Question

The partnership of Butler, Osman, and Ward was formed several years as a local tax preparation...

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.

Homework Answers

Answer #1
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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