On January 1, the partners of Van, Bakel, and Cox (who share profits and losses
ID: 2525938 • Letter: O
Question
On January 1, the partners of Van, Bakel, and Cox (who share profits and losses in the ratio of 5:3:2, respectively) decide to liquidate their partnership. The trial balance at this date follows: Credit Debit $ 31,000 92,000 78,000 215,000 56,000 Cash Accounts receivable Inventory Machinery and equipment, net Van, loan Accounts payable Bakel, loan Van, capital Bakel, capital Cox, capital Totals $ 85,000 46,000 151,000 103,000 87,000 $ 472,000 $ 472,000 The partners plan a program of piecemeal conversion of the partnership's assets to minimize liquidation losses. All available cash, less an amount retained to provide for future expenses, is to be distributed to the partners at the end of each month. A summary of the liquidation transactions follows: January Collected $64,000 of the accounts receivable; the balance is deemed uncollectible. Received $51,000 for the entire inventory. Paid $7,000 in liquidation expenses. Paid $77,000 to the outside creditors after offsetting a $8,000 credit memorandum received by the partnership on January 11. Retained $23,000 cash in the business at the end of January to cover any unrecorded liabilities and anticipated expenses. The remainder is distributed to the partners. February Paid $8,000 in liquidation expenses. Retained $11,000 cash in the business at the end of the month to cover unrecorded liabilities and anticipated expenses.Explanation / Answer
Van, Bakel, and Cox Partnership Safe Installment Payments to Partners 31-Jan Particulars Van Bakel Cox Total Profit and loss ratio 50% 30% 20% 100% Preliquidation capital balances 128000 100000 84000 312000 Add (deduct) loans -50000 40000 0 -10000 Subtotals 78000 140000 84000 302000 January losses (Schedule 1) -29000 -17400 -11600 -58000 Equity of partnership — January 31 49000 122600 72400 244000 Potential losses (Schedule 1) -114500 -68700 -45800 -229000 Subtotals -65500 53900 26600 15000 Potential loss — Van’s deficit balance 65500 -39300 -26200 0 Safe payments to partners 0 14600 400 15000 Schedule 1 Calculation of Actual and Potential Liquidation Losses January Particulars Actual losses Potential losses Collection of accounts receivable ($86000 – $51000) 35000 Sale of inventory ($72000 – $48000) 24000 Liquidation expenses 4000 Gain resulting from January credit memorandum reducing liability to creditors -5000 Machinery and equipment, net 209000 Potential unrecorded liabilities and anticipated expenses 20000 Totals 58000 229000 Van, Bakel, and Cox Partnership Safe Installment Payments to Partners 28-Feb Particulars Van Bakel Cox Total Profit and loss ratio 50% 30% 20% 100% Partnership equity January 31 49000 122600 72400 244000 Safe payments to partners, January 31 0 -14600 -400 -15000 February liquidation expenses -2500 -1500 -1000 -5000 Partnership equity February 28, 2009 46500 106500 71000 224000 Potential liabilities and expenses -4000 -2400 -1600 -8000 Potential loss on machinery and equipment -104500 -62700 -41800 -209000 Subtotals -62000 41400 27600 7000 Potential loss – Van’s deficit 62000 -37200 -24800 0 Safe payments to partners 0 4200 2800 7000 Van, Bakel, and Cox Partnership Safe Installment Payments to Partners 31-Mar Particulars Van Bakel Cox Total Profit and loss ratio 50% 30% 20% 100% Partnership equity February 28 46500 106500 71000 224000 Safe payments to partners 0 -4200 -2800 -7000 Loss on sale of machinery and equipment (209000-156000) -26500 -15900 -10600 -53000 Liquidation expenses -3500 -2100 -1400 -7000 Safe payments to partners 16500 84300 56200 157000