Question

On January 1, 20X1, partners Art, Bru, and Chou, who share profits and losses in the ratio of 5:3:2, respectively, decide to liquidate their partnership. The partnership trial balance at this date follows:

	Debit				Credit
Cash		$	18,000
Accounts Receivable			66,000
Inventory			52,000
Machinery and Equipment (net)			189,000
Accounts Payable						$	53,000
Art, Capital							88,000
Bru, Capital							110,000
Chou, Capital							74,000
Total		$	325,000			$	325,000

The partners plan a program of piecemeal conversion of 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 20X1

1. Collected $51,000 on accounts receivable; the balance is uncollectible.
2. Received $38,000 for the entire inventory.
3. Paid $2,000 liquidation expenses.
4. Paid $50,000 to creditors, after offset of a $3,000 credit memorandum received on January 11, 20X1.
5. Retained $10,000 cash in the business at the end of the month for potential unrecorded liabilities and anticipated expenses.

February 20X1

6. Paid $4,000 liquidation expenses.
7. Retained $6,000 cash in the business at the end of the month for potential unrecorded liabilities and anticipated expenses.

March 20X1

8. Received $146,000 on sale of all items of machinery and equipment.
9. Paid $5,000 liquidation expenses.
10. Retained no cash in the business.

Required:
Prepare a statement of partnership liquidation for the partnership with schedules of safe payments to partners.

ABC PARTNERSHIP Statement of Partnership Realization and Liquidation For the period from January 1, 20X1, through March 31, 20X1 Capital Balances Cash Other Assets Accounts Payable Art Bru Chou Balances before liquidation, January 1, 20X1 January transactions: Collection of accounts receivable at a loss Sale of inventory at a loss Liquidation expenses paid Share of credit memorandum Payments to creditors $0 $0 $0 $0 $0 $0 Safe payments to partners $0 $0 $0 $0 $0 $0 February transactions: Liquidation expenses paid $0 $0 $0 $0 $0 $0 Safe payments to partners $0 $0 $0 $0 $0 $0 March transactions: Sale of M&Eq. at a loss Liquidation expenses paid $0 $0 $0 $0 $0 $0 Payments to partners Balances at end of liquidation, March 31, 20X1 $0 $0 $0 $0 $0 $0

ABC PARTNERSHIP Schedule of Safe Payments to Partners Art 50% Bru 30% Chou 20% Schedule 1: January 31, 20X1 Capital balances Potential Loss on noncash assets $0 $0 $0 Allocation of potential deficit Safe payment, January 31, 20X1 $0 $0 $0 Schedule 2: February 27, 20X1 Capital balances Potential Loss on noncash assets $0 $0 $0 Allocation of potential deficit Safe payment, February 27, 20X1 $0 $0 $0

Answer 1

Part A

ABC PARTNERSHIP Statement of Partnership Realization and Liquidation For the period from January 1, 20X1, through March 31, 20X1
				Capital balances
	Cash	Other assets	Accounts payable	Art	Bru	Chou
Balances before liquidation, January 1, 20X1	18000	307000	(53000)	(88000)	(110000)	(74000)
January transactions:
Collection of accounts receivable at a loss	51000	(66000)		7500	4500	3000
Sale of inventory at a loss	38000	(52000)		7000	4200	2800
Liquidation expenses paid	(2000)			1000	600	400
Share of credit memorandum			3000	(1500)	(900)	(600)
Payments to creditors	(50000)		50000
	(55000)	189000	0	(74000)	(101600)	(68400)
Safe payments to partners	(45000)				26600	18400
	10000	189000	0	(74000)	(75000)	(50000)
February transactions:
Liquidation expenses paid	(4000)			2000	1200	800
	6000	189000	0	(72000)	(73800)	(49200)
Safe payments to partners	0			0	0	0
	6000	189000	0	(72000)	(73800)	(49200)
March transactions:
Sale of M&Eq. at a loss	146000	(189000)		21500	12900	8600
Liquidation expenses paid	(5000)			2500	1500	1000
	147000	0	0	(48000)	(59400)	(39600)
Payments to partners	(147000)			48000	59400	39600
Balances at end of liquidation, March 31, 20X1	0	0	0	0	0	0

Part B

ABC PARTNERSHIP Schedule of Safe Payments to Partners
	Art 50%	Bru 30%	Chou 20%
Schedule 1: January 31, 20X1
Capital balances	(74000)	(101600)	(68400)
Potential Loss on noncash assets	99500	59700	39800
	25500	(41900)	(28600)
Allocation of potential deficit (25500*3/5); (25500*2/5)	(25500)	15300	10200
Safe payment, January 31, 20X1	0	(26600)	(18400)
Schedule 2: February 27, 20X1
Capital balances	(72000)	(73800)	(49200)
Potential Loss on noncash assets	97500	58500	39000
	25500	(15300)	(10200)
Allocation of potential deficit (22500*3/5); (22500*2/5)	(22500)	15300	10200
Safe payment, February 27, 20X1	0	0	0