Question

After working for In the Kitchen remodeling business for several years, Temry and Phyllis decided to go into business for themselves and formed the Kitchens Just for You partnership. Three years ago, they admited Connie as a partner and recognized goodwill at that time because of her good client ist for planned kitchen makeovers. However, they were not able to gain a sufficient market for new customers and on September 1, 20X9, they agreed to dissolve and iquidate the business. They decided on an instalment iquidation to complete the projects already initiated. The balance sheet with proft and loss-sharing percentages at the beginning of iquidation, is as folows KITCHENS JUST FOR YOU Balance Shee September 1, 20X9 Liabilities and Equities Accounts Payable Connie, Loan Tery, Captal (25%) Phylis, Capital (60%) Connie, Capital (15 % ) Assets Cash Receivables Terry, Loan Inventory Goodwill S 24,000 60,000 9.000 52,000 27,000 $ 46,000 18.000 10,200 39.000 58,800 $172.000 Total Liabilities & Equities $172.000 Total Assets Connie's loan was for working capital; the loan to Terry was for his unexpected personal medical bils During September 20X9, the first month of Squidation, the partnership colected $38,000 in receivables and decided to write off $9,000 of the remaining receivables. Sales of one-half of the book value of the inventory realized a loss of $6,000. The partners estimate that the costs of liquidating the business (newspaper ads, signs, etc), are expected to be S9,000 for the remainder of the iquidation process Required: Prepare a schedule of safe payments to partners as of September 30, 20X9 to show how the available cash should be distributed to the partners. Please follow the practical guidelines when completing this worksheet KITCHENS JUST FOR YOU Schedule of Safe Payments to Partners Phyllis Connie Terry Capital balances, September 1, 20X9 Loans to (from) partner ol s Total Write-off in goodwill Write-off of receivables Loss on sale of inventory Capit Possible loss for remaining receivables and inventory Possible iquidation costs S alances, ptember 30, 20X9 Balances Distribute any potential deficits Sale payments to partnens, September 30, 20X9 0S

Answer 1

KITCHENS JUST FOR YOU Schedule of Safe Payments to Partners Profit Sharing Ratio 60% 15% 25% Phyllis Connies Terry Capital Balance, September 1, 20X9 Loan to (from) partner Total Write-off in Goodwill $58,800 $ 18,000 $10,200 $ 39,000 -9,000 $1,200 39,000 76,800 S 27,000 $6,750 $-16,200 $ -4,050 S 9,000 $2,250 $-5,400 $ -1,350 Write-off in Receivables 6,000 1,500 $-3,600 $ -900 $ -9,300 Loss on sale of inventory 13,800 70,500 Capital Balance, September 30, 20X9 39,000 -9,750 $-23,40o$ -5 850emaining Receivable $60,000 $38,000- $9,000 = $13.000 Remianing Inventory $26,000 Possible loss for remaining rece ivables and inventory 9,000 2,250 -5,400 $ -1,350 Possible liquidation costs Balance $-21, 0 21,300 $15,000 $-36,300 $ 27,000 Distribute any possible deficits Safe Payments to partners, September 30, 20X9 S

Answer 2

In solving the same problem with different numbers I thought the solution should be as stated in the provided answer #1. However, my solution was marked wrong and I was told the correct solution should be as follows:

Cash available = 24k + 38k + 26k = 88k

Less req for payments = - 46k - 18k

Net available for safe payments to partners = 24k (payable to Connie)

This answer can be found by changing the Possible loss amount for receivables and inventory to = 13k + 26k + 9k = 48k (split between 25:60:15). Then also changing the amounts on the line to Distribute any possible deficits to correct balances.