw
noncash assets during liquidation. Journal entries for transactions completed in carrying out
liquidation of the partnership.
Pr. 3–8 Adams, Barna & Coleman LLP (30 minutes, easy)
A limited liability partnership is insolvent, as is one of the three partners. Given a balance sheet
of the partnership and a summary of the financial status of partners, prepare a statement of
realization and liquidation and determine the amount of cash that would have to be generated
from the realization of partnership assets to enable the insolvent partner to pay personal
creditors in full. Prepare journal entries for the liquidation.
Pr. 3–9 Smith, Jones & Webb LLP (30 minutes, easy)
Installment liquidation of a limited liability partnership over a period of three months.
Statement of realization and liquidation with supporting analysis.
Pr. 3–10 Denson, Eastin & Feller LLP (45 minutes, medium)
Priorities among limited liability partners as to eligibility to receive cash payments in an
installment liquidation. Consists of a series of independent questions as to the circumstances
under which a partner would be entitled to receive a specified amount of cash.
SOLUTIONS TO EXERCISES
Ex. 3–1 1. d 8. b
2. c 9. b
3. b 10. b
4. a 11. c
5. c [($21,000 + $39,000) – $30,000 share of loss = $30,000] 12. b
6. a 13. b
7. a
Ex. 3–2 Journal entry for Pon, Quan & Ron LLP, Jan. 31, 2005:
Quan, Capital 3,500
Ron, Capital 11,500
Cash 15,000
To record payment of cash to partners, as follows:
Quan Ron
Capital account balances prior to cash
payment $8,000 $16,000
Potential loss from uncollectible capital
deficit of Pon ($9,000 shared equally) (4,500) (4,500)
Cash payment $3,500 $11,500
Ex. 3–3 Computation of amount of cash to be distributed to partners Archer and Bender:
Archer Bender
Capital account balances after payment of liabilities $40,000 $22,000
Liabilities 240,000
Rich, Capital 8,000
Stowe, Capital 48,000
Thorpe, Capital 24,000
Cash 320,000
To record payment to creditors, and first installment to partners, as
follows:
Ex. 3–7 Computation of amount of cash to be distributed to partners Ed, Flo, and Gus:
Ed Flo Gus
Capital account balances before payment of
liabilities $33,000 $40,000 $42,000
The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 3 118
Less: Maximum possible loss on realization of
noncash assets ($78,000), divided in 5:3:2 ratio 39,000 23,400 15,600
Balances $ (6,000) $16,600 $26,400
Allocation of potential capital deficit of Ed in 3:2
ratio 6,000 (3,600) (2,400)
Distribution of $37,000 cash to partners after
payment of $5,000 of creditors’ claims
($42,000 – $5,000 = $37,000) $ 0 $13,000 $24,000
Ex. 3–8 Computation of amount of cash to be distributed to partners Hale and Ian:
Hale Ian
Capital balances before payment of liabilities and liquidation
costs $71,000 $ 54,000
Less: Maximum possible loss on realization of noncash assets
($110,000) and liquidation costs ($10,000), divided in 4:6 ratio $48,000 72,000
Balances $23,000 $(18,000)
Allocation of potential deficit of Ian (18,000) 18,000
Distribution of $5,000 cash to Hale after payment of $20,000
liabilities and withholding of $10,000 cash for liquidation
costs ($35,000 – $20,000 – $10,000 = $5,000) $ 5,000 $ 0
Ex. 3–9 a. JONES, KELL & LAMB LLP
Computation of Cash to Be Paid to Partners in First Installment
March 31, 2005
Ex. 3–16 Journal entries for Davis, Evans & Fagin LLP, Sept. 30, 2005:
Cash 100,000
Davis, Capital 16,000
Evans, Capital 8,000
Fagin, Capital 16,000
Other Assets 140,000
To record realization of assets and division of $40,000 loss among
partners in 4:2:4 ratio.
Liabilities 50,000
Cash 50,000
To record payment to creditors.
1 46,000
Evans, Capital [$34,000 + ($36,000 x )]
3
2 24,000
Fagin, Capital ($36,000 x )
3
Cash 70,000
To record payments to partners in accordance with cash distribution
program.
20 05
Jan 17 Cash 9 0 0 0 0
Elsie, Capital ($280,000 – $200,000) 8 0 0 0 0
Frances, Capital ($250,000 – $240,000) 1 0 0 0 0
To record additional investments by Elsie and by Frances
in
Frances in partial settlement of their capital deficits.
20 05
Feb 1 Cash 1 4 0 0 0 0
Olmo, Capital ($40,000 x 0.40) 1 6 0 0 0
Perez, Capital ($40,000 x 0.40) 1 6 0 0 0
Quinto, Capital ($40,000 x 0.20) 8 0 0 0
Other Assets 1 8 0 0 0 0
To record realization of assets at a loss of $40,000
($180,000 – $140,000 = $40,000).
4 Cash 5 0 0 0 0
Olmo, Capital ($10,000 x 0.40) 4 0 0 0
Perez, Capital ($10,000 x 0.40) 4 0 0 0
Quinto, Capital ($10,000 x 0.20) 2 0 0 0
Other Assets 6 0 0 0 0
To record realization of remaining assets at a loss of
$10,000 ($60,000 – $50,000 = $10,000).
5 Cash 3 0 0 0 0
Loan Receivable from Perez 3 0 0 0 0
To record partial payment of loan to Perez.
Note to Instructor: The loan payable to Olmo is not paid in full in the second journal entry on February 1, 2005, because of the
right of offset.
20 05
Sept 23 Cash 6 0 0 0 0
Carson, Capital ($10,000 x 0.40) 4 0 0 0
Worden, Capital ($10,000 x 0.60) 6 0 0 0
Other Assets 7 0 0 0 0
To record realization of other assets at a loss of
$10,000, divided between Carson and Worden in 2:3
ratio.
Oct 1 Cash 1 8 0 0 0
Carson, Capital ($12,000 x 0.40) 4 8 0 0
Worden, Capital ($12,000 x 0.60) 7 2 0 0
Other Assets 3 0 0 0 0
To record realization of remaining other assets at a
loss of $12,000, divided between Carson and Worden
in 2:3 ratio.
20 05
May 9 Cash 8 0 0 0 0
Luke, Capital 4 0 0 0 0
Mayo, Capital 4 0 0 0 0
Nomura, Capital 4 0 0 0 0
Other Assets 2 0 0 0 0 0
To record realization of assets and division of
$120,000 loss equally among partners.
12 Liabilities 1 0 0 0 0 0
Cash 1 0 0 0 0 0
To record payment to creditors.
18 Liabilities 2 0 0 0 0
Luke, Capital 2 0 0 0 0
To record Luke’s payment to creditors.
25 Cash 2 0 0 0 0
Luke, Capital 1 0 0 0 0
Mayo, Capital 1 0 0 0 0
To record partners’ investments.
20 05
Dec. 31 Cash 3 4 7 2 5 0
Luna, Capital ($78,750 x 0.50) 3 9 3 7 5
Nava, Capital ($78,750 x 0.30) 2 3 6 2 5
Ruby, Capital ($78,750 x 0.20) 1 5 7 5 0
Other Assets 4 2 6 0 0 0
To record realization of other assets at a loss of
$78,750.
31 Liabilities 1 5 0 0 0 0
Cash 1 5 0 0 0 0
To record payment to creditors.
31 Luna, Capital 2 4 0 0 0
Ruby, Capital 9 0 0 0
Luna, Drawing 2 4 0 0 0
Ruby, Drawing 9 0 0 0
To close partners’ drawing accounts to capital
accounts.
31 Luna, Capital 5 9 6 2 5
Loan payable to Nava 3 0 0 0 0
Nava, Capital 7 6 8 7 5
Ruby, Capital 8 3 2 5 0
Cash 2 4 9 7 5 0
To record payments to partners and to complete
liquidation.
7 Cash 3 5 6 0 0
Haye, Capital ($400 x 0.75) 3 0 0
Lee, Capital ($400 x 0.25) 1 0 0
Investment in Wong Products 12% bonds
($40,000 x 0.90) 3 6 0 0 0
To record realization of $40,000 face amount 12%
bonds, with investment loss of $400 divided in 3:1
ratio between Haye and Lee.
8 Liabilities 2 7 0 0 0
Cash 2 7 0 0 0
To record payment of liabilities.
20 05
June 4 Cash 3 0 7 0 0
Adams, Capital ($63,300 x 0.40) 2 5 3 2 0
Barna, Capital ($63,300 x 0.40) 2 5 3 2 0
Coleman, Capital ($63,300 x 0.20) 1 2 6 6 0
Other Assets 9 4 0 0 0
To record realization of other assets at a loss of
$63,300.
4 Liabilities 2 0 5 0 0
Cash 2 0 5 0 0
To record payment to creditors.
4 Adams, Capital 1 3 8 0
Barna, Capital 1 3 8 0
Coleman, Capital 2 7 6 0
To eliminate Coleman’s capital deficit.
4 Adams, Capital 1 0 0
Loan Payable to Barna 4 0 0 0
Barna, Capital 1 2 1 0 0
Cash 1 6 2 0 0
To record payments to partners and to complete
liquidation.
A short-cut approach to the answer is based on the following: If Denson received $20,000, Denson incurred a loss of $12,000 on a total equity of $32,000.
Because Denson’s income-sharing ratio is 50%, the total loss must be $24,000 ($12,000 ÷ 0.50 = $24,000). A loss of $24,000 would mean that the noncash
assets, which have a carrying amount of $85,900 ($91,900 – $6,000 cash = $85,900), must have realized $61,900 ($85,900 – $24,000 = $61,900).
c. If Feller received $6,200 in the first distribution of cash, Denson must have received $10,000. The reason, as shown in a on page 142, is that Feller is entitled to
receive $2,200 ($5,500 x 0.40 = $2,200) before Denson gets anything. Feller then received the additional $4,000 as a 20% share of the next $20,000 and
Denson received 50% of $20,000, or $10,000.
20 05
Dec 31 Short-Term Prepayments 1 5 0 0
Land ($45,000 – $28,000) 1 7 0 0 0
Inventories ($75,000 – $56,000) 1 9 0 0 0
Accrued Liabilities 7 5 0
Allowance for Doubtful Accounts 1 2 0 0 0
Lord, Capital ($24,750 x 0.40) 9 9 0 0
Lee, Capital ($24,750 x 0.60) 1 4 8 5 0
To adjust assets and liabilities and to divide net gain
of $24,750 in the income-sharing ratio of 40:60
between Lord and Lee.
31 Lord, Capital 9 0 0
Lee, Capital 1 0 5 0
Cash 1 9 5 0
To record withdrawal of cash by partners to avoid need
for issuance of fractional shares of common stock. (See
(See Jan 2, 2006, journal entry below.)
20 06
Jan 2 Memorandum entry: Received authorization to issue
150,000 shares of $10 par common stock.
2 Cash 3 2 0 0 0 0
Common Stock, $10 par (20,000 x $10) 2 0 0 0 0 0
Paid-In Capital in Excess of Par 1 2 0 0 0 0
To record issuance of 20,000 shares of common stock
Tat
at $16 a share to public investors.
2 Cash 3 5 0 5 0
Trade Accounts Receivable 3 0 0 0 0
Inventories 7 5 0 0 0
Short-Term Prepayments 1 5 0 0
Land 4 5 0 0 0
Buildings ($50,000 – $17,000) 3 3 0 0 0
Allowance for Doubtful Accounts 1 2 0 0 0
Accrued Liabilities 7 5 0
Trade Accounts Payable 1 0 0 0 0
Payable to Lord & Lee Partnership 1 9 6 8 0 0
To record acquisition of net assets of Lord & Lee
Partnership.
Plant assets:
Land, at current fair value $ 4 5 0 0 0
Buildings (net) 3 3 0 0 0 7 8 0 0 0
Total assets $ 5 2 7 5 5 0
Stockholders’ equity:
Common stock, $10 par, authorized 150,000 shares, issued
and outstanding 32,300 shares $ 3 2 3 0 0 0
Additional paid-in capital 1 9 3 8 0 0 5 1 6 8 0 0
Total liabilities & stockholders’ equity $ 5 2 7 5 5 0