Question

The Pen, Evan and Torres Partnership have decided to liquidate their partnership by installment. A summary of the liquidation transactions follows:

1.	The partnership’s trial balance on June 30, 20X1, is

	Debit		Credit
Cash	$	6,400
Accounts Receivable (net)		24,000
Inventory		18,000
Plant and Equipment (net)		99,300
Accounts Payable				$	11,500
Pen, Capital					59,000
Evan, Capital					49,200
Torves, Capital					28,000
Total	$	147,700		$	147,700

.	The partners share profits and losses as follows: Pen, 50 percent; Evan, 30 percent; and Torves, 20 percent.

The partners have decided to liquidate their partnership by installments. Cash is distributed to the partners at the end of each month. A summary of the liquidation transaction follows:

July:

1. Received $ (70,022) on sale of plant and equipment with a book value of $95,000.

2. Received $ receive $10,000 for the entire inventory.

3. Paid $$11,500 to creditors.

4. Paid $2,000 liquidation expense.

5. Retained 10,000 cash in the business at the end of the month.

August:

6. Paid $1,000 liquidation expense.

7. As part of his capital, Torves accepted an item of special equipment that he developed, which have a book value of $4000. The partners agreed that a value of $10,000 should be placed in this item for liquidation purposes. (Hint: revalue the asset first).

8. Retained $2,000 in the business at the end of the month.

September:

9. Collected $18,000 on accounts receivable; the balance is uncollectible.

10. Paid $ (2,017) liquidation expenses.

Required:

Prepare a statement of partnership realization and liquidation with supporting schedules of safe payments to partners

Answer 1

Contd.

Particulars Balance before liquidation Sale of plant and equipment Sale of inventory Paid to creditors Liquidation expense paid Statement of liquidation and realization Others Capital Cash Accounts Receivable Inventory Plant and equipment Accounts Payable Pen (50%) Evan (30%) Torves (20%) S 6,400.00 S 24,000.00 $ 18,000.00 $ 99,300.00 $ 11,500.00 $ 59,000.00 $ 49,200.00 $ 28,000.00 $ 70,022.00 S -95,000.00 S-12.489.00 $ -7.493.40 $ -4.995.60 $ 76,422.00 S 24,000.00 $ 18.000.00 S 4,300.00 S 11,500.00 $ 46,511.00 $ 41,706.60 $ 23,004.40 S 10.000.00 $-18.000.00 S -4,000.00 $ -2.400.00 $ -1.600.00 $ 86.422.00 S 24,000.00 S - S 4,300.00 $ 11,500.00 $ 42,511.00 $ 39,306.60 $ 21.404.40 $-11,500.00 -11,500.00 $ 74,922.00 S 24.000.00 $ - $ 4.300.00 $ - S 42,511.00 S 39,306.60 $ 21,404.40 S -2,000.00 S -1,000.00 $ -600.00 $ 400.00 $ 72,922.00 S 4,300.00 $ $ 41,511.00 S 38.706.60 $ 21,004.40 $ -62.922.00 S-31.461.00 S-18.876.60 $ -12,584.40 $ 10,000.00 $ 24,000.00 S - S 4,300.00 $ $ 10,050.00 $ 19,830.00 S 8.420.00 S -1,000.00 S -500.00 $ -300.00 S -200.00 $ 9,000.00 $ 24,000.00 S - S 4,300.00 $ $ 9,550.00 $ 19,530.00 S 8.220.00 6,000.00 $ 3,000.00 $ 1.800.00 $ 1.200.00 S 9,000.00 S 24,000.00 S - S 10,300.00 $ - S 12,550.00 $ 21,330.00 $ 9,420.00 -10,000.00 S-10,000.00 $ 9,000.00 $ 24,000.00 $ - $ 300.00 $ - $ 12,550.00 $ 21.330.00 S 580.00 $ -7,000.00 $ -4.737.50 S -2.842.50 S 580.00 24,000.00 $ - $ Schedule 1 Liquidation expense paid Revaluation of asset Special equipment to Torves

- S 300.00 $ - Schedule 2 Accounts receivables 000 $ 2,000.00 $ $ 18,000.00 $ $ 20,000.00 $ $ -2,017.00 S 17.983.00 S 24,000.00 S -24.000.00 - S - S 300.00 $ Liquidation expense paid - S - S $ - $ 7,812.50 $ 18,487.50 S - $ -3,000.00 $ -1.800.00 $ -1,200.00 $ 4,812.50 $ 16,687.50 $ -1,200.00 $ -1,008.50 $ -605.10 $ -403.40 $ 3,804.00 $ 16,082.40 S -1,603.40 $ -150.00 $ -90.00 $ -60.00 $ 3,654.00 $ 15,992.40 $ -1,663.40 $ -3,654.00 $-15,992.40 S 1.663.40 S - S - $ - 300.00 -300.00 - Plant and equipment disposal $ - S - $ 17,983.00 $-17.983.00 S - Schedule 3 Balance after liquidation s - S - S - $ -

Schedule to compute safe payments Schedule 1 - July Pen (50%) Evan (30%) Torves (20%) Balance S 41,511.00 S 38.706.60 $ 21.004.40 Distribute cash $-31,461.00 S-18.876.60 $ -12,584.40 S 10.050.00 S 19.830.00 S 8.420.00 Schedule 2 - August Balance $ 12,550.00 $ 21,330.00 $ -580.00 Allocate Torves deficit S -362.50 S -217.50 $ 580.00 Balance S 12.187.50 $ 21,112.50 S Distribute cash $ -3,500.00 $ -2,100.00 % -1,400.00 Balance $ 8.687.50 $ 19,012.50 S -1,400.00 Allocate Torves deficit S -875.00 $ -525.00 $ 1.400.00 $ 7.812.50 $ 18,487.50 $ Schedule 3 - September Balance $ 3,654.00 $ 15,992.40 $ -1.663.40 Allocate Torves deficit $ -1.039.63 S -623.78 $ 1.663.40 Balance $ 2.614.38 S 15,368.63 S Distribute cash S -8.991.50 S -5,394.90 $ -3,596.60 Balance $ -6,377.13 $ 9,973.73 $ -3,596.60 Allocate to Evan S 6,377.13 S -9,973.73 $ 3,596.60 Balance S - S - S -

Evan (30%) Torves (20%) Sale of plant and equipment Sale amount book value LOSS Working Notes Pen (50%) $ 70,022.00 $-95,000.00 $-24,978.00 $-12,489.00 $ -7,493.40 $ -4,995.60 Sale of Inventory Sale amount book value Loss $ 10,000.00 $-18,000.00 $ -8,000.00 $ -4,000.00 $ -2,400.00 $ -1,600.00 Accounts receivables Sale amount book value Loss $ 18,000.00 $-24,000.00 $ -6,000.00 $ -3,000.00 $ -1,800.00 $ -1,200.00