Question

The Drysdale, Koufax, and Marichal partnership has the following balance sheet Immediately prior to liquidation: $ Cash Noncash assets 5e,eee 274, eee Liabilities Drysdale, loan Drysdale, capital (50%) Koufax, capital (30%) Marichal, capital (20%) $ 41,000 40, see 91,eee 81, see 71,00 8-1. Determine the maximum loss that can be absorbed In Step 1. Then, assuming that this loss has been incurred, determine the next maximum loss that can be absorbed In Step 2 a-2. Liquidation expenses are estimated to be $29,000. Prepare a predistribution schedule to guide the distribution of cash. Further, modify the tags in explanation as well. b. Assume that assets costing $88,000 are sold for $67,000. How is the available cash to be divided? Complete this question by entering your answers in the tabs below. Reg A1 Reg AZ Reg B Determine the maximum loss that can be absorbed in Step 1. Then, assuming that this loss has been incurred, determine the next maximum loss that can be absorbed in Step 2. Partner Capital Balance Loss Allocation Maximum Loss That Can Be Absorbed 96 Step 1 Drysdale Koufax Marichal 50 81,000 30 71,000 20 96 $ % Step 2 Koufax 96 60 40 Marichal %6

Answer 1

Drysdale (include capital and loan) Koufax Marichal 262000 131000/50% 270000 81000/30% 355000 71000/20% Since Drysdale is the most vulnerable to losses, so we can assume the losses of 262000 Drysdale Koufax Marichal Reperted Balances 131000 81000 71000 Assumed Loss (262000) split on a 5:3:2 basis-131000 -78600 -52400 Adjusted balances 0 24001 18600 Now the maximum loss that can be absorbed by the partner in the defined 60:40 ratio Koufax 4000 2400/0.6 Marichal 46500 18600/0.4 Since koufax is the most vulernable to losses, so we can assume the losses of $2400 Koufax Marichal Repoerted Balances 18600 Assumed Loss (4000) split on a 6:4 Basis -2400 Balance after assumed loss of 17000 2400 -1600 01 So, the pre distribution plan will be as follow The first $70000 is used to pay liabilities (41000) and liquidation expenses ($29000) The next 17000 is paid entirely to marichal The next 4000 is split between Koufax and marichal on a 60:40 (2400, 1600) Remaining cash after payment of 21000 to koufax (2400) and marichal (18600) will be split amoung the partner according to their profit and loss ratio.

So, the pre distribution plan will be as follow The first $70000 is used to pay liabilities (41000) and liquidation expenses ($29000) The next 17000 is paid entirely to marichal The next 4000 is split between Koufax and marichal on a 60:40 (2400, 1600) Remaining cash after payment of 21000 to koufax (2400) and marichal (18600) will be split amoung the partner according to their profit and loss ratio. Begininig Cash Balance Sale of non cash asset Sub total Payment of liabilities Payment of estimated liquidation expenses Cash available for distribution 50000 67000 117000 -41000 -29000 47000 Drysdale Koufax First 17000 Next 4000 Marichal 17000 1600 2400 Next 26000 13000 7800 5200 23800 13000 10200