Question

Partner’s Paton, Littleton, & Davidson want you to assist them in winding up the affairs of their partnership. You gather the following information:

1. The 11/30/18 trial balance of the partnership is as follows

Cash    . . . . . . . . . . . . . . . . . . . . . . . . . .         $ 20,500

Accounts receivable    . . . . . . . . . . . . . .            24,500

Inventory        . . . . . . . . . . . . . . . . . . . .            14,000

Plant & equipment (net)         . . . . . . . .         117,500

Notes receivable - Paton         . . . . . . . .              1,000

Notes receivable - Davidson   . . . . . . . .                 500

Accounts payable       . . . . . . . . . . . . . .            18,000

Capital, Paton . . . . . . . . . . . . . . . . . . . .            63,550

Capital, Littleton        . . . . . . . . . . . . . .            39,150

Capital, Davidson       . . . . . . . . . . . . . .            57,300

                        (All balance are normal)

2. The partners share profits and losses as follows:    Paton, 20%; Littleton, 42%; and Davidson, 38%

The partnership will liquidate over December, January, and February with cash to be distributed to the partners at the end of each month.

A summary of the liquidation transactions follows:

December

1.         Collected $19,800 on accounts receivable; the balance is uncollectible.

2.         Received $16,500 for the entire inventory.

3.         Paid $1,000 liquidation expenses.

4.         Retained $9,500 cash in the business at month-end for estimated liquidation expenses.

January

1.         Paid $1,500 liquidation expenses.

2.         Paid the creditors in full.

3.         Sold equipment with a book value of $26,000 for $20,110.

4.         As part payment of his capital, Paton accepted a piece of special equipment that he developed that had a book value of $4,000. The partners agree that a $10,000 value should be placed on the machine for liquidation purposes. Davidson has agreed to return the equipment or pay $10,000 to the partnership if the need arises. The partners’ accountant advises not giving Davidson the machine until the final distribution at the end of February. (You decide whether or not to follow the accountant’s advice.)

5.         Retained $4,500 cash in the business at month-end for estimated liquidation expenses.

February

1.         Received $75,000 on sale of remaining plant and equipment.

2.         Paid $4,250 liquidation expenses.

3.         No cash retained in the business.

Required:

A.        Prepare a Cash Distribution Plan.

B.        Prepare a statement of partnership realization and liquidation for the partnership for the three-month period ended February 28, 2009. Support each cash distribution to the partners with a schedule of safe installment payments.

Answer 1

A. Statement of distribution of cash.

Date	Particulars	Adj column	Amount in $
30-11-18	Opening bal		20,500
December	Realised:
	Receivable	19,800
	Stock	16,500
	Less: Retained	(9500)
	Liquidation expense	(1000)
	available		25,800+9500
January	Equipment	20,110
	Less: Liquidation expe	(1,500)
	Retained	(4,500)	14,110
	Paid to creditors		(18,000)
	Available		42,410+4500
Febraury	Plant & equipment	75000
	Less: liquidation exp	(4,250)	70,750
	Total cash available		1,69,570
	Distributed partners in (20:42:38)
	Paton	33914
	Littleton	71219
	Davidson	105133	0

Realisation account

Particulars	Amt	Particulars	Amt
Account receivable	24500	Creditors	18000
Inventory	14000	Cash:
Plant & Machinery	1,17,500	Account receivable	19,800
Realisation expenses (1000+1500+4250)	6,750	Inventory	16,500
Cash(creditors paid)	18,000	Equipment(20110+75000)	95,110
		Patron a/c(equpment taken over)	4,000
		Loss to partners in (20:42:38)	27,340
	180750		180750