Advance Cash Distribution Plan
Part A
Baker, Strong, and Weak have called on you to assist them in winding up the affairs of their partnership. You are able to gather the following information.
- The trial balance of the partnership at June 30, 2008, is as follows.
|
Debit |
Gra |
|
|
Cash |
$6,000 |
|
|
Accounts Receivable |
22,000 |
|
|
Inventory |
14,000 |
|
|
Plant and Equipment (net) |
99,000 |
|
|
Baker, Advance |
12,000 |
|
|
Weak, Advance |
7,500 |
|
|
Accounts Payable |
$ 17,000 |
|
|
Baker, Capital |
67,000 |
|
|
Strong, Capital |
45,000 |
|
|
Weak, Capital |
31,500 |
|
|
Total |
$160,500 |
$160,500 |
- The partners share profits and losses as follows: Baker, 40%; Strong, 40%; and Weak, 20%.
- The partners are considering an offer of $100,000 for the accounts receivable, inventory, and plant and equipment as of June 30. The $100,000 would be paid to the partners in installments, the number and amounts of which are to be negotiated.
Required:
Prepare an advance cash distribution plan as of June 30, 2008. Prepare a schedule to show how the potential cash ($106,000) would be distributed as it becomes available.
Part B
Assume the facts in Part A except that the partners liquidate in stages instead of accepting the offer of $100,000. Cash is distributed to the partners at the end of each month.
A summary of the liquidation transactions follows.
July
$16,500—collected on accounts receivable; balance is uncollectible.
$10,000—received for the entire inventory.
$ 1,000—liquidation expenses paid.
$ 8,000—cash retained in the business at the end of the month.
August
$ 1,500—liquidation expenses paid.
As part payment of his capital interest, Weak accepted a piece of special equipment that he developed that had a book value of $4,000. The partners agreed that a value of $10,000 should be placed on the machine for liquidation purposes.
$ 2,500—cash retained in the business at the end of the month.
September
$75,000—received on sale of remaining plant and equipment.
$ 1,000—liquidation expenses paid.
No cash retained in the business.
Required:
Prepare a schedule of cash payments as of September 30, 2008, showing how the cash was actually distributed. Use the advance cash distribution plan developed in Part A where appropriate.
(AICPA adapted)