Question

The partnership of Ready, Willing and Able is to be liquidated as soon as possible after December 31, 2019. All cash on hand except for a $10,000 contingency balance is to be distributed at the end of each month until the liquidation is completed. Profits and losses are shared 25%, 45% and 30% by Ready, Willing and Able, respectively. The partnership balance sheet at December 31, 2019 contains the following.

Assets                                                             Liabilities and Capital

Cash                                        120.000            Accounts payable                  140,000

Accounts receivable              136,000            Note payable                         130,000

Loan to Willing                      28,000                       

Inventories                             190,000            Ready Capital (25%)             196,000

Land                                       134,000            Willing Capital (45%)            147,000

Equipment – net                   135,000            Able Capital (30%)                220,000

Goodwill                                 90,000

A summary of liquidation events is as follows

January 2020

Goodwill is written off, $100,000 is collected on account, inventory items that cost $125,000 are sold for $75,000. The accounts payable and notes payable are paid and cash is distributed.

February 2020

Equipment with a book value of $90,000 is sold for $50,000, the remaining inventory items are sold for $75,000, liquidation expenses of $6,000 are paid and cash is distributed.

March 2020    

The land is sold for $150,000, remaining accounts receivable are written off, the remaining equipment is sold for $25,000 and cash is distributed.

REQUIRED: Prepare a statement of liquidation including safe payment schedules as required.

Answer 1

:: Solution ::

Accounts + Receivable Loan to Willing Accounts = Payable Note + Payable Ready + Capital Willing Capital Able Capital Transactions Cash + + Inventories + Equipment + Land + Goodwill I + + January $ 1,36,000.00 $ 28,000.00 $ 1,90,000.00 $ 1,35,000.00 $ 1.34,000.00 $ 1,40,000.00 $ 1,30,000.00 $ 90,000.00 $-90,000.00 $ 1,96,000.00 $ -22,500.00 $ 1,47,000.00 $ -40,500.00 $ 2,20,000.00 $ -27,000.00 $ -1,00,000.00 $ -1,25,000.00 $ -12,500.00 $ -22,500.00 $ -15,000.00 Beginning balance $ 1,20,000.00 Goodwill written off Collection on account $ 1,00,000.00 Inventory sold $ 75,000.00 Payment to accounts payable $ -1,40,000.00 Payment to notes payable $ -1,30,000.00 Balance at the end of January $ 25,000.00 Contingency Balance $ -10,000.00 Cash to be distributed $ $ 15,000.00 $ -1,40,000.00 $ -1,30,000.00 $ $ 36,000.00 $ 28,000.00 $ 65,000.00 $ 1,35,000.00 $ 1,34,000.00 $ $ $ 1,61,000.00 $ 84,000.00 $ 1,78,000.00 Less: $ 3,750.00 $ 6,750.00 $ 4,500.00 February $ 36,000.00 $ 28,000.00 $ 65,000.00 $ 1,34,000.00 $ 1,35,000.00 $ -90,000.00 $ -65,000.00 Beginning balance $ 10,000.00 Sale of equipment $ 50,000.00 Sale of remaining inventory $ 75,000.00 Liquidation expense $ -6,000.00 Balance at the end of February $ 1,29,000.00 Contingency Balance $ -10,000.00 Cash to be distributed $ 1,19,000.00 $ 1,57,250.00 $ -10,000.00 $ 2,500.00 $ -1,500.00 $ 1,48,250.00 $ 77,250.00 $ -18,000.00 $ 4,500.00 $ 2,700.00 $ 61,050.00 $ 1,73,500.00 $ -12,000.00 $ 3,000.00 $ -1,800.00 $ 1,62,700.00 $ 36,000.00 $ 28,000.00 $ $ 45,000.00 $ 1,34,000.00 $ $ Less: $ 29,750.00 $ 53,550.00 $ 35,700.00 March $ 36,000.00 $ 28,000.00 $ $ 45,000.00 $ 1,34,000.00 $ -1,34,000.00 Beginning balance $ 10,000.00 Land sold $ 1,50,000.00 Accounts Receivable written off Remaining equipment sold $ $ 25,000.00 Loan to Willing written off Final settlement $ 1,85,000.00 $ 1,18,500.00 $ - $ 4,000.00 $ -9,000.00 $ -5,000.00 $ 7,500.00 $ - $ 7,200.00 $ -16,200.00 $ -9,000.00 $ -28,000.00 $ -38,500.00 $ 1,27,000.00 $ 4,800.00 $ -10,800.00 $ -6,000.00 $ -36,000.00 $ -45,000.00 $-28,000.00 $ $ $ $ $ $ 1,08,500.00 $ 1,15,000.00