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The December 31, 2013, balance sheet of the Deng, Danielson, and Gibson partnership,

along with the partners residual profit and loss sharing ratios, is summarized as follows:
Assets
Liabilities & Equities
Cash
$ 150,000
Accounts Payable
$ 225,000
Receivables
300,000
Loan from Danielson
50,000
Inventories
375,000
Deng, Capital (20%)
250,000
Other Assets
475,000
Danielson, Capital (30%)
400,000
Gibson, Capital (50%)
375,000
Total Assets
$1,300,000
Total Liab & Equities
$1,300,000
The partners agree to liquidate their partnership as soon as possible after January 1,
2014 and to distribute all cash as it becomes available.
Required:
Prepare an advance cash distribution plan to show how cash will be distributed as it
becomes available.

Net capital interest


Profit/Loss ratio
Loss absorption potential
Order of cash distribution

Deng
$250,000
/ .20
$1,250,000
2

Danielson
$450,000
/ .30
$1,500,000
1

Gibson
$375,000
/ .50
$750,000
3

Loss Absorption Potential


Loss absorption potential
Distribution to Danielson
Balances
Distribution to Deng & Danielson
Balances

Deng
$1,250,000
$1,250,000
(500,000)
$750,000

Danielson
$1,500,000
(250,000)
$1,250,000
(500,000)
$ 750,000

Gibson
$750,000

Danielson
$450,000
__75,000
375,000
(150,000)
$225,000

Gibson
$375,000
___ ___
375,000
_______
$375,000

$750,000
_ ______
$750,000

Asset Distribution
Net capital interest
Distribution to Danielson
Balances
Distribution to Deng & Danielson
Balances
Remainder of asset distributions

Deng
$250,000
250,000
(100,000)
$150,000
0.20

Distribution Plan
First $225,000 to pay creditors
Next $75,000 to Danielson
Next $250,000: 40% to Deng and 60% to Danielson
Remainder 20% to Deng, 30% to Danielson and 50% to Gibson

0.30

0.50

Question 2
Tye, Ula, Val, and Watt are partners who share profits and losses 40%, 30%, 20%, and
10%, respectively. The partnership will be liquidated gradually over several months
beginning January 1, 2011. The partnership trial balance at December 31, 2010 is as
follows:
Cash
Accounts receivable
Inventory
Loan to Val
Furniture
Equipment
Goodwill
Accounts payable
Note payable
Loan from Tye
Tye, capital (40%)
Ula, capital (30%)
Val, capital (20%)
Watt, capital (10%)
Totals

Debits
$3,000
19,000
25,000
5,000
15,000
10,000
12,000

$89,000

Credits

$13,600
30,000
5,000
15,000
9,000
12,400
4,000
$89,000

Required:
Prepare a cash distribution plan for January 1, 2011, showing how cash installments will
be distributed among the partners as it becomes available.
Question 3
Merz, Dechter, and Flowers are partners in a partnership and share profits and losses 40%, 40%, and 20%,
respectively. The partners have agreed to liquidate the partnership and anticipate that liquidation expenses will
total $14,000. Prior to the liquidation, the partnership balance sheet reflects the following book values:
Cash
Inventory
Accounts receivable
Equipment
Land and Buildings
Note payable to
Flowers
Accounts payable
Other current liabilities
Mortgage payable
Capital, Merz
Capital Dechter
Capital deficit, Flowers

$ 25,000
40,000
30,000
60,000
70,000
12,000
50,000
50,000
65,000
40,000
18,000
(10,000)

The actual liquidation expenses are $20,000


All the inventory was sold for $30,000
The total accounts receivable were sold to a collection company for $20,000

Merz took over equipment with a book value of $30,000 for $25,000
The remaining equipment, land and buildings were sold for $85,000.
Flowers has net personal assets of $10,000.

Required:
Prepare a schedule of liquidation using the safe payment method to determine how the proceeds from the
liquidation would be distributed.