Hardin, Sutton, and Williams has operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy Williams’ creditors, the partnership has decided to liquidate.
The following balance sheet has been produced:
cash 10,000
noncash assets 227,000
total assets 237,000
liabilities 80,000
Hardin, capital 96,000
Sutton, capital 45,000
Williams, capital 16,000
total liabilities and capital 237,000
During the liquidation process, the following transactions take place:
Noncash assets are sold for $116,000.
Liquidation expenses of $12,000 are paid. No further expenses are expected.
Safe capital distributions are made to the partners.
Payment is made of all business liabilities.
Any deficit capital balances are deemed to be uncollectible.
1. Develop a predistribution plan for this partnership, assuming 12,000 of liquidation expenses are expeced to be paid.
2. compute safe cash payments after the noncash assets have been sold and the liquidation expenses have been paid.