Reference no: EM132661701
Question - Assume that MERGA and HAILU have been operating an art gallery as a partnership for a number of years. On May 1, 2001, the partners decide to terminate business activities, liquidate all non-cash assets, and dissolve their partnership. A number of reasons might exist for such decision - e.g. disagreement, inadequate business profit for investment of time & capital. The balance sheet is given below:
MERGA AND HAILU Partnership BALANCE SHEET MAY 1, 2001
Assets Liabilities and Capital
Cash Br.45,000
Liabilities Br32,000
Accounts Receivables 12,000
MERGA, Capital 50,000
Inventory 22,000
HAILU, Capital 38,000
Land, Building & Equipment, net 41,000
Total Assets Br 120,000
Total Liab.&Capital Br 120,000
The following assumptions are made that the liquidation of MERGA and HAILU Partnership proceeds in an orderly fashion from June 1, 2001 through October 15, 2001:
June 1, 2001 - The inventory is sold at auction for Br 15,000. MERGA and HAILU allocate all profits and losses using 6:4 ratios, respectively.
July 15, 2001 - from the total accounts receivable, Br 9,000 is collected with the remainder being written off as bad debts.
August 20, 2001 - the fixed asset are sold for a total of Br 29,000
August 25, 2001 - all partnership liabilities are paid
September 10, 2001 - a total of Br 3,000 liquidation expenses is paid to cover costs such as accounting and legal fees, commissions incurred in disposing of partnership property
October 15, 2001 - all remaining cash is distributed to the owners based on their final capital account balances
Instruction -
A. Record the forgoing transactions and determine partners' capital balance.
B. Prepare statements of liquidations.