Chapter 16 – Partnerships: Liquidation
16–31
P16-14 Installment Liquidation [AICPA Adapted]
ABC Partnership
Statement of Partnership Realization and Liquidation
For the period from January 1, 20X1, through March 31, 20X1
Capital Balances
Other
Accounts
Bru
Chou
Assets =
Payable +
50% +
30% +
20%
Balances before liquidation, January 1, 20X1
307,000
53,000
88,000
110,000
74,000
January transactions:
1.
Collection of accounts receivable at a loss
of $15,000
(66,000)
(7,500)
(4,500)
(3,000)
2.
Sale of inventory at a loss of $14,000
(52,000)
(7,000)
(4,200)
(2,800)
3.
Liquidation expenses paid
(1,000)
(600)
(400)
4.
Share of credit memorandum
(3,000)
1,500
900
600
5.
Payments to creditors
(50,000)
189,000
-0-
74,000
101,600
68,400
Safe payments to partners (Schedule 1)
(26,600)
(18,400)
189,000
-0-
74,000
75,000
50,000
February transactions:
6.
Liquidation expenses paid
(2,000)
(1,200)
(800)
189,000
-0-
72,000
73,800
49,200
Safe payments to partners (Schedule 2)
-0-
-0-
-0-
189,000
-0-
72,000
73,800
49,200
March transactions:
8.
Sale of M&Eq. at a loss of $43,000
(189,000)
(21,500)
(12,900)
(8,600)
9.
Liquidation expenses paid
(2,500)
(1,500)
(1,000)
-0-
-0-
48,000
59,400
39,600
10. Payments to partners
(48,000)
(59,400)
(39,600)
Balances at end of liquidation, March 31, 20X1
-0-
-0-
-0-
-0-
-0-
Chapter 16 – Partnerships: Liquidation
16–32
P16-14 (continued)
ABC Partnership
Schedules of Safe Payments to Partners
Art
Bru
Chou
Schedule 1: January 31, 20X1
50%
30%
20%
Capital balances
74,000
101,600
68,400
Possible loss:
Other assets ($189,000) and possible
liquidation costs ($10,000)
(99,500)
(59,700)
(39,800)
(25,500)
41,900
28,600
Absorption of Art’s potential deficit balance
25,500
Bru: ($25,500 x 3/5 = $15,300)
(15,300)
Chou: ($25,500 x 2/5 = $10,200)
(10,200)
Safe payment, January 31, 20X1
-0-
26,600
18,400
Schedule 2: February 27, 20X1
Capital balances
72,000
73,800
49,200
Possible loss:
Other assets ($189,000) and possible
liquidation costs ($6,000)
(97,500)
(58,500)
(39,000)
(25,500)
15,300
10,200
Absorption of Art’s potential deficit balance:
25,500
Bru: ($25,500 x 3/5 = $15,300)
(15,300)
Chou: ($25,500 x 2/5 = $10,200)
(10,200)
Safe payment, February 27, 20X1
-0-
-0-
-0-
Chapter 16 – Partnerships: Liquidation
16–33
P16-15 Cash Distribution Plan
PET Partnership
Cash Distribution Plan
June 30, 20X1
Loss Absorption Potential
Capital Accounts
Pen
Evan
Torves
Pen
Evan
Torves
Profit and loss
percentages
50%
30%
20%
Preliquidation
capital balances
55,000
45,000
24,000
Loss absorption
potential (Capital
balances /
Loss percent)
110,000
150,000
120,000
Decrease highest LAP
to next highest:
Evan
($30,000 x 0.30)
(30,000)
(9,000)
110,000
120,000
120,000
55,000
36,000
24,000
Decrease LAPs
to next highest:
Evan
($10,000 x 0.30)
(10,000)
(3,000)
Torves
($10,000 x 0.20)
(10,000)
(2,000)
110,000
110,000
110,000
55,000
33,000
22,000
Summary of Cash Distribution
(If Offer of $100,000 is Accepted)
Accounts
Pen
Evan
Torves
Payable
50%
30%
20%
Cash available
$106,000
First
(17,000)
$17,000
Next
(9,000)
$ 9,000
Next
(5,000)
3,000
$ 2,000
Additional paid
in P&L ratio
(75,000)
______
$37,500
22,500
15,000
$ -0-
$17,000
$37,500
$34,500
$17,000
Chapter 16 – Partnerships: Liquidation
16–34
P16-16 Installment Liquidation
PET Partnership
Statement of Partnership Liquidation and Realization
From July 1, 20X1, through September 30, 20X1
Capital
Noncash
Accounts
Pen
Evan
Torves
Cash +
Assets =
Payable +
50% +
30% +
20%
Preliquidation balances
6,000
135,000
17,000
55,000
45,000
24,000
July:
Assets Realized
26,500
(36,000)
(4,750)
(2,850)
(1,900)
Paid liquidation costs
(1,000)
(500)
(300)
(200)
Paid creditors
(17,000)
(17,000)
14,500
99,000
-0-
49,750
41,850
21,900
Safe Payments (Sch. 1)
(6,500)
(6,500)
8,000
99,000
-0-
49,750
35,350
21,900
August:
Equipment withdrawn
(4,000)
3,000
1,800
(8,800)
(allocate $6,000 gain)
Paid liquidation costs
(1,500)
(750)
(450)
(300)
6,500
95,000
-0-
52,000
36,700
12,800
Safe Payments (Sch. 2)
(4,000)
(4,000)
2,500
95,000
-0-
52,000
32,700
12,800
September:
Assets Realized
75,000
(95,000)
(10,000)
(6,000)
(4,000)
Paid liquidation costs
(1,000)
(500)
(300)
(200)
76,500
-0-
-0-
41,500
26,400
8.600
Payments to partners
(76,500)
(41,500)
(26,400)
(8,600)
Postliquidation balances
-0-
-0-
-0-
-0-
-0-
-0-
Chapter 16 – Partnerships: Liquidation
16–35
P16-16 (continued)
PET Partnership
Schedules of Safe Payments to Partners
Pen
Evan
Torves
Schedule 1: July 31, 20X1
50%
30%
20%
Capital balances
49,750
41,850
21,900
Possible loss on noncash assets ($99,000)
(49,500)
(29,700)
(19,800)
Cash retained ($8,000)
(4,000)
(2,400)
(1,600)
(3,750)
9,750
500
Absorption of Pen‘s potential deficit
3,750
Evan: $3,750 x 0.30/0.50
(2,250)
Torves: $3,750 x 0.20/0.50
(1,500)
-0-
7,500
(1,000)
Absorption of Torves’ potential deficit
1,000
Evan: $1,000 x 0.30/0.30
(1,000)
Safe payment
-0-
6,500
-0-
Schedule 2: August 31, 20X1
Capital balances
52,000
36,700
12,800
Possible loss on noncash assets ($95,000)
(47,500)
(28,500)
(19,000)
Cash retained ($2,500)
(1,250)
(750)
(500)
3,250
7,450
(6,700)
Absorption of Torves’ potential deficit
6,700
Pen: $6,700 x 0.50/0.80
(4,188)
Evan: $6,700 x 0.30/0.80
(2,512)
(938)
4,938
-0-
Absorption of Pen‘s potential deficit
938
Evan: $938 x 0.30/0.30
(938)
Safe payment
-0-
4,000
-0-
Chapter 16 – Partnerships: Liquidation
16–36
P16-17 Installment Liquidation
DSV Partnership
Statement of Partnership Realization and Liquidation — Installment Liquidation
From July 1, 20X5, through September 30, 20X5
Capital Balances
Noncash
D
S
V
Cash +
Assets=
Liabilities+
50% +
30% +
20%
Preliquidation balances,
June 30
50,000
670,000
405,000
100,000
140,000
75,000
July, 20X5: Sale of
assets and
distribution of
$120,000 loss
390,000
(510,000)
(60,000)
(36,000)
(24,000)
440,000
160,000
405,000
40,000
104,000
51,000
Liquidation expenses
(2,500)
(1,250)
(750)
(500)
437,500
160,000
405,000
38,750
103,250
50,500
Payment to creditors
(405,000)
(405,000)
32,500
160,000
-0-
38,750
103,250
50,500
Safe payments to
partners (Sch. 1)
(22,500)
(22,500)
10,000
160,000
-0-
38,750
80,750
50,500
August, 20X5: Sale of
assets and
distribution of $13,000
loss
22,000
(35,000)
(6,500)
(3,900)
(2,600)
32,000
125,000
-0-
32,250
76,850
47,900
Liquidation expenses
(2,500)
(1,250)
(750)
(500)
29,500
125,000
-0-
31,000
76,100
47,400
Safe payments to
partners (Sch. 2)
(19,500)
(13,700)
(5,800)
10,000
125,000
-0-
31,000
62,400
41,600
September, 20X5:
Sale of assets and
distribution of $70,000
loss
55,000
(125,000)
(35,000)
(21,000)
(14,000)
65,000
-0-
-0-
(4,000)
41,400
27,600
Allocate D’s deficit to S
and V
4,000
(2,400)
(1,600)
65,000
-0-
-0-
-0-
39,000
26,000
Liquidation expenses
(2,500)
(1,500)
(1,000)
62,500
-0-
-0-
-0-
37,500
25,000
Payments to partners
(62,500)
-0-
(37,500)
(25,000)
Postliquidation
balances
-0-
-0-
-0-
-0-
-0-
-0-
Chapter 16 – Partnerships: Liquidation
16–37
P16-17 (continued)
DSV Partnership
Schedule of Safe Payments to Partners
D
S
V
Schedule 1, July 31, 20X5:
50%
30%
20%
Capital balances, July 31,
Before cash distribution
38,750
103,250
50,500
Assume full loss of $160,000 on
remaining noncash assets and
$10,000 in possible future
liquidation expenses
(85,000)
(51,000)
(34,000)
(46,250)
52,250
16,500
Assume D’s potential deficit
must be absorbed by S and V:
46,250
30/50 x $46,250
(27,750)
20/50 x $46,250
(18,500)
-0-
24,500
(2,000)
Assume V’s potential deficit
must be absorbed by S completely
(2,000)
2,000
Safe payments to partners
on July 31, 20X5
-0-
22,500
-0-
Schedule 2, August 31, 20X5:
Capital balances, August 31, before cash
distribution
31,000
76,100
47,400
Assume full loss of $125,000 on remaining
noncash assets and$10,000 in possible
liquidation expenses
(67,500)
(40,500)
(27,000)
(36,500)
35,600
20,400
Assume D’s potential deficit must be absorbed
by S and V:
36,500
30/50 x $36,500
(21,900)
20/50 x $36,500
(14,600)
Safe payments to partners
-0-
13,700
5,800
Chapter 16 – Partnerships: Liquidation
16–38
P16-18 Cash Distribution Plan
DSV Partnership
Cash Distribution Plan
June 30, 20X5
Loss Absorption Potential
Capital Accounts
D
S
V
D
S
V
Profit and loss sharing ratio
50%
30%
20%
Preliquidation capital balances
100,000
140,000
75,000
Loss absorption potential (LAP)
capital accounts /
loss sharing percentage
200,000
466,667
375,000
Decrease highest LAP to next
highest LAP:
Decrease S by $91,667
(91,667)
(Cash distribution: $91,667 x 0.30)
(27,500)
200,000
375,000
375,000
100,000
112,500
75,000
Decrease LAP to next highest level:
Decrease S by $175,000
(175,000)
(Cash distribution: $175,000 x 0.30)
(52,500)
Decrease V by $175,000
(175,000)
(Cash distribution: $175,000 x 0.20)
(35,000)
200,000
200,000
200,000
100,000
60,000
40,000
Decrease LAPs by distributing
cash in the P/L sharing ratio
50%
30%
20%
Chapter 16 – Partnerships: Liquidation
16–39
P16-18 (continued)
Summary of Cash Distribution Plan
(Estimated on June 30, 20X5)
Liquidation
Creditors
Expenses
D
S
V
1.
First $405,000
100%
2.
Next $10,000
100%
3.
Next $27,500
100%
4.
Next $87,500
60%
40%
5.
Any additional distributions
in the partners’ profit
and loss ratio
50%
30%
20%
b. Confirmation of cash distribution plan
DSV Partnership
Capital Account Balances
June 30, 20X5, through September 30, 20X5
D
S
V
Profit and loss ratio
50%
30%
20%
Preliquidation balances, June 30
100,000
140,000
75,000
July loss of $120,000 on disposal of assets
and $2,500 paid in liquidation costs
(61,250)
(36,750)
(24,500)
38,750
103,250
50,500
July 31 distribution of $22,500 of
available cash to partners (Sch. 1)
First $22,500 of $27,500 layer:
100% to S
(22,500)
38,750
80,750
50,500
August loss of $13,000 on disposal of
assets and $2,500 paid in liquidation costs
(7,750)
(4,650)
(3,100)
31,000
76,100
47,400
August 31 distribution of $19,500 of
available cash to partners (Sch. 2)
Remaining $5,000 of $27,500 layer
of which $22,500 paid on July 31:
100% to S
(5,000)
Next $14,500 of $87,500 layer:
60% to S
(8,700)
40% to V
(5,800)
31,000
62,400
41,600
September loss of $70,000 on disposal of
assets and $2,500 paid in liquidation
costs
(36,250)
(21,750)
(14,500)
(5,250)
40,650
27,100
Distribution of D’s deficit
5,250
(3,150)
(2,100)
-0-
37,500
25,000
September 30 distribution of $62,500 of
available cash to partners (Sch. 3)
Next $62,500 of $87,500 layer of which
$14,500 paid on August 31:
60% to S
(37,500)
40% to V
(25,000)
Postliquidation balances
-0-
-0-
-0-
Chapter 16 – Partnerships: Liquidation
16–40
P16-18 (continued)
Schedule 1, July 31, 20X5: Computation of $22,500 of cash available to be distributed to
partners on July 31, 20X5:
Cash balance, July 1, 20X5
$ 50,000
Cash from sale of noncash assets
390,000
Less: Payment of actual liquidation expenses
(2,500)
Less: Payments to creditors
(405,000)
Less: Amount held for possible
future liquidation expenses
(10,000)
Cash available to partners, July 31, 20X5
$ 22,500
Schedule 2, August 31, 20X5: Computation of $19,500 of cash available to be distributed
to partners on August 31, 20X5:
Cash balance, August 1, 20X5
$10,000
Cash from sale of noncash assets
22,000
Less: Payment of actual liquidation expenses
(2,500)
Less: Amount held for possible
future liquidation expenses
(10,000)
Cash available to partners, August 31, 20X5
$ 19,500
Schedule 3, September 30, 20X5: Computation of $62,500 of cash available to be
distributed to partners on September 30, 20X5:
Cash balance, September 1, 20X5
$10,000
Cash received from sale of noncash assets
55,000
Less: Payment of actual liquidation expenses
(2,500)
Cash available to partners, September 30, 20X5
$62,500