Question

MUST SHOW WORK! Quan, Ray, Sen, and Tad are partners who share profits and losses 30%, 20%, 35%, and 15%, respectively. The partnership will be liquidated gradually over several months beginning January 1, 2020. The partnership trial balance at December 31, 2019 is as follows: Credits Debits $ 3,000 10,000 25,000 4,000 15,000 18,000 10,000 Cash Accounts receivable Inventory Loan to Ray Furniture Equipment Goodwill Accounts payable Note payable Loan from Sen Quan, capital (30%) Ray, capital (20%) Sen, capital (35%) Tad, capital (15%) Totals $12,000 30,000 6,000 12,000 9.000 12,000 4.000 85.000 $85.000 Required: Prepare a cash distribution plan for January 1, 2020, showing how cash installments will be distributed among the partners as it becomes available.

Answer 1

Loss absorption potential
( Equity / Profit sharing Ratio)
			Loss absorption	Vulnerability
Name	Equity	Ratio	Potential	Ranking
Quan	12,000	30%	40,000	3
Ray	5,000	20%	25,000	1
Sen	18,000	35%	51,429	4
Tad	4,000	15%	26,667	2

Schedule of assumed loss absorption
	Quan	Ray	Sen	Tad	Total
	30%	20%	35%	15%
Equity	12,000	5,000	18,000	4,000	39,000
Assumed Loss absorption- Ray	7,500	5,000	8,750	3,750	25,000
	4,500		9,250	250	14,000
Assumed Loss absorption- Tad	500		583	250	1,333
	4,000		8,667	-	12,667
Assumed Loss absorption- Quan	4,000		4,667		8,667
	-		4,000	-	4,000

Cash Distribution Plan:

First $42,000 pays the priority creditors;

Next $4,000 goes to Sen;

Next $8,667 goes $4,667 to Sen, and $4,000 to Quan;

Next $1,333 goes $583 to Sen, $500 to Quan, and $250 to Tad;

Remainder goes 35% to Sen, 30% to Quan, 20% to Ray, and 15% to Tad.