Question

Question 1 [25 marks] a) Merz, Dechter, and Flowers are partners in a partnership and share profits and losses 40%, 40%, and 20%, respectively. The partners have agreed to liquidate the partnership and anticipate that liquidation expenses will total $14,000. Prior to the liquidation, the partnership balance sheet reflects the following book values: $ 25,000 40,000 30,000 60,000 70,000 12,000 50,000 50,000 65,000 40,000 18,000 (10,000) Cash Inventory Accounts receivable Equipment Land and Buildings Note payable to Flowers Accounts payable Other current liabilities Mortgage payable Capital, Merz Capital Dechter Capital deficit, Flowers The actual liquidation expenses are $20,000 All the inventory was sold for $30,000 The total accounts receivable were sold to a collection company for $20,000 Merz took over equipment with a book value of $30,000 for $25,000 The remaining equipment, land and buildings were sold for $85,000. Flowers has net personal assets of $10,000. Required: Prepare a schedule of liquidation using the safe payment method to determine how the proceeds from the liquidation would be distributed. [15 marks] TURN OVER

Answer 1

	Safe Payments method calculations
	Possible losses	merz capital (40%)	dechter capital (40%)	flowers capital (20%)
Equity (net of loans)		40,000.00	18,000.00	2,000.00
Assumed losses:
Loss on assets	40,000.00	(16,000.00)	(16,000.00)	(8,000.00)
liquidation expense	20,000.00	(8,000.00)	(8,000.00)	(4,000.00)
Subtotal		16,000.00	(6,000.00)	(10,000.00)
Assume partners loss		(16,000.00)
Safe Payments		-	-	-