Option #1: Accounting for Liquidation of a Partnership
Complete the following exercise. Fill in the Excel spreadsheet provided via the link below to enter your answers to parts a, b, and c. Then paste the Excel data into a Word document on which you can also write the answer to part d.
Label each exercise or problem clearly. Use APA formatting and citation if needed.
Sand, Mell, and Rand are partners who share incomes and losses in a 1:4:5 ratio. After lengthy disagreements among the partners and several unprofitable periods, the partners decided to liquidate the partnership. Before the liquidation, the partnership balance sheet showed the following:
- Cash $10,000
- Total “other assets,” $106,000
- Total liabilities, $88,000
- Sand, Capital, $1,200
- Mell, Capital, $11,700
- Rand, Capital, $15,100
The “other assets” were sold for $ 85,000. Proceeds from the sale of other assets were used to payoff existing liabilities.
Determine the following:
- The gain (or loss) realized on the sale of the assets and recording of liabilities’ payment.
- The balances in the partners’ capital accounts after the distribution of this gain or loss to the capital accounts.
- Assume that if any capital deficits exist, they are not made up and the deficient partner pays down his or her deficit to zero. How much cash will each of the partners receive in the final liquidation?
- Provide an explanation between 200 and 300 words in length of the requirements for liquidating the partnership. What documents will be needed? How will the money be distributed? What other options might there be in place of liquidation?