Question

On January 1, the partners of Van, Bakel, and Cox (who share profits and losses in the ratio of 5:3:2, respectively) decide to terminate operations and liquidate their partnership. The trial balance at this date follows:

	Debit		Credit
Cash	$	23,000
Accounts receivable		76,000
Inventory		62,000
Machinery and equipment, net		199,000
Van, loan		40,000
Accounts payable			$	73,000
Bakel, loan				30,000
Van, capital				123,000
Bakel, capital				95,000
Cox, capital				79,000
Totals	$	400,000	$	400,000

The partners plan a program of piecemeal conversion of the partnership’s assets to minimize liquidation losses. All available cash, less an amount retained to provide for future expenses, is to be distributed to the partners at the end of each month. A summary of the liquidation transactions follows:

January	Collected $56,000 of the accounts receivable; the balance is deemed uncollectible.
	Received $43,000 for the entire inventory.
	Paid $7,000 in liquidation expenses.
	Paid $65,000 to the outside creditors after offsetting a $8,000 credit memorandum received by the partnership on January 11.
	Retained $15,000 cash in the business at the end of January to cover liquidation expenses. The remainder is distributed to the partners.
February	Paid $8,000 in liquidation expenses.
	Retained $3,000 cash in the business at the end of the month to cover additional liquidation expenses.
March	Received $151,000 on the sale of all machinery and equipment.
	Paid $10,000 in final liquidation expenses.
	Retained no cash in the business.

Prepare proposed schedules of liquidation on January 31, February 28, and March 31 to determine the safe payments made to the partners at the end of each of these three months.

Complete this question by entering your answers in the tabs below.

• January
• February
• March

Prepare proposed schedule of liquidation to determine the safe payments made to the partners at the end of January. (Amounts to be deducted should be entered with a minus sign.)

VAN, BAKEL, AND COX PARTNERSHIP Proposed Schedule of Liquidation January 31 Cash Noncash Assets Liabilities Van, Capital and Loan 50% Bakel, Capital and Loan 30% Cox, Capital 20% Balances - January 1 Collected accounts receivable Sold inventory Paid liquidation expenses Paid accounts payable Subtotal (actual balances) 0 0 0 0 0 0 Maximum loss on assets Maximum liquidation expenses Subtotal (potential balances) 0 0 $0 0 0 0 Allocation of deficit capital balance Safe payments to partners - January 31 $0 $0 $0 $0 $0 $0

Answer 1

SOLUTION:

Safe installment payment to partners in January:

Safe Installment Payments to Partners
January 31
Particulars	Partner V	Partner B	Partner C	Total
Profit and Loss ratio	50%	30%	20%	100%
Capital balance - January 1	123000	95000	79000	297000
Add (deduct) loans	(40000)	30000		($10,000)
Adjusted capital balances - January 1	83000	125000	79000	287000
Allocation of January net loss ($38000 × 50% : $38000 × 30% : $38000 × 20%) (Note Below)	(19000)	(11400)	(7600)	(38000)
Capital balance - January 31	64000	113600	71400	249000
Potential Loss (Note Below)	(107000)	(64200)	(42800)	(214000)
Subtotal	(43000)	49400	28600	35000
Allocation of deficit balances ($43000 × 3 ÷ 5 = $25800 : $43000 × 2 ÷ 5 = $17200)	43000	(25800)	(17200)	$0
Safe payments to partners - January 31	$0	23600	11400	35000

Notes: actual and potential loss or gain in January

Particulars	Cash	Book Value	Actual Gain / (Loss)	Potential Gain / (Loss)
January Transactions
Actual gains and losses
Receivables Collected	56000	(76000)	(20000)
Inventory Sold	43000	(62000)	(19000)
Liquidation expenses paid	(7000)		(7000)
Accounts payable paid	(65000)	73000	$8,000
Potential losses
Machinery and equipment		(199000)		(199000)
Potential unrecorded liabilities and expenses -		(15000)		(15000)
Total			(38000)	(214000)

Safe installment payment to partners in February

Safe Installment Payments to Partners
February 28
Particulars	Partner V	Partner B	Partner C	Total
Profit and Loss ratio	50%	30%	20%	100%
Capital balance - January 31	64000	113600	71400	249000
Safe payments to partners - January 31	$0	(23600)	(11400)	(35000)
Capital balance - February 1	64000	90000	60000	214000
Allocation of February net loss ($8,000 × 50% : $8,000 × 30% : $8,000 × 20%) (Note below)	(4000)	(2400)	(1600)	(8000)
Capital balance - February 28	60000	87600	58400	206000
Potential Loss (Note Below)	(101000)	(60600)	(40400)	(202000)
Subtotal	(41000)	27000	18000	4000
Allocation of deficit balances   ($41,000 × 3 ÷ 5 = $3246000 : $41,000 × 2 ÷ 5 = $16400)	41000	(24600)	(16400)	$0
Safe payments to partners - February 28	$0	2400	1600	4000

Notes: actual and potential loss or gain in February

Particulars	Cash	Book Value	Actual Gain / (Loss)	Potential Gain / (Loss)
February Transactions
Actual gains and losses
Liquidation expenses paid	(8000)		(8000)
Potential losses
Machinery and equipment		(199000)		(199000)
Potential unrecorded liabilities and expenses -		(3000)		(3000)
Total			(8000)	(202000)

Safe installment payment to partners in March as follows

Safe Installment Payments to Partners
March 31
Particulars	Partner V	Partner B	Partner C	Total
Profit and Loss ratio	50%	30%	20%	100%
Capital balance - February 28	60000	87600	58400	206000
Safe payments to partners - February 28	$0	(2400)	(1600)	(4000)
Capital balance - March 1	60000	85200	56800	202000
Allocation of March net loss ($58,000 × 50% : $58,000 × 30% : $58,000 × 20%) (Note Below)	(29000)	(17400)	(11600)	(58000)
Capital balance - March 31	31000	67800	45200	144000
Final payments to partners - March 31	(31000)	(67800)	(45200)	(144000)
Ending balances - March 31	$0	$0	$0	$0

Notes: actual and potential loss or gain in March

Particulars	Cash	Book Value	Actual Gain / (Loss)	Potential Gain / (Loss)
March Transactions
Actual gains and losses
Machinery and equipment sold	151000	(199000)	(48000)
Liquidation expenses paid	(10000)		(10000)
Total			(58000)