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Social ScienceP 17-4 Installment liquidationThe partnership of Gil, Hal, Ian, and Joe is preparing to liquidate. Profit- and loss-sharing ratios are shown in the summarized balance sheet at December 31, 2016, as follows:Cash$100,000Other liabilities$ 50,000Inventories100,000Gil capital (40%)150,000Loan to Hal10,000Hal capital (30%)160,000Other assets255,000Ian capital (20%)50,000 Joe capital (10%)55,000 $465,000 $465,000RequiredThe partners anticipate an installment liquidation. Prepare a cash distribution plan as of January 1, 2017, that includes a $25,000 contingency fund to help the partners predict when they will be included in cash distributions.During January 2017, the inventories are sold for $100,000, the other liabilities are paid, and $50,000 is set aside for contingencies. The partners agree that loan balances should be closed to capital accounts and that remaining cash (less the contingency fund) should be distributed to partners. How much cash should each partner receive?
P 17-4 Installment liquidation
The partnership of Gil, Hal, Ian, and Joe is preparing to liquidate. Profit- and loss-sharing ratios are shown in the summarized balance sheet at December 31, 2016, as follows:
|
Cash |
$100,000 |
Other liabilities |
$ 50,000 |
|
Inventories |
100,000 |
Gil capital (40%) |
150,000 |
|
Loan to Hal |
10,000 |
Hal capital (30%) |
160,000 |
|
Other assets |
255,000 |
Ian capital (20%) |
50,000 |
|
|
|
Joe capital (10%) |
55,000 |
|
|
$465,000 |
|
$465,000 |
Required
-
The partners anticipate an installment liquidation. Prepare a cash distribution plan as of January 1, 2017, that includes a $25,000 contingency fund to help the partners predict when they will be included in cash distributions.
-
During January 2017, the inventories are sold for $100,000, the other liabilities are paid, and $50,000 is set aside for contingencies. The partners agree that loan balances should be closed to capital accounts and that remaining cash (less the contingency fund) should be distributed to partners. How much cash should each partner receive?
Expert Answer
Liquidation is a process where the company accounts are closed by selling off the assets of company, paying off the creditors and distributing the remaining balance between the partners.
Working Note:
The amount set aside for contingencies are distributed between partners in profit sharing ratio. As no information is available for sale of assets, it is assumed that assets are sold at book value as on the balance sheet date of 31st December 2016.
Cash distribution statement as on ...
Image Transcriptionclose
Statement of Partnership Liquidation as on 1st January, 2017 Non Capital CapitalCapital Capital H 30%I 20% Other cash Liabilities G 40% J 10% Particulars Cash Assets Balance as on Jan 1 100000 365000 50000 150000 160000 50000 55000 Sale of Assets355000 355000 50000 150000 | 160000 Balance 455000 10000 50000 55000 Repayment of Loan by H 10000 -10000 50000 150000| 160000 50000 55000 Balance 465000 0 Paid other -50000 Liabilities Balance Amt Set aside -50000 0150000 160000 5000055000 405000 for -5000 -25000 -10000 -7500 -2500 contingencies 0160000 167500 Balance 430000 55000 57500 Distribution to 167500 55000-57500 440000 160000 partners Balance -10000 0
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