Question

Question: Exercise 7 (LO 8, 9) Installment liquidation with deficit capital balances and personal insolvenc...

Exercise 7 (LO 8, 9) Installment liquidation with deficit capital balances and personal insolvency.

Twelve years ago, Adams, Boyd, and Chambers formed a partnership manufacturing small circuit boards. Unfortunately, foreign competition, a softening economy, and management errors have led the partners to realize that the company’s business cannot be sustained and that the partnership must be liquidated. A condensed balance sheet is as follows:

Cash

$12,000

Note Payable to Adams

$10,000

Noncash Assets

225,000

Other Liabilities

170,000

Capital,Adams

15,000

Capital,Boyd

10,000

-

Capital,Chambers

32,000

Total Assets

$237,000

Total Liabilities and Capital

$237,000

The current value of personal assets and liabilities of the partners, excluding those related to the partnership, are as follows:

Adams

Boyd

Chambers

Personal Assets

$185,000

$62,000

$170,000

Personal Liabilities

72,000

78,000

150,000

Boyd is extremely concerned that after liquidation of the partnership they would still continue to be personally insolvent. This would be devastating to Boyd, and they have come to you with their concerns.

Prepare a response to each of Boyd’s independent questions noting that profits and losses are allocated 40%, 20%, and 20% to Adams, Boyd, and Chambers, respectively.

1. If assets with a book value of $180,000 were sold for $200,000 and the partners agreed to maintain a minimum cash balance of $5,000, would any of the available cash be distributed to Boyd?

2. If all of the noncash assets were sold for net proceeds of $280,000 and all cash was distributed, would any of the available cash be distributed to Boyd?

3. Assume that all of the noncash assets were sold for net proceeds of $150,000 and all cash was distributed. If Adams contributed the necessary assets to the partnership to liquidate unsatisfied outside creditors, how much would Boyd be liable to Adams for?

4. How much would all of the noncash assets have to be sold for so that after distributing all available cash Boyd could liquidate their personal liabilities?

ANSWER TEMPLATE: PLEASE Answer TEMPLATE

xercise 14-7 1. Partner's Loand & Capital Balance
Cash Noncash Assets Liabilities Adams Boyd Chambers Beginning Balance Sales of Assets Balances Pay Liabilities Distributions Balances   Schedule of Safe Payments Adams Boyd Chambers Totals Profit and Loss Percentages Combined Capital and Loan Balances Estimated Liquidation Expenses and/or adjustment of minimum cash balance Balances Maximum Loss Possible Balances Allocation of Debt Capital Balances Safe Payment 2.    Partner's Loan and Capital Balance Cash Noncash Assets Liabilities Adams Boyd Chambers Beginning Balances Sales of Assets Balances 3. Partner's Loan and Capital Balance Cash Noncash Assets Liabilities Adams Boyd Chambers Beginning Balance Sales of Assets Balances Payment of Liabilities Contribution of Capital Payment of Liabilities Allocation of Boyd balance Balance 4. Partner's Loan & Capital Balance Cash Noncash Assets Liabilities Adams Boyd Chambers Beginning Balances Sales of Assets Balances

Answer 1

1. Partner's Loan & Capital Balance
	Cash	Noncash Assets	Liabilities	Adams	Boyd	Chambers
Beginning Balance	12,000.00	2,25,000.00	1,80,000.00	15,000.00	10,000.00	32,000.00
Sales of Assets	2,00,000.00	2,00,000.00
Balances	2,12,000.00	25,000.00	1,80,000.00	15,000.00	10,000.00	32,000.00
Pay Liabilities	-1,80,000.00		-1,80,000.00
Distributions	-27,000.00			-7,105.26	-4,736.84	-15,157.89
Balances	5,000.00	25,000.00	-	7,894.74	5,263.16	16,842.11
Therefore, Boyd would get 4736.84 after payment of all the liabilities.
2. Partner's Loan & Capital Balance
	Cash	Noncash Assets	Liabilities	Adams	Boyd	Chambers
Beginning Balance	12,000.00	2,25,000.00	1,80,000.00	15,000.00	10,000.00	32,000.00
Sales of Assets	2,80,000.00	2,80,000.00
Balances	2,92,000.00	-	1,80,000.00	15,000.00	10,000.00	32,000.00
Pay Liabilities	-1,80,000.00		-1,80,000.00
Distributions	-1,12,000.00			-29,473.68	-19,649.12	-62,877.19
Balances	-	-	-	-14,473.68	-9,649.12	-30,877.19
Therefore, Boyd would get 19649.12 after payment of all the liabilities.
3. Partner's Loan & Capital Balance
	Cash	Noncash Assets	Liabilities	Adams	Boyd	Chambers
Beginning Balance	12,000.00	2,25,000.00	1,70,000.00	15,000.00	10,000.00	32,000.00
Sales of Assets	1,50,000.00	1,50,000.00
Balances	1,62,000.00	-	1,70,000.00	15,000.00	10,000.00	32,000.00
Pay Liabilities	-1,62,000.00		-1,62,000.00
Distributions	-			-	-	-
Balances	-	-	8,000.00	15,000.00	10,000.00	32,000.00
Balabce $8000 Liability to outsider will be paid by Adam.
Total Loan of Adam =	10000+8000
	18000
Share of each partner in the loan amount
Adams	=18000*15000/57000	4,736.84
Boyds	=10000*15000/57000	2,631.58
Chamber	=32000*15000/57000	8,421.05
Therefore, Boyd would Owe Adam 2631.58 after payment of all the liabilities.
4
Boyds Personal Liability=	78000
Therefore boyd to be able to liquidate his personal liability, he should receive $78000 in liquidation after payment of all liability.
78000 =	Distributable Cash*10000/57000
Distributable Cash=	=(78000*57000)/10000
	444600
Outside Liability	170000
Loan From Adam	10000
Total cash required	624600
Less: Cash Available	-12000
Sale Value of assets has to be	612600
Note-
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