19. June 30, 1918, as a result of careless management, the firm of Howard, Mason & Co. finds itself in a critical financial condition.
The following trial balance shows the accounts as they appear on the books after closing the ledger.
Post-Closing Trial Balance, June 30, 1918
| Land | $ 10,000.00 | |
| Buildings | 42,000.00 | |
| Reserve for Depreciation, Buildings | $ 6,000.00 | |
| Delivery Equipment | 7,000.00 | |
| Reserve for Depreciation, Equipment | 1,500.00 | |
| Furniture and Fixtures | 4,200.00 | |
| Good-Will | 5,000.00 | |
| Cash | 2,316.00 | |
| F. D. Co. Stock | 4,000.00 | |
| Accounts Receivable | 16,000.00 | |
| Reserve for Bad Debts | 1,996.00 | |
| Notes Receivable | 9,400.00 | |
| Notes Receivable Discounted | 3,800.00 | |
| Merchandise Inventory, Bags, June 30, 1918. | 4,780.00 | |
| Merchandise Inventory, Trunks, June 30, 1918 | 8,910.00 | |
| Mortgage Payable | 25,000.00 | |
| Accounts Payable | 21,000.00 | |
| Notes Payable | 12,000.00 | |
| Thomas J. Howard, Loan | 6,000.00 | |
| Thomas J. Howard, Capital | 15,000.00 | |
| Thomas J. Howard, Drawing | 1,700.00 | |
| Joseph Mason, Loan | 4,000.00 | |
| Joseph Mason, Capital | 9,000.00 | |
| Joseph Mason, Drawing | 1,000.00 | |
| John H. Bartlett, Loan | 3,000.00 | |
| John H. Bartlett, Capital | 6,000.00 | |
| Accrued Interest, Mortgage | 1,500.00 | |
| Accrued Interest, Notes Payable | 300.00 | |
| Accrued Interest, Notes Receivable | 150.00 | |
| Prepaid Insurance | 60.00 | |
| Taxes Accrued | 300.00 | |
| Accrued Labor | 200.00 | |
| Miscellaneous Office Supplies | 80.00 | |
| $116,596.00 | $116,596.00 |
There is dissatisfaction among the partners and they finally agree to dissolve partnership. Preparatory to dissolving they appraise the assets and rank the liabilities on a liquidating basis.
It has been found that the buildings had been damaged by fire to the extent of $3,000 but that no adjustment had been made in the buildings account. The delivery equipment is estimated to produce $4,800. Furniture and fixtures have a value of $3,600. The land has increased in value $6,000.
Of the notes payable, $5,000 has been partially secured by all the F. D. Co. Stock, which is expected to yield 80% of its book value. Collateral in the form of good notes receivable of $4,500 has been given to creditors whose claims amount to $3,700.
Among the cash there are I O U’s in the amount of $180 that cannot be considered as worth more than $50. The accounts receivable are classified as worthless $3,000; doubtful $2,000, which are expected to produce $1,400; the balance are good. Both inventories of merchandise were reduced by 10%.
The accrued taxes and labor are claims preferred by law. Prepaid insurance, miscellaneous office supplies, and good-will were assumed to have no value in case of liquidation.
From the information at hand: