Chapter 16, Problem 16.17P

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 16.17P

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

DSV

Statement of Partnership liquidation and realization

July 1 20X5 to September 30, 20X5

				capital
	Cash	Other Assets	liabilities	D 50%	S 30%	V 20%
Balance June 30	50,000	670,000	405,000	100,000	140,000	75,000
July
Sale of asset and distribution of loss $120,000	390,000	(510,000)		(60,000)	(36,000)	(24,000)
Liquidation cost	440,000	160,000	405,000	40,000	104,000	51,000
Liquidation exp	(2,500)			(1,250)	(750)	(500)
Balance	437,500	160,000	405,000	38,750	103,250	50,500
To creditors	(405,000)		(405,000)
Balance July	32,500	160,000	0	38,750	103,250	50,500
Safe payment 1	(22,500)				(22,500)
	10,000	160,000	0	38,750	80,750	50,500
August
Sale of asset for loss $13,000	22,000	(35,000)		(6,500)	(3,900)	(2,600)
Balances	32,000	125,000	0	32,250	76,850	47,900
Liquidation exp	(2,500)			(1,250)	(750)	(500)
	29,500	125,000	0	31,000	76,100	47,400
Safe payment 2	(19,500)				(13,700)	(5,800)
	10,000	125,000		31,000	62,400	41,600
September
Sale of asset for loss $70,000	55,000	(125,000)		(35,000)	(21,000)	(14,000)
	65,000			(4,000)	41,400	27,600
Allocation of D’s deficit				4,000
S					(2,400)
V						(1,600)
	65,000	0	0	0	39,000	26,000
Expenses	(2,500)				(1,500)	(1,000)
	62,500				37,500	25,000
Payment	(62,500)				(37,500)	(25,000)
	0	0	0	0	0	0

Safe payment schedule

	D 50%	S 30%	V 20%
Schedule 1 July
Capital balances	38,750	103,250	50,500
Possible loss on non-cash assets $160,000 & $10,000 liquidation expenses	(85,000)	(51,000)	(34,000)
	(46,250)	52,250	16,500
Assumed D’s potential deficit absorption	46,250
S 30/50 46,250		(27,750)
V 20/50 x 46,250			(18,500)
	0	24,500	(2,000)
Assumed V’s potential deficit absorption by S			2,000
S		(2,000)
Safe payment	0	22,500	0
Schedule 2 August
Capital balance	31,000	76,100	47,400
Possible loss on non-cash asset 125,000 & expenses $10,000	(67,500)	(40,500)	(27,000)
	(36,500)	35,600	20,400
Absorption of D’s potential deficit	36,500
S $36,500 x 30/50		(21,900)
V $36,500 x 20/50			(14,600)
Safe payment	0	13,700	5,800