Question

The following condensed balance sheet is for the partnership of Miller, Tyson, and Watson, who share profits and losses in the ratio of 6:2:2, respectively:

Cash	$	54,000			Liabilities	$	50,000
Other assets		167,000			Miller, capital		75,000
					Tyson, capital		75,000
					Watson, capital		21,000
Total assets	$	221,000			Total liabilities and capital	$	221,000

a. Assuming no liquidation expenses, calculate the safe payments that can be made to partners at this point in time.

	Miller	Tyson	Watson
Safe Payments

Answer 1

Notes.

Under safe payment approrach

1.It is assumed that,Non cash assets are sold at zero.( we assume woerst case scenario to determine the effect on partners captial balances) since same is did in this question

2. when adequate cash is accumulated it paid to creditors.

3.After sale of assets the safe payment of avaible cash is detemined.

					Capital balances
		Cash	Non cash Assets	Liabilities	Miller (6)	Tyson (2)	Watson(2)
Account balances		$ 54,000	$ 167,000	$ 50,000	($ 75,000)	($ 75,000)	($ 21,000)
Collection		0	0
		$ 54,000	$ 167,000	$ 50,000	($ 75,000)	($ 75,000)	($ 21,000)
Payment to cretidors		($ 50,000)
		$ 4000	$ 167,000	0	($ 75,000)	($ 75,000)	($ 21,000)
Payments to partners( see workings below)(Safe payments)		$ (4000)	0	0	0	$ 4000	0
		0	$ 167,000	0	( $ 75,000)	( $ 71,000)	( $ 21,000)
(Worst scenario assumption)
Capital balances before safe payments to partners		($ 75,000)	($ 75,000)	($ 21,000)
Aollaction of potenical loss ( NON cash aassets)		1,00,200	33,400	33,400
					25,200	-41,600	12,400
Allocation of deficit					-25,200	37,600	-12,400
					$ 0	$ 4000	$ 0

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