Chapter 13, Problem 36P

To determine

Prepare an installment liquidation schedule along with safe payment schedules for the liquidation of the ABCD partnership.

Explanation of Solution

Partnership liquidation is the process of winding-up the partnership and distributing its assets. If the partnership wants to liquidate, the assets of the company are sold, the liabilities are paid off and any remaining cash is allocated to the partners on the basis of their capital account balances.

The liquidation schedule for the ABCD partnership is as follows:

				Partner’s Capital Accounts
				(40%)	(30%)	(20%)	(10%)
Debit (Credit)	Cash	Noncash assets	Liabilities	A	B	C	D
Balance prior to liquidation	$\$6,000$	$\$124,800$	$(\$12,000)$	$(\$33,600)$	$(\$49,200)$	$(\$21,600)$	$(\$14,400)$
Sale of noncash assets in 1st month	$37,200$	$(66,000)$		$11,520$	$8,640$	$5,760$	$2,880$
	$43,200$	$58,800$	$(12,000)$	$(22,080)$	$(40,560)$	$(15,840)$	$(11,520)$
Installment distribution to Partners after 1st month	$(31,200)$				$(22,200)$	$3,600$	$5,400$
	$12,000$	$58,800$	$(12,000)$	$(22,080)$	$(18,360)$	$(12,240)$	$(6,120)$
Sale of noncash assets in 2nd month	$33,600$	$38,400$		$1,920$	$(1,440)$	$960$	$480$
	$45,600$	$20,400$	$(12,000)$	$(20,160)$	$(16,920)$	$(11,280)$	$(5,640)$
Installment distribution to Partners after 2nd month	$(33,600)$			$(12,000)$	$10,800$	$7,200$	$3,600$
	$12,000$	$20,400$	$(12,000)$	$(8,160)$	$(6,120)$	$(4,080)$	$(2,040)$
Write off noncash assets in 3rd month		$20,400$		$8,160$	$6,120$	$4,080$	$2,040$
	$12,000$		$(12,000)$
Payment to creditors	$(12,000)$		$12,000$
Post-liquidation balances	$0	$0	$ 0	$ 0	$ 0	$0	$ 0

Table (1)

The safe payment schedule is as follows:

Safe Payment Schedule 1	Partner's Capital Accounts
Debit (Credit)		A (40%)		B (30%)		C (20%)		D (10%)
Partner's Capital		$(22,080)		$(40,560)		$(15,840)		$(11,520)
	Assumed Losses and Costs
ASSUME that noncash sold for Zero	58,800	23,520		17,640		11,760		5,880
		1,440		(22920)		(4,080)		(5,640)
ASSUME that A deficit is allocated		(1440)		720		480		240
Safe Payment for Installment No. 1		$0		$(22,200)		$ (3,600)		$ (5,400)

Table (2)

Safe Payment Schedule 2	Partner's Capital Accounts
Debit (Credit)		A (40%)		B (30%)		C (20%)		D (10%)
Partner's Capital		$(20,160)		$(16,920)		$(11,280)		$ (5,640)
	Assumed Losses and Costs
ASSUME that noncash sold for Zero	20,400	8,160		6,120		4,080		2,040
Safe payment for Installment # 2		$(12,000)		$(10,800)		$(7,200)		$(3,600)

Table (3)