The Pen, Evan, and Torves Partnership has asked you to assist in winding-up its
ID: 2391832 • Letter: T
Question
The Pen, Evan, and Torves Partnership has asked you to assist in winding-up its business affairs. You compile the following information 1. The partnership's trial balance on June 30, 20X1, is Debit Credit Cash Accounts Receivable (net) Inventory Plant and Equipment (net) Accounts Payable Pen, Capital Evan, Capital Torves, Capital Total $ 5,500 20,000 11,500 90,000 14,200 51,300 42,500 19,000 $127,00e $127,000 2. The partners share profits and losses as follows: Pen, 60 percent; Evan, 20 percent and Torves, 20 percent. 3. The partners are considering an offer of $104,000 for the firm's accounts receivable, inventory, and plant and equipment as of June 30. The $104,000 will be paid to creditors and the partners in installments, the number and amounts of which are to be negotiated. Required: Prepare a cash distribution plan as of June 30, 20X1, showing how much cash each partner will receive if the partners accept the offer to sell the assetsExplanation / Answer
PET PARTNERSHIP
Cash Distribution Plan
June 30, 20x1
LOSS ABSORPTION POTENTIAL
CAPITAL ACCOUNTS
PEN
EVAN
TORVES
PEN
EVANS
TORVES
PROFIT AND LOSS %
60
%
20
%
20
%
PRELIQUIDATION CAPITAL BALANCES
51,300
42,500
19,000
LOSS ABSORPTION POTENTIAL (CAPITAL BALANCES/LOSS %)
85,500
212,500
95,000
DECREASE HIGHEST LAP TO NEXT HIGHEST:
DECREASE EVAN BY $117,500
(CASH DISTRIBUTION $117,500*20%)
(117,500)
(23,500)
$0
$0
$0
$0
$0
$0
DECREASE LAPs TO NEXT HIGHEST:
DECREASE EVAN BY $9,500
(CASH DISTRIBUTION BY $9500*20%)
(9,500)
(1,900)
DECREASE TORVES BY $9,500
(CASH DISTRIBUTION BY $9,500*20%)
(9,500)
(1900)
$0
$0
$0
$0
$0
$0
SUMMARY OF CASH DISTRIBUTION PLAN
STEP1: $ 14,200 TO OUTSIDE CREDITORS
STEP2: $ 23,500 TO EVAN
STEP3: $ 3,800 TO EVAN AND TORVES
STEP4: REST DISTRIBUTED AMONG PARTNERS IN LOSS SHARING RATIO (6:2:2)
PET PARTNERSHIP
Cash Distribution Plan
June 30, 20x1
LOSS ABSORPTION POTENTIAL
CAPITAL ACCOUNTS
PEN
EVAN
TORVES
PEN
EVANS
TORVES
PROFIT AND LOSS %
60
%
20
%
20
%
PRELIQUIDATION CAPITAL BALANCES
51,300
42,500
19,000
LOSS ABSORPTION POTENTIAL (CAPITAL BALANCES/LOSS %)
85,500
212,500
95,000
DECREASE HIGHEST LAP TO NEXT HIGHEST:
DECREASE EVAN BY $117,500
(CASH DISTRIBUTION $117,500*20%)
(117,500)
(23,500)
$0
$0
$0
$0
$0
$0
DECREASE LAPs TO NEXT HIGHEST:
DECREASE EVAN BY $9,500
(CASH DISTRIBUTION BY $9500*20%)
(9,500)
(1,900)
DECREASE TORVES BY $9,500
(CASH DISTRIBUTION BY $9,500*20%)
(9,500)
(1900)
$0
$0
$0
$0
$0
$0
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