Question

Cash Distribution Plan At the time they decided to liquidate their partnership, Whitehead, Ellis and Riley had capital balances of $120,000, $96,000 and $160,000, respectively. Liabilities were $76,800 and the balance sheet showed a note receivable from Ellis in the amount of $64,000. The partners share income in a 5:3:2 ratio. X X X Prepare a schedule showing how cash is to be distributed as it becomes available during the liquidation process. Remember to use negative signs with answers that reduce the capital balances. Whitehead Ellis Riley Capital balances per books $ x $ x $ Deduct loan receivable 0 0 Pre-liquidation balances $ X $ x $ Standardized capital balances $ X $ X (a) Equalize Whitehead and Riley 0 0 $ X $ x $ (b) Equalize Whitehead, Ellis & Riley X 0 $ * $ x $ X Convert equalization adjustments - (a) $ 0$ 0$ X Convert equalization adjustments - (b) $ x $ 0$ X X X X First $ Next $ Cash Distribution Plan: x to creditors x to Riley x to Whitehead and Riley in a 5:2 ratio * to Whitehead, Ellis and Riley in a 5:3:2 ratio Next $ $ Cash over $

Answer 1

Particulars	Whitehead	Ellies	Riley
Capital Balances per book	$120000	$96000	$160000
Deduct Loan Receivable	0	($64000)	0
Pre Liquidation Balances	$120000	$32000	$160000
Divide by income sharing percentage	0.5	0.3	0.2
Standardized capital balance	$240000	$106667	$800000
(a) Equalize whitehead and Reiley(-)	0	0	($560000)
	$240000	$106667	$240000
(b)Equalize Whitehead,Ellis and Riley	$133333	0	($133333)
	$106667	$106667	$106667
Convert equalization adjustments -(a)	0	0	$11200
Convert equalization adjustments-(b)	$66666	0	$26667

●Cash Distribution Plan

First	$76800	to creditors
Next	$112000	to Riley
Next	$93333	to whitehead and Riley in a 5:2 ratio
Cash over	$282133	to Whitehead,Ellis and Riley in a 5:3:2

Explanation for incorrect answers:

●Divide the preliquidation balances by profit sharing ratio

-120000/0.5=$240000

-32000/0.3=$106667

-160000/0.2=$800000

●Equalize whitehead and Riley(a)

And again Equalize whitehead,Ellis and Riley

Now all the partners have the capital of each $106667

●Convert Equalization Adjustments -(a)

First we deduct 560000 from Riley capital

Now Multiply with 0.2(Profit sharing Ratio)

=$560000×0.2=$112000

●Convert Equalization adjustments-(b)

We deduct $133333 each from whitehead and Riley,

Now Multiply with their profit sharing ratio

-$133333×0.5=$66666(Whitehead)

-$133333×0.2=$26667(Riley)

●First we should pay $76800liability to creditors

●Next $112000 to Riley

●Next ($66666 + $26667=$93333 in the ratio of 5:2

●Any cash balance will be distribute b/w the partners in profit sharing ratio of 5:3:2