The partnership of Butler Osman and Ward was formed several

The partnership of Butler, Osman, and Ward was formed several years as a local tax preparation firm. Two partners have reached retirement age and the partners have decided to terminate operations and liquidate the business. Liquidation expenses of $38,000 are expected. The partnership balance sheet at the start of liquidation is as follows:

Prepare a predistribution plan for this partnership.

Cash	$	34,000		Liabilities	$	174,000
Accounts receivable		64,000		Butler, loan		34,000
Office equipment (net)		54,000		Butler, capital (25%)		70,000
Building (net)		130,000		Osman, capital (25%)		34,000
Land		120,000		Ward, capital (50%)		90,000
Total assets	$	402,000		Total liabilities and capital	$	402,000

Solution

Butler capital and loan Osman Capital Ward Capital Beginning Balances $104,000 $34,000 $90,000 Assumuing $136000 loss -$34,000 -$34,000 -$68,000 Step 1 balances $70,000 $0 $22,000 Revised Ratio 57% 43% Assuming $51163loss $29,163 $22,000 Step2 Balances $40,837 $0 Working: Butler Osman Ward Beginning balances $70,000 $34,000 $90,000 25% 25% 50% Maximum loss (Step 1) $280,000 $136,000 $180,000 Step 1 Balances $70,000 $0 $22,000 Revised ratio 57% 43% Maximum loss (Step 2) $210,000 $158,000