The partnership of Butler, Osman, and Ward was formed several years as a local tax preparation firm. Two partners have reached retirement age and the partners have decided to terminate operations and liquidate the business. Liquidation expenses of $57,000 are expected. The partnership balance sheet at the start of liquidation is as follows:
Cash | $ | 53,000 | Liabilities | $ | 193,000 | ||
Accounts receivable | 83,000 | Butler, loan | 53,000 | ||||
Office equipment (net) | 73,000 | Butler, capital (25%) | 165,000 | ||||
Building (net) | 225,000 | Osman, capital (25%) | 53,000 | ||||
Land | 215,000 | Ward, capital (50%) | 185,000 | ||||
Total assets | $ | 649,000 | Total liabilities and capital | $ | 649,000 | ||
Prepare a predistribution plan for this partnership.
Butler capital and loan | Osman Capital | Ward Capital | |
Beginning Balances | $218,000 | $53,000 | $185,000 |
Assumuing $212000 loss | ($106,000) | ($53,000) | ($53,000) |
Step 1 balances | $112,000 | $0 | $132,000 |
Revised Ratio | 57% | 43% | |
Assuming $51163loss | $29,163 | $22,000 | |
Step2 Balances | $40,837 | $0 |
Working: | |||
Butler | Osman | Ward | |
Beginning balances | $165,000 | $53,000 | $185,000 |
25% | 25% | 50% | |
Maximum loss (Step 1) | $660,000 | $212,000 | $370,000 |
Step 1 Balances | $112,000 | $0 | $132,000 |
Revised ratio | 70% | 30% | |
Maximum loss (Step 2) | $548,000 | $238,000 |
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