Prior to liquidating their partnership, Wakefield and Barns had capital accounts of $105,000 and $55,000, respectively.

Prior to liquidating their partnership, Wakefield and Barns had capital accounts of $105,000 and $55,000, respectively. The partnership assets were sold for $40,000. The partnership had no liabilities. Wakefield and Barns share income and losses equally.

a. Determine the amount of Barns’ deficiency.
b. Determine the amount distributed to Wakefield, assuming Barns is unable to satisfy the deficiency.


Answer:













a. Barns’ equity prior to liquidation……………… $55,000
Realization of asset sales………………………… $ 40,000
Book value of assets*…………………………… 160,000
Loss on liquidation……………………………… $(120,000)
Barns’ share of loss (50% × –$120,000)……… (60,000)
Barns’ deficiency………………………………… $ (5,000)
* $105,000 + $55,000
b. $40,000. ($105,000 – $60,000 share of loss – $5,000 Barns’ deficiency;
also equals the amount realized from asset sales)



Prior to liquidating their partnership, Morgan and Chow had capital accounts of $32,000 and $60,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $120,000. The partnership had $10,000 of liabilities. Morgan and Chow share income and losses equally. Determine the amount received by Morgan as a final distribution from liquidation of the partnership.


Answer:











Morgan’s equity prior to liquidation…………………………… $32,000
Realization of asset sales………………………………………… $120,000
Book value of assets
($32,000 + $60,000 + $10,000)……………………………… 102,000
Gain on liquidation……………………………………………… $ 18,000
Morgan’s share of gain (50% × $18,000)……………………… 9,000
Morgan’s cash distribution……………………………………… $41,000