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.

Explanation of Solution

ABC partnership

Statement of realization and liquidation

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

				Capital
	Cash	Assets	liabilities	A 50%	B 30%	C 20%
Balance before liquidation	18,000	307,000	53,000	88,000	110,000	74,000
Transaction in January
Collection of receivable at loss $15,000	51,000	(66,000)		(7,500)	(4,500)	(3,000)
Sale of inventory at loss $14,000	38,000	(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)
	55,000	189,000	0	74,000	101,600	68,400
Safe payment schedule 1	(45,000)				(26,600)	(18,400)
	10,000	189,000	0	74,000	75,000	50,000
Transactions February
Liquidation expenses	(4,000)			(2,000)	(1,200)	(800)
	6,000	189,000	0	72,000	73,800	49,200
Safe payment schedule 2	0	0	0	0	0	0
Balance February	6,000	189,000	0	72,000	73,800	49,200
March transactions
Sale of M&Eq at loss	146,000	(189,000)		(21,500)	(12,900)	(8,600)
Liquidation expenses	(5,000)			(2,500)	(1,500)	(1,000)
	147,000	0	0	48,000	59,400	39,600
Payment to partners	(147,000)	0	0	(48,000)	(59,400)	(39,600)
Balance March 31	0	0	0	0	0	0

Safe payment schedule for the month:

	A 50%	B 30%	C 20%
Schedule 1 January
Capital balances	74,000	101,600	68,400
Possible losses:
Other assets and liquidation cost (189,000 + 10,000)	(99,500)	(59,700)	(39,800)
	25,500	41,900	28,600
Absorption of A’s potential deficit	(25,500)
B $25,500 x 3/5		15,300
C 25,500 x 2/5			10,200
	0	26,600	18,400
Schedule 2 February
Capital balances	72,000	73,800	49,200
Possible loss
Other assets and liquidation cost (189,000 + 6,000)	(97,500)	(58,500)	(39,000)
	(25,500)	15,300	10,200
Absorption of A’s potential deficit	25,500
B 25,500 x 3/5		(15,300)
C 25,500 x 2/5			(10,200)
Safe payment February	0	0	0