Sedgwick Company At December 31 Has Cash $20,000 And Noncash
Sedgwick Company At December 31 Has Cash 20000 Noncash Assets 100
Sedgwick Company at December 31 has cash $20,000, noncash assets $100,000, liabilities $55,000, and the following capital balances: Floyd $45,000 and DeWitt $20,000. The firm is liquidated, and $105,000 in cash is received for the noncash assets. Floyd and DeWitt's income ratios are 60% and 40%, respectively. Prepare a schedule of cash payments.
Paper For Above instruction
The liquidation process of Sedgwick Company involves settling liabilities, distributing residual cash to partners based on their capital balances and income ratios, and preparing a detailed schedule of payments. This process necessitates a systematic approach to ensure fair distribution and proper accounting for each step.
Step 1: Determine Total Assets and Liabilities
As of December 31, the company's total assets include cash and noncash assets. The total assets amount to:
- Cash: $20,000
- Noncash assets: $100,000
Total assets = $20,000 + $100,000 = $120,000
Liabilities are given as:
- Liabilities: $55,000
Step 2: Calculate Net Assets
Net assets (or owner's equity) are calculated as:
Net assets = Total assets - Liabilities = $120,000 - $55,000 = $65,000
Step 3: Distribution of Cash from Liquidation
The company receives $105,000 in cash for the noncash assets, which will be used to pay off liabilities and distribute to partners:
- Total cash received: $105,000
Step 4: Pay liabilities
Liabilities of $55,000 are paid first from the available cash:
Remaining cash after paying liabilities = $105,000 - $55,000 = $50,000
Step 5: Calculate Capital to be Distributed
The residual cash of $50,000 is to be distributed among Floyd and DeWitt based on their income ratios (60% and 40%) of the residual amount:
- Floyd's share: 60% of $50,000 = $30,000
- DeWitt's share: 40% of $50,000 = $20,000
Step 6: Prepare Schedule of Cash Payments
The cash payments consist of:
- Payment toward liabilities: $55,000
- Distributions to Floyd: $30,000
- Distributions to DeWitt: $20,000
Total cash distribution: $105,000
Step 7: Accounting for Capital Balances
Initial capital balances:
- Floyd: $45,000
- DeWitt: $20,000
Remaining balances after distribution:
- Floyd: $45,000 - $30,000 = $15,000 (credit balance remaining)
- DeWitt: $20,000 - $20,000 = $0 (fully paid)
Final Schedule of Cash Payments:
| Description | Debit (-) | Credit (+) |
|-------------------------------------|-----------|------------|
| Cash (liabilities paid) | | 55,000 |
| Floyd - Capital account | 30,000 | |
| DeWitt - Capital account | 20,000 | |
| Remaining Cash (distributions) | | 0 |
Note: The allocated amounts reflect the distributions aligned with income ratios and capital account reductions.
Conclusion:
The liquidation of Sedgwick Company results in cash disbursements totaling $105,000, allocated toward liabilities and partner capital accounts based on their respective shares. The process underscores the importance of systematic allocation to ensure fairness and compliance with partnership agreement terms.
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