Question

A local partnership is to be liquidated. Commissions and other liquidation expenses are expected to total $19,000. The business’s balance sheet prior to the commencement of liquidation is as follows: Cash $ 27,000 Liabilities $ 40,000 Noncash assets 254,000 Simpson, capital (20%) 18,000 Hart, capital (40%) 40,000 Bobb, capital (20%) 48,000 Reidl, capital (20%) 135,000 Total assets $ 281,000 Total liabilities and capital $ 281,000 Prepare a predistribution plan for this partnership. Prepare the loss allocation table. Partner Capital Balance Loss Allocation Maximum Loss That Can Be Absorbed Schedule 1 Simpson Hart Bobb Reidl Schedule 2 Hart Bobb Reidl Schedule 3 Bobb Reidl Prepare the table showing partner balances. Simpson Hart Bobb Reidl Reported balances Assumed loss Schedule 1 Adjusted balances Assumed loss Schedule 2 Adjusted balances Assumed loss Schedule 3 Adjusted balances

Answer 1

1	Partners	capital Balances	Loss Allocation	maximum Loss can be absorbed
	Schedule 1			(capital Bal/Loss Allocation)
	Simpson	$18,000	20%	$90,000	vulnerable
	Hart	$40,000	40%	$100,000
	Bobb	$48,000	20%	$240,000
	Reldl	$135,000	20%	$675,000
	Schedule 2
	Hart	$4,000	50%	$8,000	vulnerable
	Bobb	$30,000	25%	$120,000
	Reldl	$117,000	25%	$468,000
	Schedule 3
	Bobb	$28,000	50%	$56,000	vulnerable
	Reldl	$115,000	50%	$230,000
2	Capital Ratio		2	4	2	2
			Simpson	Hart	Bobb	Reidl
	Beginning balance		$18,000	$40,000	$48,000	$135,000
	Less assumed Loss -Schedule 1	$90,000
	Schedule 1		($18,000)	($36,000)	($18,000)	($18,000)
	Adjusted balance		$0	$4,000	$30,000	$117,000
	Less assumed loss-Schedule 2	$8,000	$0	($4,000)	($2,000)	($2,000)
	Adjusted balance		$0	$0	$28,000	$115,000
	Less Assumed Loss -Schedule 3	$56,000	$0	$0	($28,000)	($28,000)
	Adjusted balance		$0	$0	$0	$87,000