The partnership of Butler, Osman, and Ward was formed several years as a local t

Question

The partnership of Butler, Osman, and Ward was formed several years 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 $38,000 are expected. The partnership balance sheet at the start of liquidation is as follows:

Prepare a predistribution plan for this partnership.

Cash $ 34,000 Liabilities $ 174,000 Accounts receivable 64,000 Butler, loan 34,000 Office equipment (net) 54,000 Butler, capital (25%) 70,000 Building (net) 130,000 Osman, capital (25%) 34,000 Land 120,000 Ward, capital (50%) 90,000 Total assets $ 402,000 Total liabilities and capital $ 402,000

Explanation / Answer

Butler capital and loan Osman Capital Ward Capital Beginning Balances $104,000 $34,000 $90,000 Assumuing $136000 loss -$34,000 -$34,000 -$68,000 Step 1 balances $70,000 $0 $22,000 Revised Ratio 57% 43% Assuming $51163loss $29,163 $22,000 Step2 Balances $40,837 $0 Working: Butler Osman Ward Beginning balances $70,000 $34,000 $90,000 25% 25% 50% Maximum loss (Step 1) $280,000 $136,000 $180,000 Step 1 Balances $70,000 $0 $22,000 Revised ratio 57% 43% Maximum loss (Step 2) $210,000 $158,000

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