Problem 8: Bilbo, Frodo and Gandoff have had a successful law practice for many

Question

Problem 8: Bilbo, Frodo and Gandoff have had a successful law practice for many years, but have decided to retire and move to Rivendale. On January 1, 2015 when the 3 of them decided to terminate the partnership they had the following balance sheet: Cash $50,000 A/R $90,000 Supplies $40,000 Equipment (net) $100,000 Building (net) $400,000 Land $700,000 Note payable $200,000 Accounts payable $200,000 Gandoff capital $80,000 Bilbo capital $300,000 Frodo capital $600,000 They share profits and losses equally. What if any safe payments can each of the partners take on January 1, 2016? On January 31 the partnership sold the supplies for $35000. After this sale, what if any safe payments can each of the partners take on January 31 (assume no safe payments have been taken before this date) On February 29th the partnership sold the land for $206,000 and paid off the accounts payable. At the end of February what if any safe payments can each of the partners take (assume no safe payments have been taken before this date) On March 31st, 2016 the partnership sold the a/r and the equipment for $180,000. At the end of March what if any safe payments can each of the partners take (Assume that Frodo took any safe payments he was entitled to in February but that Bilbo and Gandoff did not take any safe payments) On April 30th the partnership sold off the building for $150,000 and paid off the note payable. (remember, Frodo took any safe payments he was entitled to in February and March but that Gandoff and Bilbo took no safe payments). ASSUME THAT ANY PARTNER WITH A NEGATIVE CAPITAL BALANCE CAN COVER THEIR SHORTAGE HOW MUCH DOES EACH PARTNER GET OR CONTRIBUTE TO THE PARTNERSHIP AT LIQUIDATION? USING THE SAME INFORMATION AS E, EXCEPT THAT ANY PARTNER WITH A NEGATIVE CAPITAL BALANCE CANNOT COVER THEIR SHORTAGE; HOW MUCH DOES EACH PARTNER RECEIVE AT LIQUIDATION?

Explanation / Answer

B/S as on jan 1, 2015

now cash assets are cash, supplies and A/R which is 180000

while cash liab are notes payable and accounts payable which is 400000

so on 1st jan 2016 there is no safe payment to partners as first we need to pay cash or immediate liabilities

even after selling supplies on 31st jan 2016 there is no safe payment as still 115000 to be paid and 5000 loss to be distributed among partners

on feb 29th after selling land for 206000, 400000-115000-206000 =79000 still to be paid so no safe payments here as well

on 31st march after selling A/R and equipment for 180000, 400000-115000-206000-180000 =101000 is positive balance so there can be safe payment and building is still to be sold

that is to be distributed in capital on equal ratio

asset liab and capital cash 50000 note payable 200000 A/R 90000 account payable 200000 Supplies 40000 Gandoff capital 80000 equipment 100000 Bilbo captial 300000 building 400000 Frodo capital 600000 Land 700000 1380000 1380000

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