a
Introduction: Installment liquidation involves selling assets of
The preparation of statement as of June 30, 20X5 for cash distribution
a
Answer to Problem 16.18P
Cash distribution for June for partners D, S, and V are $0, $27,500 + 52,500 and $35,000 respectively.
Explanation of Solution
DSV
Cash distribution plan
July 1 20X5 to September 30, 20X5
Loss absorption power | Capital Accounts | |||||
D | S | V | D | S | V | |
50% | 30% | 20% | ||||
Capital balances | $100,000 | $140,000 | $75,000 | |||
LAP = Capital / P&L ratio | $200,000 | $466,667 | $375,000 | |||
Decrease highest LAP to Next highest | ($91,667) | |||||
Cash distribution $91,667 / .30 | ($27.500) | |||||
$200,000 | $375,000 | $375,000 | $100,000 | $112,500 | $75,000 | |
Decrease LAP with next | $175,000 | $175,000 | ||||
S cash distribution $175,000 x .30 | 52,500 | |||||
V cash distribution $175,000 x.20 | $35,000 | |||||
$200,000 | $200,000 | $200,000 | $100,000 | $60,000 | $40,000 | |
Balance in P/L ratio | 50% | 30% | 20% |
Cash distribution summary
Creditors | Liquidation expenses | D | S | V | |
First $405,000 | 100% | ||||
Next $10,000 | 100% | ||||
Next $27,500 | 100% | ||||
Next $87,500 | 60% | 40% | |||
Additional distribution | 50% | 30% | 20% |
b
Introduction: Installment liquidation involves selling assets of partnership in several installments. It requires several months to complete liquidation, and regular installments are paid to partners as assets get liquidated. Installment liquidation is chosen with the aim to obtain the large possible amount from the realization of the assets. It involves the distribution of cash to partners before complete liquidation of assets occurs. There are two methods for ensuring fairness and equality in making cash distributions (1) safe payment schedule and (2) cash distribution plan. For the purpose of distribution of cash a ranking partner in terms of their exposure to possible losses is carried out. It is done by preparing a schedule of assumed loss absorption.
The preparation of schedule for cash distribution in July, August and September.
b
Answer to Problem 16.18P
Cash distribution for July for partners D, S, and V is $0, $22,500 and $0 respectively.
Cash distribution for August for partners D, S, and V is $0, $13,700 and $5,800 respectively.
Cash distribution for September for partners D, S, and V is $0, $37,500 and $25,000 respectively.
Explanation of Solution
DSV
Capital account balance
June 30 20X5 to September 30, 20X5
D | S | V | |
Profit and loss ratio | 50% | 30% | 20% |
Pre liquidation balance June 30 | $100,000 | $140,000 | $75,000 |
July | |||
Loss on disposal of asset and liquidation cost $120,000 + $2,500 | $(61,250) | $(36,750) | $(24,500) |
$38,750 | $103,250 | $50,500 | |
Distribution July 31 Schedule 1 $22,500 | $(22,500) | ||
$38,750 | $80,750 | $50,500 | |
August | |||
Disposal of asset $13,000 and liquidation cost $2,500 | $(7,750) | $(4,650) | $(3,100) |
$31,000 | $76,100 | $47,400 | |
Distribution $19,500 of cash schedule 2 | |||
S 100% | $(5,000) | ||
Next 14,500 | |||
S 60% of 14,500 | $(8,700) | ||
V 40% of 14,500 | $(5,800) | ||
$31,000 | $62,400 | $41,600 | |
September | |||
Loss on sale of asset $70,000 and liquidation costs $2,500 | $(36,250) | $(21,750) | $(14,500) |
$(5,250) | $40,650 | $27,100 | |
Distribution of D’s deficit | $5,250 | ||
$(3,150) | $(2,100) | ||
0 | $37,500 | $25,000 | |
September | |||
Cash distribution $62,500 schedule 3 | |||
S 60% | $(37,500) | ||
V 40% | $(25,000) | ||
0 | 0 | 0 |
Schedule 1
Amount $ | |
Cash balance July 1, 20X5 | 50,000 |
Cash from sale of non-cash asset | 390,000 |
Less payment of liquidation expenses | (2,500) |
Less payment to creditors | (405,000) |
Less amount held for future liquidation expenses | (10,000) |
Cash available to partners July 31, 20X5 | 22,500 |
Schedule 2
Amount $ | |
Cash balance August 1, 20X5 | 10,000 |
Cash from sale of non-cash asset | 22,000 |
Less payment of liquidation expenses | (2,500) |
Less amount held for future liquidation expenses | (10,000) |
Cash available to partners July 31, 20X5 | 19,500 |
Schedule 3
Amount $ | |
Cash balance September 1, 20X5 | 10,000 |
Cash from sale of non-cash asset | 55,000 |
Less payment of liquidation expenses | (2,500) |
Cash available to partners September 31, 20X5 | 62,500 |
Want to see more full solutions like this?
Chapter 16 Solutions
LOOSE-LEAF ADVANCED FINANCIAL ACCOUNTING
- The Mac-Don-Ald Partnership is being liquidated. All liabilities have been paid and the remaining assets are being realized gradually. The equity of the partners is as follows: MAC: Capital $ 33,000, Loans Payable $7,000, P&L Ratio - 2; DON: Capital $42,000, P&L Ratio - 3; ALD: Capital $95,000, Loans Receivable $15,000, P&L Ratio - 5. Question : The second cash payment to any partner/s under program of priorities shall be made thus:arrow_forwardLight, Day and Fire of Sunshine Partnership with a profit and loss sharing ratio of 25%, 15% and 60% respectivelyhas the following account balances:>DUring June, some non cash assets were sold that resulted to a loss of P20,000. Liquidation expenses of P31,000 were paid and additional expenses amounting to P24,000 were expected to be incurred through the following month of liquidating the partnership. > Liabilities to outsiders amounting to P79,000 were paid. > For Fire to receive P31,000 on the first distribution of cash, How much is the book value of the unsold Non-cash assets ?arrow_forwardOn June 1, 2021 (before the liquidation) – the balance sheet/statement of financial position for Pop and Loli Partnership is as follows in the given picture. Required: 1. Prepare a schedule of safe payments on every cash distribution made. 2. How much cash should Loli receive in June? 3. How much cash should Pop receive in July? 4. How much cash should Loli and Pop receive in August?arrow_forward
- Victory Worship Partnership has the following account balances before liquidation (see attached photo):During December, some non-cash assets were sold for a loss of P1,845. Liquidation expenses of P7,000 were paid and additional expenses amounting to P3,600 were expected to be incurred through the following months of liquidating the partnership. Liabilities to outsiders amounting to P35,000 were paid. What is the book value of non-cash assets sold for Co to receive P22,222?arrow_forwardVictory Worship Partnership has the following account balances before liquidation (see attached photo):During December, some non-cash assets were sold for a loss of P1,845. Liquidation expenses of P7,000 were paid and additional expenses amounting to P3,600 were expected to be incurred through the following months of liquidating the partnership. Liabilities to outsiders amounting to P35,000 were paid. What is the book value of non-cash assets sold for Co to receive P22,222? A. 83,355 B. 85,200 C. 95,000 D. 93,155arrow_forwardThe Drysdale, Koufax, and Marichal partnership has the following balance sheet immediately prior to liquidation: Cash . . . . . . . . . . . . . . . . . . . $ 36,000 Liabilities . . . . . . . . . . . . . .. . $50,000Noncash assets . . . . . . . . . 204,000 Drysdale, loan . . . . . . . . . . . 10,000Drysdale, capital (50%) . .. . 70,000Koufax, capital (30%) . . . . . 60,000Marichal, capital (20%) . . . 50,000 a. Liquidation expenses are estimated to be $15,000. Prepare a predistribution schedule to guide the distribution of cash.b. Assume that assets costing $74,000 are sold for $60,000. How is the available cash to be divided?arrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning