Question

On January 1, 20X1, partners Art, Bru, and Chou, who share profits and losses in the ratio of 6:2:2, respectively, decide to liquidate their partnership. The partnership trial balance at this date follows:

  

	Debit		Credit
Cash	$	19,000
Accounts Receivable		68,500
Inventory		54,500
Machinery and Equipment (net)		191,500
Accounts Payable			$	54,000
Art, Capital				90,500
Bru, Capital				112,500
Chou, Capital				76,500
Total	$	333,500	$	333,500

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 $53,000 on accounts receivable; the balance is uncollectible.
2.	Received $39,500 for the entire inventory.
3.	Paid $2,500 liquidation expenses.
4.	Paid $51,500 to creditors, after offset of a $2,500 credit memorandum received on January 11, 20X1.
5.	Retained $11,000 cash in the business at the end of the month for potential unrecorded liabilities and anticipated expenses.

February 20X1

6.	Paid $4,500 liquidation expenses.
7.	Retained $6,500 cash in the business at the end of the month for potential unrecorded liabilities and anticipated expenses.

March 20X1

8.	Received $148,000 on sale of all items of machinery and equipment.
9.	Paid $5,500 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. (Round your answers to nearest whole dollar.)

Required:

Prepare a statement of partnership liquidation for the partnership with schedules of safe payments to partners. (Round your answers to nearest whole dollar.)

Answer:

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 Safe payments to partners February transactions: Liquidation expenses paid Safe payments to partners March transactions: Sale of M&Eq. at a loss Liquidation expenses paid Payments to partners Balances at end of liquidation, March 31, 20X1

	APB PARTNERSHIP Schedule of Safe Payments to Partners Art 60% Bru 20% Chou 20% Schedule 1: January 31, 20X1 Capital balances Potential Loss on noncash assets Allocation of potential deficit Safe payment, January 31, 20X1 Schedule 2: February 27, 20X1 Capital balances Potential Loss on noncash assets Allocation of potential deficit Safe payment, February 27, 20X1

Answer 1

ABC PARTNERSHIP Statement of Partnership Realization and Liquidation For the Period from January 1, 20X1 through March 31, 20X1 Capital Balances Other Assets Accounts Payable (54,000) Cash Art Bru chou Balances before Liquidation, Janauay 1, 20X1 19,000 314,500 90,500 112,500 (76,500) January transactions: Collection of accounts receivable at a loss (68,500 1-53,000) in a ratio of 6:2:2 53,000 (68,500) 9,300 3,100 3,100 Sale of Inventory at a loss 2 (54,500 39,500) in a ratio of 6:2:2 3 Liquidation expense paid 4 Share of credit Memorandum 5 Payments to creditors 39,500 2,500 (54,500) 9,000 1,500 (1,500) 3,000 500 500 3,000 500 500 2,500 51,500 (51,500) 57,500 (46,500) 11,000 191,500 72,200 106,400 41,250 400 5,250 (65,150)(65,150) Safe payments to creditors (Schedule 1) 191,500 (72,200) February Transactions: (4,500) 6,500 6 Liquidation expense paid 2,700 900 900 191,500 (69,500) (64,250) (64,250) Safe payments to creditors (Schedule 2) 6,500 191,500 (69,500) (64,250) (64,250) March Transactions: Sale of M&Eq. at a Loss 7 (191,500 148,000) in a ratio of 6:2:2 8 Liquidation expense paid (191,500) 148,000 (5,500) 149,000 (149,000) 26,100 3,300 40,100 40,100 8,700 1,100 54,450 54,450 8,700 1,100 54,450) 54,450 9 Payments to creditors Balances at end of liquidation, March 31, 20X1

ABC PARTNERSHIP Schedule of Safe Payments to Partners Art 60% Bru 20% Chou 20% Schedule 1: January 31, 20X1 Capital Balances Possible loss on non cash assets 72,200) 121,500 49,300 49,300 106,400 40,500 65,900 (70,400) 40,500 (29,900) Absorption of Art's Potential Deficit Balances Bru (49,300 x 2/4) Chou (49,300 x 2/4) Safe Payment, January 31, 20x1 24,650 24,650 (41,250) (5,250) Scheduel 2: February 27, 20X1 Capital Balances Possible loss on non cash assets 69,500 118,800 49,300 49,300 64,250 39,600 24,650 64,250 39,600 24,650) Absorption of Art's Potential Deficit Balances Bru (49,300 x 2/4) Chou (49,300 x 2/4) Safe Payment, February 27, 20X1 24,650 24,650

Working Notes: Total Potential Loss as on January 31 Other Assets Potential Liquidation expense Potential Loss Art (202,500 x6/10 Bru (202,500 x 2/10 Chou (202,500 x 2/10 191,500 11,000 202,500 121,500 40,500 40,500 Total Potential Loss as on Februray 27 Other Assets Potential Liquidation expense Potential Loss Art (198,000 x 6/10 Bru (198,000 x 2/10 Chou (198,000 x 2/10 191,500 6,500 198,000 118,800 39,600 39,600