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)

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