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 $ 41,000 112,000 98,000 235,000 76,000 Cash Accounts receivable Inventory Machinery and equipment, net Van, loan Accounts payable Bakel, loan Van, capital Bakel, capital Cox, capital Totals $ 97,000 66,000 189,000 113,000 97,000 $ 562,000 $ 562,000 The partners plan a program of piecemeal conversion of the partnership'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 $74,000 of the accounts receivable; the balance is deemed uncollectible. Received $61,000 for the entire inventory. Paid $9,000 in liquidation expenses. Paid $89,000 to the outside creditors after offsetting a $8,000 credit memorandum received by the partnership on January 11. Retained $33,000 cash in the business at the end of January to cover any unrecorded liabilities and anticipated expenses. The remai distributed to the partners.

Answer 1

Requirement 1: Compute the safe installment payment to partners in January as follows

V, B, AND C PARTNERSHIP
Safe Installment Payments to Partners
January 31
Particulars	Partner V	Partner B	Partner C	Total
Profit and Loss ratio	50%	30%	20%	100%
Capital balance - January 1	$189,000	$113,000	$97,000	$399,000
Add (deduct) loans	($76,000)	$66,000		($10,000)
Adjusted capital balances - January 1	$113,000	$179,000	$97,000	$389,000
Allocation of January net loss ($76,000 × 50% : $76,000 × 30% : $76,000 × 20%)	($38,000)	($22,800)	($15,200)	($76,000)
Capital balance - January 31	$75,000	$156,200	$81,800	$313,000
Potential Loss	($134,000)	($80,400)	($53,600)	($268,000)
Subtotal	($59,000)	$75,800	$28,200	$45,000
Allocation of deficit balances ($59,000 × 3 ÷ 5 = $35,400 : $59,000 × 2 ÷ 5 = $23,600)	$59,000	($35,400)	($23,600)	$0
Safe payments to partners - January 31	$0	$40,400	$4,600	$45,000

Notes: Compute actual and potential loss or gain in January as follows

Particulars	Cash	Book Value	Actual Gain / (Loss)	Potential Gain / (Loss)
January Transactions
Actual gains and losses
Receivables Collected	$74,000	($112,000)	($38,000)
Inventory Sold	$61,000	($98,000)	($37,000)
Liquidation expenses paid	($9,000)		($9,000)
Accounts payable paid	($89,000)	$97,000	$8,000
Potential losses
Machinery and equipment		($235,000)		($235,000)
Potential unrecorded liabilities and expenses -		($33,000)		($33,000)
Total			($76,000)	($268,000)

Requirement 2: Compute the safe installment payment to partners in February as follows

V, B, AND C PARTNERSHIP
Safe Installment Payments to Partners
February 28
Particulars	Partner V	Partner B	Partner C	Total
Profit and Loss ratio	50%	30%	20%	100%
Capital balance - January 31	$75,000	$156,200	$81,800	$313,000
Safe payments to partners - January 31	$0	($40,400)	($4,600)	($45,000)
Capital balance - February 1	$75,000	$115,800	$77,200	$268,000
Allocation of February net loss ($10,000 × 50% : $10,000 × 30% : $10,000 × 20%)	($5,000)	($3,000)	($2,000.0)	($10,000)
Capital balance - February 28	$70,000	$112,800	$75,200	$258,000
Potential Loss	($128,000)	($76,800)	($51,200)	($256,000)
Subtotal	($58,000)	$36,000	$24,000	$2,000
Allocation of deficit balances   ($58,000 × 3 ÷ 5 = $34,800 : $58,000 × 2 ÷ 5 = $23,200)	$58,000	($34,800)	($23,200)	$0
Safe payments to partners - February 28	$0	$1,200	$800	$2,000

Notes: Compute actual and potential loss or gain in February as follows

Particulars	Cash	Book Value	Actual Gain / (Loss)	Potential Gain / (Loss)
February Transactions
Actual gains and losses
Liquidation expenses paid	($10,000)		($10,000)
Potential losses
Machinery and equipment		($235,000)		($235,000)
Potential unrecorded liabilities and expenses -		($21,000)		($21,000)
Total			($10,000)	($256,000)

Requirement 3: Compute the safe installment payment to partners in March as follows

V, B, AND C PARTNERSHIP
Safe Installment Payments to Partners
March 31
Particulars	Partner V	Partner B	Partner C	Total
Profit and Loss ratio	50%	30%	20%	100%
Capital balance - February 28	$70,000	$112,800	$75,200	$258,000
Safe payments to partners - February 28	$0	($1,200)	($800)	($2,000)
Capital balance - March 1	$70,000	$111,600	$74,400	$256,000
Allocation of March net loss ($80,000 × 50% : $80,000 × 30% : $80,000 × 20%)	($40,000)	($24,000)	($16,000.0)	($80,000)
Capital balance - March 31	$30,000	$87,600	$58,400	$176,000
Final payments to partners - March 31	($30,000)	($87,600)	($58,400)	($176,000)
Ending balances - March 31	$0	$0	$0	$0

Notes: Compute actual and potential loss or gain in March as follows

Particulars	Cash	Book Value	Actual Gain / (Loss)	Potential Gain / (Loss)
March Transactions
Actual gains and losses
Machinery and equipment sold	$167,000	($235,000)	($68,000)
Liquidation expenses paid	($12,000)		($12,000)
Total			($80,000)