ACCOUNTING

PARTNERSHIP LIQUIDATION

Garcia College of Technology

Liquidation is the process of winding u the affairs of the business by selling its assets until cash is sufficient to
pay the liabilities and distributing the remaining cash or other assets to the partners.

If will take at least three steps to wind up the business:

1. Converting or selling all the properties and non-cash assets into cash.
2. Satisfying the claims of all creditors, and
3. Distributing the remaining cash or other assets in payment of the partners’ interest.

Terminologies Peculiar to Partnership Liquidation

1. Realization – is the process of selling r converting the assets into cash.

2. Gain or Loss on Realization – is the difference between the cash proceeds and the book value of the assets
sold. A gain results when the cash proceeds is higher than the book value of the assets sold. A loss results
when the cash proceeds is lower than the book value of the assets sold.
3. Right of Offset – is a legal right to apply a part or all of an amount owing to a partner on a loan balance
against his capital deficiency.
4. Capital Deficiency – is a liability of the partner to make additional investments when his capital balances
cannot sufficiently absorb his share in the partnership losses. For instance if the partner’s capital is $50,000
but his share in the net loss is $75,000, his capital would be deficient by $25,000.
5. Partner’s Interest – is the sum of a partner’s loan to the partnership and his capital balance.
6. Partner’s Fee Interest – is the interest of a partner that can be paid based on the availability of the
partnership cash.
7. Partner’s Restricted Interest – is the interest of a partner that cannot be as yet paid and must remain to
absorb future partnership losses.
8. Theoretical Loss – “as if” losses of the partnership which is considered in determining partner’s free
interest. For example only $50,000 out of the total assets of $80,000 was sold. An equal amount of partner’s
capital must, in the meantime, remain to absorb the $30,000 unsold portion of the remaining assets.

Types of Partnership Liquidation

1. By total – this is the process whereby liquidation is done in lump sum or over a short period by time thus
cash is immediately available for liquidating the claims of both the creditors and the partners.

2. By instalment – this is the process whereby the liquidations are carried over an extended period of time
because realization and cash distribution are made in instalments.

Entries in Liquidation:

1. Cash xx
Non-cash assets (in details) xx
Partners, Capital (in details) xx
To record the sale of assets with the gain
credited to the partners’ capital.
xx
2. Loan due to partner xx
Partner, Capital
To offset partner does deficiency against a loan
owe to him.
OR
Cash xx
Partner, Capital xx
To record additional investment made by
deficient but solvent partner.
OR
Partners, Capital xx
Deficient Partner, Capital xx
To record deficient of insolvent partner absorbed
by the other partners.

3. Liabilities (in details) xx

Cash xx
To record the payment of liabilities

4. Loan due to partner xx

Partners, Capital xx
Cash xx
To record distribution of remaining cash to
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

partners.

Step number 3 can be accomplished ahead of step number 2 as long as there is sufficient cash.

To facilitate the liquidation process and the preparation of the entries, a statement of partnership
liquidation should be prepared.

ABC PARTNERSHIP
BALANCE SHEET
As of March 1, 2013

ASSETS

Cash $20,000
Other Assets 180,000
Total Assets $200,000

LIABILTIES AND PARTNER’S EQUITY

Accounts Payable $25,000

Loan Payable B 5,000
A, Capital 50,000
B, Capital 45,000
C, Capital 75,000
Total Liabilities and Partners’ $200,000
Equity

Profit and loss is divided in the ratio of 2:3:1 respectively.

Case 1: Gain on Realization Increases Partner’s Capital Balances

Assume the other assets were sold for $210,000.

ABC Partnership
Statement of Partnership Liquidation
March 1, 2013
Cash Other Accounts Loan Capital Balances
Assets Payable Payable B A (2/6) B (3/6) C (1/6)
Balances
before $20,000 $180,000 $25,000 $5,000 $50,000 $45,000 $75,000
liquidation
Sale of
other 210,000 (180,000) 10,000 15,000 5,000
assets at a
gain
Balances $230,000 $25,000 $5,000 $60,000 $60,000 $80,000
Payment to
outside (25,000) (25,000)
creditors
Balances $205,000 $5,000 $60,000 $60,000 $80,000
Payment to (205,000) (5,000) (60,000) (60,000) (80,000)
partners

Analysis:

1. Since the cash proceeds is higher than the book value of the asset sold, there is a gain on realization of
$30,000 which increased the partner’s capital amounts based on their profit and loss ratio. Note that the
amount of other assets is brought to a zero balance.

2. For the payment of liabilities, decrease the assets and close the liabilities.

3. Finally, the remaining cash is distributed to the partners as a result of which the partnership is finally
closed.

Entries:

1 Cash $210,000
.
Other Assets $180,000
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

A, Capital 10,000
B, Capital 15,000
C, Capital 5,000
To record sale of other assets at a gain

2 Accounts Payable 25,000

.
Cash 25,000
To record payment of liabilities to outside
creditors

3 Loan Payable, B 5,000

.
A, Capital 60,000
B, Capital 60,000
C, Capital 80,000
Cash 205,000
To record the cash distribution to partners

Case 2: Loss on Realization Results in Capital Deficiency for a Partner with Loan Balance

Assume the other assets were sold for $84,000.

ABC Partnership
Statement of Partnership Liquidation
March 1, 2013
Cash Other Accounts Loan Capital Balances
Assets Payable Payable B A (2/6) B (3/6) C (1/6)
Balances
before $20,000 $180,000 $25,000 $5,000 $50,000 $45,000 $75,000
liquidation
Sale of
other 84,000 (180,000) (32,000) (48,000) (16,000)
assets at a
gain
Balances $104,000 $25,000 $5,000 $18,000 ($3,000) $59,000
Right of (3,000) 3,000
Offset
Balances $104,000 $25,000 $2,000 $18,000 $59,000
Payment to (25,000) (25,000)
outside e
Balances $79,000 $2,000 $18,000 $59,000
Payment to (79,000) (2,000) (18,000) (59,000)
partners

Analysis:

Since the cash proceeds are lesser than the book value of the assets sold, there is a loss on realization of
$96,000 which decreased the partner’s capital amounts based on their profit and loss ratio. Note that the
share of B in the loss, $48,000 is more than his capital balances, $45,000, thus resulting in a capital deficiency.
Since there is a loan payable to B, this will be offset against his capital deficiency. Here, a situation is created
where both the partners and the partnership are debtors against each other; hence the right of offset is
applicable. Steps 2 and 3 can be interchanged.

Entries:

1 Cash $84,000
.
A, Capital 32,000
B, Capital 48,000
C, Capital 16,000
Other Assets $180,000
To record sale of other assets at a loss

2 Loan Payable, B 3,000

.
Cash 3,000
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

To record payment of liabilities to outside
creditors

3 Loan Payable, B 2,000

.
A, Capital 18,000
C, Capital 59,000
Cash 79,000
To record the cash distribution to partners

Case 3: Loan Balance Due to a Deficient but Solvent Partner is Insufficient for Right of Offset

Assume that the other assets were sold for $72,000 and the deficient partners are solvent.

ABC Partnership
Statement of Partnership Liquidation
March 1, 2013
Cash Other Accounts Loan Capital Balances
Assets Payable Payable B A (2/6) B (3/6) C (1/6)
Balances
before $20,000 $180,000 $25,000 $5,000 $50,000 $45,000 $75,000
liquidation
Sale of
other 72,000 (180,000) (36,000) (54,000) (18,000)
assets at a
gain
Balances $92,000 $25,000 $5,000 $14,000 ($9,000) $57,000
Right of (5,000) 5,000
offset
Balances $92,000 $25,000 $14,000 ($4,000) $57,000
Additional 4,000 4,000
investment
by B
Balances $96,000 $25,000 $57,000
Payment to (25,000) (25,000)
outside
creditors
Balances $71,000 $14,000 $57,000
Payment to (71,000) (14,000) (57,000)
partners

Analysis:

Note that the loan payable to B is not sufficient to absorb the deficiency. If B is solvent, then the deficiency
balance should be paid by B through making additional investment.

Entries:

1 Cash $72,000
.
A, Capital 36,000
B, Capital 54,000
C, Capital 18,000
Other Assets $180,000
To record sale of other assets at a loss

2 Loan Payable, B 5,000

.
Cash 5,000
To offset B’s deficiency against the loan payable
to him

3 Cash 4,000
.
B, Capital 4,000
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

To record the additional investment made by B

4 Accounts Payable 25,000

.
Cash 25,000
To record payment of liabilities to outside
creditors.

5 A, Capital 14,000
.
C, Capital 57,000
Cash 71,000
To record cash distribution to partners

Using the preceding illustration, but assume that B who is solvent but does not make immediate investment
to the partnership. The available cash can be distributed to the partners by a computing their free interest
with the additional investment of B given much later as a second cash distribution. The working paper
starting from the balances after of offset will as appear as follows.

Cash Other Accounts Loan Capital Balances

Assets Payable Payable, B A (2/6) B (3/6) C (1/6)
Balances $92,000 $25,000 $14,000 ($4,000) $57,000
after right
of offset
Payment to (25,000) (25,000)
outside
creditors
Balances $67,000 $14,000 ($4,000) 57,000
Payment to (67,000) (11,333) (55,667)
partners
Balances $2,667 ($4,000) $1,333
Additional $4,000 4,000
investment
by B
Balances $4,000 $2,667 $1,333
Payment to (4,000) (2,667) (1,333)
partners
(final)

Schedule of Cash Distribution:

A B C
Capital balances before $14,000 ($4,000) $57,000
cash distribution
Less: Restricted Interest (2,667) 4,000 (1,333)
(Possible loss of $4,000 if
B will not pay his
deficiency)
Free Interest $11,333 - $55,667

Case 4: Loss on Realization Resulting in Capital Deficiency for an Insolvent Partner

Assume that the other assets were sold for $68,000 and that B is an insolvent partner.

ABC Partnership
Statement of Partnership Liquidation
March 1, 2013
Cash Other Accounts Loan Capital Balances
Assets Payable Payable B A (2/6) B (3/6) C (1/6)
Balances
before $20,000 $180,000 $25,000 $25,000 $50,000 $45,000 $75,000
liquidation
Sale of
other 68,000 (180,000) (37,333) (56,000) (18,667)
assets at a
gain
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

Balances $88,000 $25,000 $25,000 $12,667 ($11,000) $56,333
Right of 5,000
offset
Balances $88,000 $25,000 $25,000 $12,667 ($6,000) $56,333
Deficiency (4,000) 6,000 (2,000)
absorbed
by A and C
Balances $88,000 $25,000 $25,000 $8,667 $54,333
Payment to (25,000) (25,000) (25,000)
outside
creditors
Balances $63,000 $8,667 $54,333
Payment to ($63,000) ($8,667) (54,333)
partners

Analysis:

Since B’s share in the loss on realization is greater than his capital balance, a capital deficiency results. The
loan payable to B is not sufficient to absorb the deficiency and since he is insolvent, the deficiency balance is
absorbed by the other partners as a loss. This will decrease the payment to be received by partners A and C.

Entries:

1 Cash $68,000
.
A, Capital 37,333
B, Capital 56,000
C, Capital 18,667
Other Assets $180,000
To record sale of other assets at a loss

2 Loan Payable, B 5,000

.
Cash 5,000
To offset B’s deficiency against the loan payable
to him

3 A, Capital 4,000
.
C, Capital 2,000
B, Capital 6,000
To record the deficiency absorbed by A and C

4 Accounts Payable 25,000

.
Cash 25,000
To record payment of liabilities to outside
creditors.

5 A, Capital 8,667
.
C, Capital 54,333
Cash 63,000
To record cash distribution to partners

Case 5: Partnership is Insolvent But Partners Are Solvent

Assume partners X, Y and Z decided to liquidate their business on March 1, 2013. They share profit and loss in
the ratio of 2:1:1 respectively. The balance sheet at this data showed:

XYZ PARTNERSHIP
BALANCE SHEET
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

As of March 1, 2013

ASSETS

Cash $16,000
Other Assets 84,000
Total Assets $100,000

LIABILTIES AND PARTNER’S EQUITY

Accounts Payable $60,000

X, Capital 18,000
Y, Capital 10,000
Z, Capital 12,000
Total Liabilities and Partners’ $100,000
Equity

Partner’s personal show:

Assets Liabilities
X 10,000 5,000
Y 20,000 18,000
Z 15,000 10,000

The other assets were sold for $40,000.

XYZ Partnership
Statement of Partnership Liquidation
March 1, 2013
Capital Balances
Cash Other Accounts X (2/4) Y (1/4) Z (1/4)
Assets Payable
Balances
before $16,000 $84,000 $60,000 $18,000 $10,000 $12,000
liquidation
Sale of other
assets at a 40,000 (84,000) (22,000) (11,000) (11,000)
gain
Balances $56,000 $60,000 ($4,000) ($1,000) $1,000
Additional
Investment 5,000 4,000 1,000
by X and Y
Balances $61,000 $60,000 $1,000
Payment to
outside (60,000) (60,000)
creditors
Balances $1,000 $1,000
Payment to Z (1,000) (1,000)

In this illustration the partnership is insolvent since the liabilities amount to $60,000 but the available cash is
only $56,000. The personal record shows that deficient partners are solvent since their personal assets are
more than their personal liabilities. They are therefore required to make additional investments to cover up
their deficiencies and make the partnership cash sufficient to satisfy the claims of the outside creditors and
partner Z. Remember that a general partner has unlimited liability, which means that the partner is liable to
the extent of his personal property.

Entries:

1 Cash $40,000
.
X, Capital 22,000
Y, Capital 11,000
Z, Capital 11,000
Other Assets $84,000
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

To record sale of other assets at a loss

2 Cash 5,000
.
X, Capital 4,000
Y, Capital 1,000
To record the additional investment made by X
and Y

3 Accounts Payable 60,000

.
Cash 60,000
To record payment of liabilities to outside
creditors.

4 Z, Capital 1,000
.
Cash 1,000
To record cash distribution to Z.

Case 6: Partnership is Insolvent and the Partnership Creditors Collect from One Partner Only.

Assume that in Case 5, Y is a limited partner and X and Z are general partners. The Partnership creditors can
collect only for X and Z. Y is not liable to pay for his capital deficiency. If creditors and Z collected form X the
statement will appear as follows:

XYZ Partnership
Statement of Partnership Liquidation
March 1, 2013
Capital Balances
Cash Other Accounts X (2/4) Y (1/4) Z (1/4)
Assets Payable
Balances
before $16,000 $84,000 $60,000 $18,000 $10,000 $12,000
liquidation
Sale of other
assets at a 40,000 (84,000) (22,000) (11,000) (11,000)
gain
Balances $56,000 $60,000 ($4,000) ($1,000) $1,000
Deficiency
absorbed by (667) 1,000 (333)
X and Z
Balances $56,000 $60,000 ($4,667) $667
Payment to
outside (56,000) (56,000)
creditors
Balances $4,000 ($4,667) $667
Creditors (4,000) 4,000
collected
from X
Balances ($667) $667
X pay to Z 667 (667)

Entries:

1 Cash $40,000
.
X, Capital 22,000
Y, Capital 11,000
Z, Capital 11,000
Other Assets $84,000
To record sale of other assets at a loss

2 X, Capital 667
.
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

Z, Capital 333
Y, Capital 1,000
To record the payment absorbed by X and Z.

3 Accounts Payable 56,000

.
Cash 56,000
To record payment of liabilities to outside
creditors.

4 Accounts Payable 4,000

.
X, Capital 4,000
To record the Payment by X to outside creditors.

5 Z, Capital 667
.
X, Capital 667
To record the payment by X to Z.

X, Y and Z are solvent partners based on their personal resources. Take note that although Y is deficient, but
because he is a limited partner he is a limited partner he is not liable to pay for his deficiency. His deficiency is
absorbed by X and Z. X’s deficiency is eliminated when X pays Z.

When two or more partners are deficient, the deficiencies may be eliminated in the following order:

1. Eliminate the first deficiency of the insolvent and/or limited partner.

2. Apply the right of offset, if possible.

3. Additional investment by deficient but solvent partner.

LIQUIDATION BY INSTALLMENT

As explained earlier, in a liquidation by instalment, the assets are sold over an extended period of time, hence
full or total cash distribution cannot be made immediately. The cash is distributed in instalments as it
becomes available, first to the creditors then to the partners. The schedule distribution to the partners should
show the following:

1. Total Partners’ interest (loan and capital balances before cash distribution).

2. Restricted interest equal to all non-cash assets considered as possible loss and therefore should be changed
against the interest of the partners on the basis of their profit and loss ratio.

3. Restricted interest representing capital deficiency that a partner might have incurred after absorbing the
loss realization and the possible loss in no.1 above. These should be considered as a possible loss, which must
be deducted from the other partners’ interest with credit balances.

4. Cash for future liquidation expenses should also be considered as another restricted interest and should be
charged against the partners’ interest.

5. Free interest represents the partners’ interest which can be paid out of the available cash.

STEP TO BE FOLLOWED IN LIQUIDATION BY INSTALLEMENT.

1. Record the sale of non-cash assets and distribution of gain or loss on realization.

2. Record liquidation expenses by decreasing the cash and the partners’ capital accounts based in their profit
and loss ratio.

3. Record payment of liabilities. If not all the liabilities can be paid, see that an equal amount of cash be set
aside for the unpaid debts and should not be distributed to the partners.

4. If there is available cash to the partners but it is insufficient, prepare a schedule of cash distribution
observing the rules mentioned above.

5. Repeat steps one to four until the final scale, when the rules in liquidation by total should then be observed.
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

To illustrate, the following is the balance sheet of D, E and F Partnership on January 1, 2014.

DEF PARTNERSHIP
BALANCE SHEET
As of January 1, 2014

ASSETS

Cash $35,000
Other Assets 45,000
Total Assets $80,000

LIABILTIES AND PARTNER’S EQUITY

Accounts Payable $18,000

Loan Payable to D 5,000
D, Capital 10,000
E, Capital 20,000
F, Capital 27,000
Total Liabilities and Partners’ $80,000
Equity

The partnership agreed to liquidation this date and that cash distribution be made at the end of the month
provided there is sufficient cash on hand for this purpose. Profit and loss ratio of the partners is 2:1:2
respectively. The following are the liquidation transactions:

Month Cash Proceeds Book Value of Liquidation Accounts Payable

Assets Expenses Paid Paid
February $10,000 $15,000 $3,000 $15,000
March 16,000 20,000 2,000 3,000
April 8,000 10,000

The statement of liquidation is prepared on the next page supported with two schedules of safe payments for
February and March.

DEF PARTNERSHIP
STATEMENT OF PARTNERSHIP LIQUIDATION
February 1 to April 30, 2014
Other Accounts Loan Capital Balances
Cash Assets Payable Payable to D (2/5) E (1/5) F (2/5)
D
Balances
before $35,000 $45,000 $18,000 $5,000 $10,000 $20,000 $27,000
liquidation
February –
Sale of 10,000 (15,000) (2,000) (1,000) (2,000)
other
assets at a
loss
Balances $45,000 $30,000 $18,000 $5,000 $8,000 $19,000 $25,000
Liquidation
expenses (3,000) (1,200) (600) (1,200)
paid
Balances $42,000 $30,000 $18,000 $5,000 $6,800 $18,400 $23,800
Payment to
outside (15,000) (15,000)
creditors
Balance $27,000 $30,000 $3,000 $5,000 $6,800 $18,400 $23,800
Payment to
partners (24,000) (12,333) (11,667)
(Schedule
1)
Balances $3,000 $30,000 $3,000 $5,000 $6,800 $6,067 $12,133
March –
Sale of 16,000 (20,000) (1,600) (800) (1,600)
other
assets at a
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

loss
Balances $19,000 $10,000 $3,000 $5,000 $5,200 $5,267 $10,533
Liquidation
Expenses (2,000) (800) (400) (800)
paid
Balances $17,000 $10,000 $3,000 $5,000 $4,400 $4,867 $9,733
Payment to
outside (3,000) ($3,000)
creditors
Balances $14,000 $10,000 $5,000 $4,400 $4,867 $9,733
Payment to
partners (14,000) ($5,000) (400) (2,867) (5,733)
(Schedule
2)
Balances $10,000 $4,000 $2,000 $4,000
April – Sale
of other $8,000 (10,000) (800) (400) (800)
Assets at a
loss
Balances $8,000 $3,200 $1,600 $3,200
Payment to (8,000) ($3,200) ($1,600) ($3,200)
partners

Schedule 1 – Partial Cash Distribution for the month of February.

D E F
Capital Balances just
before distribution $6,300 $18,400 $23,800
Add: Loan Balance 5,000
Total Partner’s Interest $11,800 $18,400 $23,800
Less: Restricted Interest
(Possible loss of $30,000 (12,000) (6,000) (12,000)
if the remaining other
assets will not be sold)
Balances ($200) $12,400 $11,800
Less: Restricted Interest
(Possible loss of $200 if 200 (67) (133)
D will not be able to pay
for his deficiency)
Free Interest $12,333 $11,667

Schedule 2– Partial Cash Distribution for the month of March.

D E F
Capital Balances just
before distribution $4,400 $4,867 $9,733
Add: Loan Balance 5,000
Total Partner’s Interest $9,400 $4,867 $9,733
Less: Restricted Interest
(Possible loss of $30,000 (4,000) (2,000) (4,000)
if the remaining other
assets will not be sold)
Free Interest $5,400 $2,867 $5,733

Apply to loan balance $5,000

Apply to capital balances 400 $2,867 $5,733

Take note of the following:

1. Repetition of steps in lump sum liquidation until the other assets have been totally sold, liabilities paid ad
cash distributed to partners.

2. Liquidation expense is decrease in cash and in partners’ equity.

3. A schedule has to be prepared in February and March because the cash for distribution are not sufficient.
The free interest must be equal to the cash available for distribution.
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

4. The cash is not fully distributed in February, since there is still a balance of $3,000 for unpaid liabilities.

5. A schedule of cash distribution shows a computation of restricted interest. Restricted Interest in partners’
capital left to absorb possible like other assts not yet sold, capital deficiency and a cash withheld for future
ones.

Entries:

1. Cash $10,000
D, Capital 2,000
E, Capital 1,000
F, Capital 2,000
Other Assets $15,000
To record sale of other assets at a loss

2. D, Capital 1,200
E, Capital 600
F, Capital 1,200 3,000
Cash
To record the payment of liquidation expenses

3. Accounts Payable 15,000

Cash 15,000
To record payment of liabilities to outside
creditors.

4. E, Capital 12,333
F, Capital 11,667 24,000
Cash
To record the Payment by X to outside creditors.

5. Cash 16,000
D, Capital 1,600
E, Capital 800
F, Capital 1,600
Other Assets 20,000
To record sale of other assets at a loss

6. D, Capital 800
E, Capital 400
F, Capital 800
Cash 2,000
To record payment of liquidation expense.

7. Accounts Payable 3,000

Cash 3,000
To record payment of liabilities to outside
creditors

8. Loan Payable to D 5,000

D, Capital 400
E, Capital 2,867
F, Capital 5,733
Cash 14,000
To record the distribution to partners

9. Cash 8,000
D, Capital 800
E, Capital 400
F, Capital 800
Other Assets 10,000
To record sale of other assets at a loss
ACCOUNTING
PARTNERSHIP LIQUIDATION

Garcia College of Technology

10 D, Capital 3,200
E, Capital 1,600
F, Capital 3,200
Cash 8,000
To record cash distribution to partners

Suppose that in February it was additionally agreed that aside from the $3,000 liabilities not yet paid, $2,000
cash must be restricted absorb future liquidation expenses. How will the schedule of safe payment appear as
well as the statement of liquidation?

Schedule 1 – Partial Cash distribution for the month of February

D E F
Capital balances just $6,800 $18,400 $23,800
before distribution
Add: Loan balance 5,000
Total Partners’ Interest $11,800 $18,400 $23,800
Less: Restricted Interest
(Possible loss of $32,000
if the remaining other (12,800) (6,400) (12,800)
assets will not be sold
and for future liquidation
expenses)
Balances ($1,000) $12,000 $11,000
Less: Restricted Interest
(Possible loss $1,000 if D
will not be able to pay for 1,000 (333) (667)
is deficiency).
Free Interest $11,667 $10,333