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 16.17P
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
DSV
Statement of Partnership liquidation and realization
July 1 20X5 to September 30, 20X5
capital | ||||||
Cash | Other Assets | liabilities | D 50% | S 30% | V 20% | |
Balance June 30 | 50,000 | 670,000 | 405,000 | 100,000 | 140,000 | 75,000 |
July | ||||||
Sale of asset and distribution of loss $120,000 | 390,000 | (510,000) | (60,000) | (36,000) | (24,000) | |
Liquidation cost | 440,000 | 160,000 | 405,000 | 40,000 | 104,000 | 51,000 |
Liquidation exp | (2,500) | (1,250) | (750) | (500) | ||
Balance | 437,500 | 160,000 | 405,000 | 38,750 | 103,250 | 50,500 |
To creditors | (405,000) | (405,000) | ||||
Balance July | 32,500 | 160,000 | 0 | 38,750 | 103,250 | 50,500 |
Safe payment 1 | (22,500) | (22,500) | ||||
10,000 | 160,000 | 0 | 38,750 | 80,750 | 50,500 | |
August | ||||||
Sale of asset for loss $13,000 | 22,000 | (35,000) | (6,500) | (3,900) | (2,600) | |
Balances | 32,000 | 125,000 | 0 | 32,250 | 76,850 | 47,900 |
Liquidation exp | (2,500) | (1,250) | (750) | (500) | ||
29,500 | 125,000 | 0 | 31,000 | 76,100 | 47,400 | |
Safe payment 2 | (19,500) | (13,700) | (5,800) | |||
10,000 | 125,000 | 31,000 | 62,400 | 41,600 | ||
September | ||||||
Sale of asset for loss $70,000 | 55,000 | (125,000) | (35,000) | (21,000) | (14,000) | |
65,000 | (4,000) | 41,400 | 27,600 | |||
Allocation of D’s deficit | 4,000 | |||||
S | (2,400) | |||||
V | (1,600) | |||||
65,000 | 0 | 0 | 0 | 39,000 | 26,000 | |
Expenses | (2,500) | (1,500) | (1,000) | |||
62,500 | 37,500 | 25,000 | ||||
Payment | (62,500) | (37,500) | (25,000) | |||
0 | 0 | 0 | 0 | 0 | 0 |
Safe payment schedule
D 50% | S 30% | V 20% | |
Schedule 1 July | |||
Capital balances | 38,750 | 103,250 | 50,500 |
Possible loss on non-cash assets $160,000 & $10,000 liquidation expenses | (85,000) | (51,000) | (34,000) |
(46,250) | 52,250 | 16,500 | |
Assumed D’s potential deficit absorption | 46,250 | ||
S 30/50 46,250 | (27,750) | ||
V 20/50 x 46,250 | (18,500) | ||
0 | 24,500 | (2,000) | |
Assumed V’s potential deficit absorption by S | 2,000 | ||
S | (2,000) | ||
Safe payment | 0 | 22,500 | 0 |
Schedule 2 August | |||
Capital balance | 31,000 | 76,100 | 47,400 |
Possible loss on non-cash asset 125,000 & expenses $10,000 | (67,500) | (40,500) | (27,000) |
(36,500) | 35,600 | 20,400 | |
Absorption of D’s potential deficit | 36,500 | ||
S $36,500 x 30/50 | (21,900) | ||
V $36,500 x 20/50 | (14,600) | ||
Safe payment | 0 | 13,700 | 5,800 |
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Chapter 16 Solutions
ADV.FIN.ACCT. CONNECT+PROCTORIO PLUS
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