3.) The partnership of Rachel, Adams, and Nixon has the following trial balance

Question

3.) The partnership of Rachel, Adams, and Nixon has the following trial balance on September 30, 2018: Debit Credit Cash Accounts Receivable (net) Inventory Plant & Equipment (net) Accounts Payable Rachel, Capital Adams, Capital Nixon, Capital $20,000 30,000 35,000 215,000 40,000 120,000 90,000 50,000 The partners share profits and losses as follows: Rachel, 50 percent; Adams, 30 percent; and Nixon, 20 percent. The partners are considering an offer of $180,000 for the accounts receivable, inventory, and plant and equipment as of September 30. The $180,000 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 September 30, 2018, showing how much cash each partner will receive if the offer to sell the assets is accepted.

Explanation / Answer

Book value of accounts receivable, inventory and plant and equipment = 30000+35000+215000=280000

Offer =180000

Loss on sale of assets =280000-180000=100000

Loss will be shared as follows :

Rachel=100000*50%=50000

Adams =100000*30%=30000

Nixon = 100000*20%=20000

Revised capital balances

Rachel =120000-50000=70000

Adams =90000-30000=60000

Nixon = 50000-20000=30000

Cash remaining = cash received from offer - paid to creditors

=180000-40000=140000

Cash distribution on the basis of revised capital balances:

Rachel =140000*(70000/160000)=61250

Adams=140000*(60000/160000)=52500

Nixon = 140000*(30000/160000)=26250

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