ADVANCED FINANCIAL ACCOUNTING IA
ADVANCED FINANCIAL ACCOUNTING IA
12th Edition
ISBN: 9781260545081
Author: Christensen
Publisher: MCG
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Chapter 16, Problem 16.14P
To determine

Installment liquidation: takes place for several months to complete, and periodic or installment payments are made to the partners during the liquidation period because they require funds for personal purposes. Most partnership liquidations take place over an extended period in order to obtain the largest possible amount from realization of the assets.

Instalment liquidations involve a distribution of cash to partners before complete liquidation of assets occurs, they are two methods for ensuring fairness and equality in making cash distributions (1) safe payment schedule and (2) cash distribution plan.

A safe payment schedule determines what amounts may be safely distributed to which partner without violating any of the principles of liquidation.

the statement of partnership realization and liquidation with a safe payment schedule for the two month liquidation period.

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Explanation of Solution

ABC partnership

Statement of realization and liquidation

From January 1, 20X1 to March 31, 20X1

    Capital
    CashAssetsliabilitiesA 50%B 30%C 20%
    Balance before liquidation18,000307,00053,00088,000110,00074,000
    Transaction in January
    Collection of receivable at loss $15,00051,000(66,000)(7,500)(4,500)(3,000)
    Sale of inventory at loss $14,00038,000(52,000)(7,000)(4,200)(2,800)
    Liquidation expenses(2,000)(1,000)(600)(400)
    Share of credit memo(3,000)(1,500)(900)(600)
    Payments to creditors(50,000)(50,000)
    55,000189,000074,000101,60068,400
    Safe payment schedule 1(45,000)(26,600)(18,400)
    10,000189,000074,00075,00050,000
    Transactions February
    Liquidation expenses(4,000)(2,000)(1,200)(800)
    6,000189,000072,00073,80049,200
    Safe payment schedule 2000000
    Balance February6,000189,000072,00073,80049,200
    March transactions
    Sale of M&Eq at loss146,000(189,000)(21,500)(12,900)(8,600)
    Liquidation expenses(5,000)(2,500)(1,500)(1,000)
    147,0000048,00059,40039,600
    Payment to partners(147,000)00(48,000)(59,400)(39,600)
    Balance March 31000000

Safe payment schedule for the month:

    A 50%B 30%C 20%
    Schedule 1 January
    Capital balances74,000101,60068,400
    Possible losses:
    Other assets and liquidation cost (189,000 + 10,000)(99,500)(59,700)(39,800)
    25,50041,90028,600
    Absorption of A’s potential deficit(25,500)
    B $25,500 x 3/515,300
    C 25,500 x 2/5 10,200
    026,60018,400
    Schedule 2 February
    Capital balances72,00073,80049,200
    Possible loss
    Other assets and liquidation cost (189,000 + 6,000)(97,500)(58,500)(39,000)
    (25,500)15,30010,200
    Absorption of A’s potential deficit25,500
    B 25,500 x 3/5(15,300)
    C 25,500 x 2/5(10,200)
    Safe payment February000

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ADVANCED FINANCIAL ACCOUNTING IA

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