Question

The Pen, Evan, and Torves Partnership has asked you to assist in winding-up its business affairs. You compile the following information.

1.	The partnership’s trial balance on June 30, 20X1, is

	Debit			Credit
Cash	$	7,300
Accounts Receivable (net)		40,000
Inventory		28,000
Plant and Equipment (net)		98,300
Accounts Payable				$	11,100
Pen, Capital					68,000
Evan, Capital					57,500
Torves, Capital					37,000
Total	$	173,600		$	173,600
2. The partners share profits and losses as follows: Pen, 50 percent; Evan, 25 percent; and Torves, 25 percent. 3. The partners are considering an offer of $113,000 for the firm’s accounts receivable, inventory, and plant and equipment as of June 30. The $113,000 will be paid to creditors and the partners in installments, the number and amounts of which are to be negotiated. 2. The partners share profits and losses as follows: Pen, 50 percent; Evan, 25 percent; and Torves, 25 percent.     3. The partners are considering an offer of $113,000 for the firm’s accounts receivable, inventory, and plant and equipment as of June 30. The $113,000 will be paid to creditors and the partners in installments, the number and amounts of which are to be negotiated. Required: Prepare a cash distribution plan as of June 30, 20X1, showing how much cash each partner will receive if the partners accept the offer to sell the assets. PET PARTNERSHIP Cash Distribution Plan June 30, 20X1 Loss Absorption Potential Capital Accounts Pen Evan Torves Pen Evan Torves Profit and loss percentages % % % Preliquidation capital balances Loss absorption potential (capital balances / loss percent) Decrease highest LAP to next highest: Decrease LAPs to next highest:

Answer 1

		$
1	Book value of assets;
	Accounts Receivable (net)	40,000
	Inventory	28,000
	Plant and Equipment (net)	98,300
	Total book values of assets	166,300
	Less: Realizable value	(113,000)
	Total loss on sale of assets	53,300
2	Cash balance available before settlement	7,300
	Add: Sale value of assets	113,000
	Less: settlement of Accounts Payable	(11,100)
	Cash available for distribution	109,200
	PET PARTNERSHIP
	Cash Distribution Plan , June 30,20x1
		Loss Absorption Potential			Capital Accounts			Total
		Pen	Evan	Torves	Pen	Evan	Torves
	Profit and loss percentages				50%	25%	25%
	Preliquidation capital balances				68,000	57,500	37,000	162,500
	Loss Absorption	(26,650)	(13,325)	(13,325)				(53,300)
	Capital balance after loss absorption				41,350	44,175	23,675	109,200
	Cash distribution				(41,350)	(44,175)	(23,675)	(109,200)
	Balance				-	-	-	-