P 17-8 Installment liquidation—Safe payments schedule Jax, Kya, and Bud, who share partnership profits 50 percent, 30 percent, and 20 percent, respectively, decide to liquidate their partnership. They need the cash from the partnership as soon as possible but do not want to sell the assets at fire-sale prices, so they agree to an installment liquidation. A summary balance sheet on January 1, 2016, is as follows: Cash $ 16,500 Accounts payable $ 21,000 Accounts receivable 28,000 Jax capital 69,000 Inventory 20,500 Kya capital 47,000 Equipment—net 101,000 Bud capital 43,000 Loan to Jax 14,000 $180,000 $180,000 Cash is distributed to the partners at the end of each month, with $5,000 retained for possible contingencies in the liquidation process. During January 2016, Jax agreed to offset his capital balance with his loan from the partnership, $25,000 was collected on the accounts receivable, and the balance is determined to be uncollectible. Liquidation expenses of $2,000 were paid. During February 2016, $18,000 was collected from the sale of inventories and $90,000 collected from the sale of equipment. Additional liabilities of $3,000 were discovered, and $2,000 of liquidation expenses were paid. All cash was then distributed in a final liquidation. Required Prepare a statement of partnership liquidation with supporting safe payments schedules for each cash distribution.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
P 17-8 Installment liquidation—Safe payments schedule
Jax, Kya, and Bud, who share
|
Cash |
$ 16,500 |
Accounts payable |
$ 21,000 |
|
|
28,000 |
Jax capital |
69,000 |
|
Inventory |
20,500 |
Kya capital |
47,000 |
|
Equipment—net |
101,000 |
Bud capital |
43,000 |
|
Loan to Jax |
14,000 |
|
|
|
|
$180,000 |
|
$180,000 |
Cash is distributed to the partners at the end of each month, with $5,000 retained for possible contingencies in the liquidation process.
During January 2016, Jax agreed to offset his capital balance with his loan from the partnership, $25,000 was collected on the accounts receivable, and the balance is determined to be uncollectible. Liquidation expenses of $2,000 were paid.
During February 2016, $18,000 was collected from the sale of inventories and $90,000 collected from the sale of equipment. Additional liabilities of $3,000 were discovered, and $2,000 of liquidation expenses were paid. All cash was then distributed in a final liquidation.
Required
Prepare a statement of partnership liquidation with supporting safe payments schedules for each cash distribution.
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