Question

On January 1, the partners of Van, Bakel, and Cox (who share profits and losses in the ratio of 5:3:2, respectively) decide to liquidate their partnership. The trial balance at this date follows: Credit Debit $ 29,000 88,000 74,000 211,000 52,000 Cash Accounts receivable Inventory Machinery and equipment, net Van, loan Accounts payable Bakel, loan Van, capital Bakel, capital Cox, capital $ 97,000 42,000 129,000 101,000 85,000 Totals $ 454,000 $ 454,000 The partners plan a program of piecemeal conversion of the business's assets to minimize liquidation losses. All available cash, less an amount retained to provide for future expenses, is to be distributed to the partners at the end of each month. A summary of the liquidation transactions follows: January Collected $62,000 of the accounts receivable; the balance is deemed uncollectible. Received $49,000 for the entire inventory. Paid $5,000 in liquidation expenses. Paid $61,000 to the outside creditors after offsetting a $6,000 credit memorandum received by the partnership on January 11. Retained $21,000 cash in the business at the end of January to cover any unrecorded liabilities and anticipated expenses. The remainder is distributed to the partners. February Paid $6,000 in liquidation expenses. Retained $9,000 cash in the business at the end of the month to cover unrecorded liabilities and anticipated expenses. March Received $157,000 on the sale of all machinery and equipment. Paid $8,000 in final liquidation expenses. Retained no cash in the business. Prepare a schedule to compute the safe installment payments made to the partners at the end of each of these three months. (Do not round intermediate calculations. Amounts to be deducted should be indicated by a minus sign.)

Answer 1

As on 31st Jan

	Van		Bakel		Cox		Total
Profit and loss ratio	50%		30%		20%
Capital Balances- January 1	129000		101000		85000		315000
Add (deduct) loans	-52000		42000				-10000
Adjusted Capital Balances- January 1	77000		143000		85000		305000
Allocation of January net loss (working 1)	-31000		-18600		-12400		-62000
Capital balances - January 31	46000		124400		72600		243000
Potential loss (b)	-116000		-69600		-46400		-232000
Subtotal	-70000		54800		26200		11000
Allocation of deficit balances	70000		-43800		-26200		0
Safe payments to partners- January 31			11000				11000

Working 1
	Amount	Amount
Collection of Account Receivable	26000
(88,000 - 62,000)
Received of Inventory	25000
(74,000 - 49,000)
Paid Liquidation Expenses	5000
Credit memorandum received	6000
Actual Loss	62000
Machinery		211000
Retained( unrecorded Liability)		21000
Potential loss as on Feb		232000

As on Feb 28

	Van		Bakel		Cox		Total
Profit and loss ratio	50%		30%		20%
Capital Balances- January 31	129000		101000		85000		315000
Safe Payments - January 31			11000				11000
Capital Balances- February 31	46000		124400		72600		243000
Allocation of February net loss (Working 2)	-3000		-1800		-1200		-6000
Capital balances - February 28	43000		122600		71400		237000
Potential loss	-109500		-65700		-43800		-219000
Subtotal	-66500		56900		27600		18000
Allocation of deficit balances	66500		-38900		-27600		0
Safe payments to partners- February 28			18000				18000

Working 2
	Amount	Amount
Paid Liquidation Expenses	6000
Machinery		211000
Retained( unrecorded Liability)		8000
Potential loss		219000

As on March 31

	Van		Bakel		Cox		Total
Profit and loss ratio	50%		30%		20%
Capital balances - February 28	129000		101000		85000		315000
Safe Payments - February 28			18000
Capital Balances- March 1	43000		122600		71400		237000
Allocation of March net loss (Working 3)	-31000		-18600		-12400		-62000
Capital balances - March 31	12000		104000		59000		175000
Final payments to partners - March 31	12000		104000		59000		175000
Ending balances - March 31	0		0		0		0

Working 3
Paid in liquidation		8000
Machinery	211000
Received on sale of Equipment	157000	54000
Net loss		62000