Question: Hann, Murphey, and Ryan have operated a
Hann, Murphey, and Ryan have operated a retail furniture store for the past 30 years. Their business has been unprofitable for several years, since several large discount furniture stores opened in their sales territory. The partners recognize that they will be unable to compete with the larger chain stores and decide that since all the partners are near retirement, they should liquidate their business before it is necessary to declare bankruptcy. Account balances just before the liquidation process began were as follows:
The partners share profits in the ratio of 5:3:2, respectively.
Rather than selling all the assets in a forced liquidation and incurring selling expenses, the partners agree that some of the noncash assets may be withdrawn in partial settlement of their capital interest. The partners agree that if the market value of a withdrawn asset is less than book value, the difference should be allocated to all partners in their loss ratio. If market value is greater than book value, the asset is to be adjusted to its market value before recording the withdrawal. All the partners are personally solvent and can make additional cash investment in the partnership up to $20,000 each. The following is a schedule of transactions that occurred during 2014 in the liquidation process.
Required:
Prepare a schedule of partnership realization and liquidation in accordance with the sequence of the foregoing events. Compute a safe payment to support your cash distribution to partners.
Transcribed Image Text:
$ 10,000 218,000 $110,000 50,000 42,000 26,000 $228,000 Cash Liabilities Hann, Capital Murphey, Capital Ryan, Capital Other Assets $228,000 March 15, 2014 During liquidation sale, noncash assets with a book value of $90,000 were sold for $80,000. March 16, 2014 Sold accounts receivable with a book value of $30,000 to a factory for $26,000. March 16, 2014 Paid all recorded partnership creditors. March 18, 2014 Distributed all but $1,000 of available cash to partners. March 19, 2014 Murphey withdrew from inventory furniture with a book value of $10,000 and a market value of $13,000 to satisfy part of his capital interest. March 21, 2014 Sold remainder of inventory with a book value of $50,000 to a discount furniture store for $30,000 cash. March 25, 2014 Assigned for $12,000 cash the remaining term of the lease on the warehouse. The lease was accounted for as an operating lease. March 25, 2014 Distributed all available cash to partners. April 1, 2014 Hann agreed to accept two vehicles with a book value of $10,000 and a market value of $8,000 in partial settlement of his capital interest. April 5, 2014 April 6, 2014 April 6, 2014 All remaining assets were sold for $4,000. Received additional cash from partners with debit capital balances. Distributed available cash to partners.
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