PLEASE HELP ME AND YOU ARE ALL BRIGHT AND I NEED YOUR HELP FOR SOLVING THIS PROBLEM.
PROBLEM 1: CARE p’ship at December 31 had cash amounting to $20,000, noncash assets $100,000, liabilities $55,000, and the following capital balances: Cassandra $45,000 and Penelope $20,000. The firm is liquidated, and $120,000 in cash is received for the noncash assets. Cassandra and Penelope income ratios are 60% and 40%, respectively.
Requirements:
1.Prepare a cash distribution schedule
2.Prepare the entries to record:
a.The sale of noncash assets.
b.The allocation of the gain or loss on liquidation to the partners.
c.Payment of creditors.
d.Distribution of cash to the partners.
Sure! I can help you with that. Let's go step-by-step to solve the problem.
1. Prepare a cash distribution schedule:
To prepare a cash distribution schedule, we need to determine the amount of cash available for distribution and then allocate it based on the partners' income ratios. Here's how:
Cash available for distribution:
Cash amount at December 31 = $20,000
Cash received from the sale of noncash assets = $120,000
Total cash available for distribution = Cash amount at December 31 + Cash received from the sale of noncash assets
= $20,000 + $120,000
= $140,000
Now, we can allocate the cash based on the partners' income ratios:
Cassandra's income ratio = 60%
Penelope's income ratio = 40%
Cash distribution to Cassandra = Total cash available for distribution * Cassandra's income ratio
= $140,000 * 60%
= $84,000
Cash distribution to Penelope = Total cash available for distribution * Penelope's income ratio
= $140,000 * 40%
= $56,000
Therefore, the cash distribution schedule is as follows:
Cassandra: $84,000
Penelope: $56,000
2. Prepare the entries to record:
a. The sale of noncash assets:
To record the sale of noncash assets, we need to debit Cash and credit Noncash Assets. The entry would be:
Debit: Cash $120,000
Credit: Noncash Assets $120,000
b. The allocation of the gain or loss on liquidation to the partners:
To allocate the gain or loss on liquidation to the partners, we need to debit or credit their capital accounts. Since the problem doesn't specify a gain or loss on liquidation, let's assume there is no gain or loss. The entry would be:
No entry required.
c. Payment of creditors:
To record the payment of creditors, we need to debit Creditors and credit Cash. The entry would be:
Debit: Creditors $55,000
Credit: Cash $55,000
d. Distribution of cash to the partners:
To record the distribution of cash to the partners, we need to debit the partners' capital accounts and credit Cash. The entries would be:
For Cassandra:
Debit: Cassandra's Capital $84,000
Credit: Cash $84,000
For Penelope:
Debit: Penelope's Capital $56,000
Credit: Cash $56,000
I hope this helps! Let me know if you have any further questions.
To solve this problem, we need to follow a step-by-step approach. Let's begin by preparing the cash distribution schedule:
1. Cash Distribution Schedule:
- Cash on hand at December 31: $20,000
- Cash received from the sale of noncash assets: $120,000
- Total cash available for distribution: $20,000 + $120,000 = $140,000
Now, we need to distribute the cash based on the income ratios of Cassandra and Penelope. Let's calculate the distribution amounts:
- Cassandra's distribution: 60% of $140,000 = $84,000
- Penelope's distribution: 40% of $140,000 = $56,000
The cash distribution schedule would look like this:
| Partner | Distribution Amount |
|------------|---------------------|
| Cassandra | $84,000 |
| Penelope | $56,000 |
| Total | $140,000 |
2. Entries to Record:
a. Sale of Noncash Assets:
To record the sale of noncash assets, we will debit the Cash account and credit the Noncash Assets account. The entry would be:
Cash $120,000
Noncash Assets $100,000
Gain on Sale of Assets $20,000
b. Allocation of Gain or Loss on Liquidation to the Partners:
To allocate the gain or loss on liquidation to the partners, we need to calculate the individual gains or losses based on their capital balances and income ratios.
- Determine the Total Capital Balance: Cassandra ($45,000) + Penelope ($20,000) = $65,000
- Cassandra's Gain or Loss: ($84,000 - $65,000) x 60% = $11,400
- Penelope's Gain or Loss: ($56,000 - $65,000) x 40% = ($3,600) (loss)
Now, we can record the allocation of gain or loss:
Gain/(Loss) on Liquidation $7,800
- Cassandra's Capital $11,400
+ Penelope's Capital ($3,600)
c. Payment of Creditors:
To record the payment of creditors, we will debit the Creditors account and credit the Cash account. Assuming the full payment of creditors, the entry would be:
Creditors $55,000
Cash $55,000
d. Distribution of Cash to the Partners:
To record the distribution of cash to the partners, we will debit the partners' Capital accounts and credit the Cash account. The entries would be:
Cassandra's Capital $84,000
Penelope's Capital $56,000
Cash $140,000
Those are the steps and entries to solve Problem 1.