Question

The partnership of Butler, Osman, and Ward was formed several years ago as a local tax preparation firm. Two partners have reached retirement age, and the partners have decided to terminate operations and liquidate the business. Liquidation expenses of $43,000 are expected. The partnership balance sheet at the start of liquidation is as follows:

Cash $39,000 Liabilities $179,000
Accounts receivable 69,000 Butler, loan 39,000
Office equipment (net) 59,000 Butler, capital (25%) 95,000
Building (net) 155,000 Osman, capital (25%) 39,000
Land 145,000 Ward, capital (50%) 115,000
Total assets $467,000 Total liabilities and capital $467,000

Required:
Prepare a predistribution plan for this partnership

Answer 1

Butler, Osman, and Ward Partnership

Predistribution Plan:

Total assets realized (assumed) $467,000

Less liquidation expenses 43,000

Liabilities 179,000

Butler, loan 39,000

Cash available for distribution $206,000

Butler, capital (25%) 84,250 ($95,000 - $10,750)

Osman, capital (25%) 28,250 ($39,000 - $10,750)

Ward, capital (50%) 93,500 ($115,000 - $21,500)

Step-by-step explanation:

a) Data and Calculations:

Expected liquidation expenses = $43,000

Cash $39,000

Accounts receivable 69,000

Office equipment (net) 59,000

Building (net) 155,000

Land 145,000

Total assets $467,000

Liabilities $179,000

Butler, loan 39,000

Butler, capital (25%) 95,000

Osman, capital (25%) 39,000

Ward, capital (50%) 115,000

Total liabilities and capital $467,000

Predistribution Plan:

Total assets realized (assumed) $467,000

Less liquidation expenses 43,000

Liabilities 179,000

Butler, loan 39,000

Cash available for distribution $206,000

Butler, capital (25%) 84,250 ($95,000 - $10,750)

Osman, capital (25%) 28,250 ($39,000 - $10,750)

Ward, capital (50%) 93,500 ($115,000 - $21,500)

b) Each partner will share in the liquidation expense according to their profits and losses sharing ratios. This will reduce their capital account balances and show the net cash they will collect upon liquidation. Note that this plan is based on the assumption that all the assets will be completely realized, that is, without any loss.