Concept explainers
Installment liquidation: takes place for several months to complete, and periodic or installment payments are made to the partners during the liquidation period because they require funds for personal purposes. Most
Instalment liquidations involve a distribution of cash to partners before complete liquidation of assets occurs, they are two methods for ensuring fairness and equality in making cash distributions (1) safe payment schedule and (2) cash distribution plan.
Cash distribution plan involves ranking partners in terms of their vulnerability to possible losses, it is done by preparing a schedule of assumed loss absorption
the cash distribution plan for APB partnership.
Answer to Problem 16.16P
Safe payment for July for partners P.E,T $0, $6,500 and $0 respectively
Safe payment for August for partners P.E,T $0, $4,000 and $0 respectively
Explanation of Solution
PET
Statement of Partnership liquidation and realization
July 1 20X1 to September 30, 20X1
capital | ||||||
Cash | Other Assets | liabilities | A 20% | P 30% | B 50% | |
Balance | 6,000 | 135,000 | 17,000 | 55,000 | 45,000 | 24,000 |
July | ||||||
Asset realized | 26,500 | (36,000) | (4,750) | (2,850) | (1.900) | |
Liquidation cost | (1,000) | (500) | (300) | (200) | ||
Paid creditors | (17,000) | (17,000) | ||||
Balance | 15,400 | 99,000 | 0 | 49,750 | 41,850 | 21,900 |
Payment schedule | (6,500) | 6,500 | ||||
Balance after schedule 1 | 8,000 | 99,000 | 0 | 49,750 | 41,850 | 21,900 |
August | ||||||
Equipment withdrawn by T | (4,000) | (4,000) | ||||
Allocation of gain on equipment | 3,000 | 1,800 | (4,800) | |||
Liquidation cost | (1,500) | (750) | (450) | (300) | ||
Balances | 6,500 | 95,000 | 0 | 52,000 | 36,700 | 12,800 |
Payment 2 | (4,000) | (4,000) | ||||
2,500 | 95,000 | 52,000 | 32,700 | 12,800 | ||
September | 75,000 | (95,000) | (10,000) | (6,000) | (4,000) | |
Liquidation cost | (1,000) | 500 | 300 | 200 | ||
76,500 | 41,500 | 26,500 | 8,600 | |||
Payment | (76,500) | (41,500) | (26,500) | (8,600) | ||
Balance end | 0 | 0 | 0 | 0 | 0 | 0 |
Safe payment schedule
P 50% | E 30% | T 20% | |
Schedule 1 July | |||
Capital balances | 49,750 | 41,850 | 21,900 |
Possible loss on non-cash assets $99,000 | (49,500) | (29,700) | (19,800) |
Cash retained $8,000 | (4,000) | (2,400) | (1,600) |
(3,750) | 9,750 | 500 | |
Absorption of P’s potential deficit | 3,750 | ||
E $3,750 x 30/50 | (2,250) | ||
T $3,750 x 20/50 | (1,500) | ||
0 | 7,500 | (1,000) | |
Absorption of T’s potential deficit | 1,000 | ||
E $1,000 | (1,000) | ||
0 | 6,500 | 0 | |
Schedule 2 August | |||
Capital balance | 52,000 | 36,700 | 12,800 |
Possible loss on non-cash asset 95,000 | (47,500) | (28,500) | (19,000) |
Cash retained $2,500 | (1,250) | (750) | (500) |
3,250 | 7,450 | (6,700) | |
Absorption of T’s potential deficit | 6,700 | ||
P $6,700 x 50/80 | (4,188) | ||
E $6,700 x 30/80 | (2,512) | ||
(938) | 4,938 | 0 | |
Absorption of P’s potential loss | 938 | ||
E $938 | (938) | ||
Safe payment | 0 | 4,000 | 0 |
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Chapter 16 Solutions
GEN CMB ADV FINCL ACCT; Connect Access Card
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