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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 assets

Explanation / 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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