On January 1 20X1 partners Art Bru and Chou who share profit

On January 1, 20X1, partners Art, Bru, and Chou, who share profits and losses in the ratio of 6:3:1, respectively, decide to liquidate their partnership. The partnership trial balance at this date follows Debit Credit $ 21,600 Cash Accounts Receivable Inventory Machinery and Equipment (net) Accounts Payable Art, Capital Bru, Capital Chou, Capital Total 75,000 61,000 198,000 $ 56,600 97,000 119,000 83,000 $355,600 $355,600 The partners plan a program of piecemeal conversion of 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 20X1 1. Collected $58,200 on accounts receivable; the balance is uncollectible 2. Received $43,400 for the entire inventory 3. Paid $3,800 liquidation expenses 4. Paid $52,500 to creditors, after offset of a $4,100 credit memorandum received on January 11, 20X1 5. Retained $12,500 cash in the business at the end of the month for potential unrecorded liabilities and anticipated expenses

Solution

ABC PARTNERSHIP Statement of Partnership Realization and Liquidation Cash Other Assets Accounts Payable Capital Balances Art Bru Chou Balance Before Liquidation, Jan 1, 20X1        21,600.00     334,000.00     56,600.00     97,000.00    119,000.00     83,000.00 January Transactions: Collection of Accounts Receivable at a Loss        58,200.00     (75,000.00)                     -   (10,080.00)      (5,040.00)     (1,680.00) Sale of Inventory at a Loss        43,400.00     (61,000.00) (10,560.00)      (5,280.00)     (1,760.00) Liquidation Expenses Paid        (3,800.00)     (2,280.00)      (1,140.00)         (380.00) Share of Credit Memorandum                       -                         -       (4,100.00)        2,460.00        1,230.00           410.00 Payment to Creditors     (52,500.00) (52,500.00)        66,900.00     198,000.00                     -       76,540.00    108,770.00     79,590.00 Safe Payment to Partners     (54,400.00)                     -        (8,300.00) (46,100.00)        12,500.00     198,000.00                     -       76,540.00    100,470.00     33,490.00 Feburary Transactions: Liquidation Expenses Paid        (5,800.00)     (3,480.00)      (1,740.00)         (580.00)          6,700.00     198,000.00                     -       73,060.00      98,730.00     32,910.00 Safe Payment to Partners                       -                       -                       -                       -            6,700.00     198,000.00                     -       73,060.00      98,730.00     32,910.00 March Transactions: Sale of M&Eq. at Loss     154,800.00 (198,000.00) (25,920.00)    (12,960.00)     (4,320.00) Liquidation Expenses Paid        (4,200.00)                       -                       -       (2,520.00)      (1,260.00)         (420.00)     157,300.00                       -                       -       44,620.00      84,510.00     28,170.00 Payment to Partners (157,300.00) (44,620.00)    (84,510.00) (28,170.00) Balances at the end of Liquidation, Mar 31, 20X1                       -                         -                       -                       -                       -                       -   ABC PARTNERSHIP Schedule of Safe Payments to Partners Art - 60% Bru - 30% Chou - 10% Schedule 1: Jan 31, 20X1 Capital Balances        76,540.00     108,770.00     79,590.00 Potential Loss on noncash Assets ($198,000 + $12,500) (126,300.00)     (63,150.00) (21,050.00)     (49,760.00)        45,620.00     58,540.00 Allocation of Potential Deficit        49,760.00     (37,320.00) (12,440.00) Safe Payment, Jan 31, 20X1                       -            8,300.00     46,100.00 Schedule 1: Feb 27, 20X1 Capital Balances        73,060.00        98,730.00     32,910.00 Potential Loss on noncash Assets ($198,000 + $6,700) (122,820.00)     (61,410.00) (20,470.00)     (49,760.00)        37,320.00     12,440.00 Allocation of Potential Deficit        49,760.00     (37,320.00) (12,440.00) Safe Payment, Feb 27, 20X1                       -                         -                       -