Chapter 16, Problem 16.16P

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.

Cash distribution plan involves ranking partners in terms of their vulnerability to possible losses, it is done by preparing a schedule of assumed loss absorption

the cash distribution plan for APB partnership.

Answer to Problem 16.16P

Safe payment for July for partners P.E,T $0, $6,500 and $0 respectively

Safe payment for August for partners P.E,T $0, $4,000 and $0 respectively

Explanation of Solution

PET

Statement of Partnership liquidation and realization

July 1 20X1 to September 30, 20X1

				capital
	Cash	Other Assets	liabilities	A 20%	P 30%	B 50%
Balance	6,000	135,000	17,000	55,000	45,000	24,000
July
Asset realized	26,500	(36,000)		(4,750)	(2,850)	(1.900)
Liquidation cost	(1,000)			(500)	(300)	(200)
Paid creditors	(17,000)		(17,000)
Balance	15,400	99,000	0	49,750	41,850	21,900
Payment schedule	(6,500)				6,500
Balance after schedule 1	8,000	99,000	0	49,750	41,850	21,900
August
Equipment withdrawn by T		(4,000)				(4,000)
Allocation of gain on equipment				3,000	1,800	(4,800)
Liquidation cost	(1,500)			(750)	(450)	(300)
Balances	6,500	95,000	0	52,000	36,700	12,800
Payment 2	(4,000)				(4,000)
	2,500	95,000		52,000	32,700	12,800
September	75,000	(95,000)		(10,000)	(6,000)	(4,000)
Liquidation cost	(1,000)			500	300	200
	76,500			41,500	26,500	8,600
Payment	(76,500)			(41,500)	(26,500)	(8,600)
Balance end	0	0	0	0	0	0

Safe payment schedule

	P 50%	E 30%	T 20%
Schedule 1 July
Capital balances	49,750	41,850	21,900
Possible loss on non-cash assets $99,000	(49,500)	(29,700)	(19,800)
Cash retained $8,000	(4,000)	(2,400)	(1,600)
	(3,750)	9,750	500
Absorption of P’s potential deficit	3,750
E $3,750 x 30/50		(2,250)
T $3,750 x 20/50			(1,500)
	0	7,500	(1,000)
Absorption of T’s potential deficit			1,000
E $1,000		(1,000)
	0	6,500	0
Schedule 2 August
Capital balance	52,000	36,700	12,800
Possible loss on non-cash asset 95,000	(47,500)	(28,500)	(19,000)
Cash retained $2,500	(1,250)	(750)	(500)
	3,250	7,450	(6,700)
Absorption of T’s potential deficit			6,700
P $6,700 x 50/80	(4,188)
E $6,700 x 30/80		(2,512)
	(938)	4,938	0
Absorption of P’s potential loss	938
E $938		(938)
Safe payment	0	4,000	0