Question - Partners Petre, Reeves, Virgo and Kinsey share income in a ratio of 4:2:2:2, respectively. On April 1, 2015, they decided to terminate operations and begin a process of liquidation. The partnership's trial balance on that date shows the following:
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Debit
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Credit
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Cash
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$ 32,000
|
|
|
Accounts receivable
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87,000
|
|
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Loan Receivable from Reeves
|
25,000
|
|
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Inventory
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55,000
|
|
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Land
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30,000
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|
|
Equipment
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112,000
|
|
|
Truck
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37,000
|
|
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Accounts Payable
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$ 48,000
|
|
Loan Payable
|
|
75,000
|
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Loan Payable to Petre
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|
80,000
|
|
Petre, Capital
|
|
71,000
|
|
Reeves, Capital
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|
42,000
|
|
Virgo, Capital
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|
53,000
|
|
Kinsey, Capital
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|
9,000
|
|
Total
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$378,000
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$378,000
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Assets were sold over a three-month period. At the end of each month, available cash was distributed to the partners. The liquidation proceeds as follows:
April 2015:
1. Returned inventory costing $10,000 to the supplier, who granted a credit of $8,500 against the open accounts payable.
2. Collected $45,000 of the accounts receivable; collection of the remainder is uncertain.
3. Sold the remaining inventory to a competitor for $30,000.
4. Sold the equipment for $80,000.
5. Paid liquidation expenses of $5,500.
6. Paid the general loan and the remaining accounts payable in full.
7. Retained $20,000 of cash for potential future obligations and liquidation expenses.
May 2015:
1. Collected $15,000 of the accounts receivable, and the remainder is determined to be uncollectible.
2. Transferred the truck to Petre in exchange for a $30,000 reduction in partnership's loan payable to Petre.
3. Paid liquidation expenses of 3,000.
4. Retained $10,000 of cash for potential future obligations and liquidation expenses.
June 2015:
1. Sold the land for $125,000.
2. Paid liquidation expenses of $8,000.
3. Distributed all remaining cash.
REQUIRED:
1. Develop a pre-distribution plan for this partnership as of April 1, 2015. Assume estimated liquidation expenses of $20,000
2. Determine how the available cash to be distributed at the end of April, May, and June according to the plan developed in Part 1.