CHAPTER 15PARTNERSHIPS: TERMINATION AND LIQUIDATION Answers to Questions 1. A dissolution refers to the cessation of a partnership. In many cases, this process is simply a preliminary step in the transfer of business property to a newly formed partnership. Therefore, a dissolution does not necessarily affect the operations of the business. In a liquidation, however, actual business activities must cease. Partnership property is sold with the remaining cash distributed to creditors and to any partners with positive capital balances. Dissolution refers to changes in the composition of a partnership whereas liquidation is the selling of a partnership's assets. 2. Many reasons can exist that would lead to the termination and liquidation of a partnership. The business might simply have failed to generate sufficient profits or the partners may elect to enter other lines of work. Liquidation can also be required by the death, retirement, or withdrawal of one of the partners. In such cases, liquidation is often necessary to settle the partner's interest in the business. The bankruptcy of an individual partner can also force the termination of the business as can the bankruptcy of the partnership itself. 3. During the liquidation process, monitoring the balance of the partners' capital accounts becomes of paramount importance. That amount will eventually indicate either the cash to be received by the partners as final distributions or the additional contributions that they are required to pay. Consequently, all liquidation gains and losses are recorded directly as changes to these capital balances. Such recording enhances the informational value of the accounts. As an additional factor, the computation of a net income figure is of diminished importance since normal operations have ceased. 4. Final distributions made to the various partners are based solely on their ending capital account balances unless the partners have agreed otherwise. If any partner has a deficit balance, an additional contribution should be made to offset the negative amount. In some situations, a question may arise as to whether compensation for a deficit will ever be forthcoming from the responsible party. The remaining partners may choose to allocate the available cash immediately based on the assumption that the deficit balance eventually will prove to be a total loss. 5. A schedule of liquidation provides financial data about the liquidation process as it has progressed to date. Information to be presented includes the balances of all remaining assets, the liability total, and the capital account of each partner. In addition, the allocation of all gains and losses incurred in the liquidation process as well as the payment of expenses should be evident. 6. From a legal viewpoint, any partner who incurs a negative (or deficit) capital balance is obligated to make an additional contribution to offset that amount. 7. A safe capital balance is the amount of a partner's capital account that exceeds all possible needs of a partnership as it goes through liquidation. A partner should, therefore, be able to receive this balance immediately without endangering the future amount to be received by any other party connected with the liquidation. Safe capital balances are computed by projecting a series of assumptions whereby the partnership undergoes maximum losses during the remainder of the liquidation process. All noncash assets are assumed to have no resale value, liquidation expenses are set at the largest possible estimation, and all partners are viewed as personally insolvent. Any capital balance that would remain after this series of anticipated events can be distributed to the partners immediately without incurring any risk. 8. The marshaling of assets doctrine is a provision within the Uniform Partnership Act that indicates the priority of claims when a partner becomes personally insolvent. By providing a ranking of these claims, an orderly and fair distribution of available property can be made. The marshaling of assets provision states: Where a partner has become bankrupt or his estate is insolvent, the claims against his separate property shall rank in the following order: (I) Those owing to separate creditors, (II) Those owing to partnership creditors, (III) Those owing to partners by way of contributions. 9. A partner's personal creditors do have a limited claim against partnership assets. Recovery is possible but only if payment of all partnership debts is assured and the insolvent partner has a positive capital balance. 10. For distribution purposes, the Uniform Partnership Act states that loans from partners rank ahead of the partners’ capital balances. Thus, the handling of loans in a liquidation would seem to be obvious: When money becomes available for the partners, all loans from partners should be repaid before any amount is given to a partner because of a safe capital balance. A problem arises, though, in the above solution if a partner (especially if the partner is currently insolvent) has made a loan to a partnership but has a potentially negative capital balance. The final capital balance may require a contribution to the partnership that the partner may be unable or unwilling to make. If the Uniform Partnership Act is followed precisely, a partner could collect money on a loan while still having an obligation to the partnership because of a negative capital balance. To avoid this problem, in practice a partner’s loan balance is usually merged with that partner’s capital balance to minimize the chance of a negative capital balance occurring. This particular partner may get less money from the liquidation because of this treatment but the other partners are better protected. 11. A proposed schedule of liquidation is used by the accountant to determine the allocation of any cash balances generated during the early stages of liquidation. Often, sufficient cash will be collected to pay all liabilities as well as potential liquidation expenses. Additional cash should then be distributed to the partners to allow them immediate use of their funds. A proposed schedule of liquidation can be produced to determine the allocation of this available cash. The statement is based on anticipating a series of assumed losses from the current day forward: all remaining noncash assets are scrapped, maximum liquidation expenses are incurred, and each partner is personally insolvent. The ending balances that would result from these simulated transactions represent safe capital balances. This amount of cash can be distributed presently and the partners will still retain enough capital to absorb all future losses. 12. A predistribution plan is produced based on an assumed series of losses. Each loss is calculated to eliminate in turn the capital balance of one of the partners. In this manner, the accountant can determine the vulnerability to losses exhibited by each capital account. When the last balance is eliminated, the accountant will have established a series of losses that exactly offsets each balance. The predistribution plan is then developed by measuring the effects that are created if the losses do not occur. In effect, the accountant works backwards through the assumed losses to create a pattern of available cash, the predistribution plan. 000 (8.....000) split on a 4:3:2:1 basis (44..800) (3..000) Minimum cash distributions $2... B Reported balances Potential loss from Cassidy deficit (split 5/8:3/8) Cash distributions Angela..000 Raymond $25.......000) $68.. Anticipated liquidation expenses ($12...... Capital $19.....000 8..... A 8....000 Dennard $14...000) split on a 4:3:3 basis ...............000 $ -0- (9......000 Darby $26..400 (4...000 (33.....000) $69.000) 8.....600) $18.000) Adjusted balances $ 6......300) $ 6..000 7.Answers to Problems 1...600) (12.......000 Hardy $56...600) $19.......500 (9...500 (4..... Loss on sale of assets ($22..... Art $18...800) $ 9..200 (6.. Adjusted balances ......000 Loss on sale of assets ($110.......500 ....000 -0- 6.........500 12.000 $(12... B 5...000) split on a 4:3:3 basis .... D 4.300) $ 5....000 $ -0- (1....000) $ 1..500) $11...000 $18.000) $(8.... Potential balances ...600) (3...000) split on a 4:3:3 basis .000 Potential loss from Dennard deficit (split 4:3:1) (4......000 (22.....000) $ 2........... B Bell Reported balances $50.500 (4..400 (6...400) $(8....... C 2.000 (3. Capital Woodrow......000) (11. Current cash distribution . Anticipated maximum loss on inventory ($31.. A 3.000 Suddath $80........500) $13. A Reported balances .....000) (7.............000) $23... Capital Cassidy....000) $20......500 (4... Potential loss from Art deficit (split 3:3) ... 000 loss occurs.9..750 loss occurs...000 Jonathan $8......000) split on a 2:3:5 basis (74.... A $100.000 (13.000 (most vulnerable to losses) The assumption is made that a $130.......250/1/3 $4.250 (most vulnerable to losses) Brendan $21....250 (3..250) split on a 4:1:2 basis ..........000) Adjusted balances $ -0- Brendan $21...750) $19... Kevin Reported balances .........000/1/7 147.... D Since the partnership currently has total capital of $400...000 Kevin Reported balances ..000 (1. $19...000/20% $147.......000 (185....000 C $180........000..000 goes to Menton .........500) $4...000 (3....000) 5... which is computed below.000 (26..750 (most vulnerable to losses) The assumption is made that a $6.... C To work this problem...... C A predistribution plan should be created...500 Assumed loss ($6.........000 Potential loss from C's deficit (split 2:3) (2.......... is as follows: First $3......000) $ -0- Jonathan $34.$ 7..000/30% $34....000 $ -011.000 that is available would indicate maximum potential losses of $370.500 130.. (2.000 B $120...000) Potential balances $ 26.......000/10% $34......... Maximum Losses That Can Be Absorbed Kevin Michael Brendan Jonathan $59.. Brendan Jonathan Reported balances..500 Maximum Losses That Can Now Be Absorbed Brendan Jonathan $19......000 340.............000/2/7 28....000 Assumed loss ($130...000. a predistribution schedule is necessary......000) $ (5.000/4/7 $12.$59.................000) split on a 4:3:1:2 basis ..000 Reported balances Anticipated loss ($370...000) Adjusted balances ..000 Jonathan $8..(52...........000) Current cash distribution $ 24..(7...000 170............000 $ -0- 10.. $17...500/2/3 $57......750 6.000) $ 9...000 (39.000/40% $39.......000 Maximum Losses That Can Now Be Absorbed Kevin $7..750) split on a 1:2 basis ..000 $34.$7... That schedule..000 (111.000 Michael Brendan $39...250) (4...000 Assumed loss ($12.000) $ 6............ the $30......000) $21..000) $ 8..250 $4.....500) Adjusted balances . 000/30% $ 90. Fuller would absorb $2.000/(4/7) $ 42.000 Partner Carney Menton Hoehn Schedule 2 Maximum Loss Capital Balance/ That Can Loss Allocation Be Absorbed $24.000) $ 5.000 .000/(1/3) $ 15.000 $20.000.000) $25.000 (see Schedule 3) (allocated on a 0:0:2:1 basis) Step three balances Carney Pierce $60.0- . Menton (2/7).400 of the potential loss with Rogers being allocated $1. The remaining capital . the two deficits total $4.000 (5.000 (see Schedule 2) (allocated on a 4:0:2:1 basis) Step two balances Assumed loss of $15.000) (27.000/10% $200.000 (24.000) $ -0- $ .000/(1/7) $ 77. Menton (2/10).000) $24. Fuller and Rogers.000 Menton $43.0- Hoehn $20.000 $ -0- (18. share profits in a 30:20 relationship (the equivalent of a 60%:40% ratio).000 (most vulnerable) 12.000 (36.000 available cash can be distributed but should be done under the assumption that all deficit balances will be total losses.000 Partner Carney Pierce Menton Hoehn Schedule 1 Maximum Loss Capital Balance/ That Can Loss Allocation Be Absorbed $60.000/(2/3) $ 19.000/(2/7) $ 87. C The $16.000 (6. the two partners with positive capital balances.000 $27.000/20% $215.000 goes to Menton (2/3) and Hoehn (1/3) Next $42.000) $13.000 (most vulnerable) $43.000) $ 3.600.0$ .500 $11. and Hoehn (1/10) Beginning balances Assumed loss of $90.000 $27.000 Partner Menton Hoehn Schedule 3 Maximum Loss Capital Balance/ That Can Loss Allocation Be Absorbed $13.000/40% $150. After offsetting Jones' loan. Next $15.000 goes to Carney (4/7).0$ .0- (10.000) $ .000 $11.000 (see Schedule 1)(4:3:2:1) Step one balances Assumed loss of $42. and Hoehn (1/7) All remaining cash goes to Carney (4/10).500 $ 5.000) (9.000 (most vulnerable) $25.0$ -0- (12. Pierce (3/10). ...000 (102... $ -0- Cleveland Pierce $110.balances ($10.....................000 Current cash distribution ..800 to Cleveland and $1.... $170.600) $ 7............000) Potential balances .600 (400) $ 1..............000) split on a 5:3:2 basis ..... Nixon Reported balances .400 (600) $6.000.....200 ..... $ (1... (171.400) $ 1.. 13.400) are safe capital balances and those amounts can be immediately distributed...............200 to Pierce Since the partnership currently has total capital of $350..000) Potential loss from Nixon's deficit (split 3:2) 1....000 that is available would indicate maximum potential losses of $342.800 (68...... the $8... (8 Minutes) (Payment of safe capital balances) $6...000 Anticipated loss ($342.........000.600 and $5...000 $70.. .571 (6..714) Cash distribution Kaporale Dennsmore $60..000 Loss on sale of land ($20.. (8.. (6.714) $ 4....714 (25.000) Adjusted balances ................000) $(1..000 $20..714) $20........ $16..429 Part c.. (20 Minutes) (Final settlement of a partnership being liquidated) Part a.......286 Brown Reported balances ...000 Stone $5.........000 (9...............000 Potential loss from Stone's deficit (split 4:3) (2.. $10..... Fish gets $12...............000) split on a 4:3 basis Adjusted balances Potential loss from Kaporale ($5.000 -0$60.000) $(4.000 (3... Atkinson Reported balances Capital contribution Adjusted balances Potential loss from Dennsmore and Rasputin ($60......000) (34..... $25........ $17... (10 Minutes) (Distribution made of contribution made by partner with deficit balance) The entire $20.....000 $(30...................000 Fish $15......714) $(5.....714) 30....000 Fish $15..000 -0-0$ -0- ....... $25... Reported balances ...286) $25.000 $(30.......000 (9.14................000 Potential loss from Stone's deficit (split 4:3) (571) Cash distribution ..000 (1.....................714 and Fish gets $4.286) Cash distribution .....571 Brown Reported balances ....... Cash distribution . Brown gets $21...... and Stone gets $2.... Part b..............000) 1.000) $12........000 -0$20...000) $21...000) $ 30.000) Adjusted balances ...286 Stone $5......000..........000) $ 6.............429 and Fish gets $8...... Loss on sale of land ($10. Brown $25..000 $ Rasputin $(50........714 Fish $15.....000 $ -0- 15.............000) $2......000) $ 9. (12....000 $ -0- Brown gets $10..........000 Stone $5..000....000 Brown gets $16..000 goes to Atkinson.000) -0$(30...000.000 (4. $13......714 -0- -0$ -0- (5.........000 $ -0- 5..000 (3.....000 Loss on sale of land ($30....................000) 4..................000) 20....................000) split on a 4:3:3 basis.000 (429) $ 8.......................................000) split on a 4:3:3 basis........000) split on a 4:3:3 basis. ...000 210...000 Sold assets 200.000) $ 4..500) Estimated liquidation expenses ($5.000 Lake $22...428 Saunders.000) split on a 3:3:2:2 basis (25.000 (1. SAUNDERS......000 0 0 22..... Accounts Loan and Payable Capital Cash Beginning balances 90... (15 Minutes) (Prepare a proposed schedule of liquidation) HARDWICK...000 (38..428.500) $ 1..600) (147.16..000 Cash distributions ..... $25.......000) $ 2. .. $(2...000 (1..000 270......400) $ 17..000) (1. $14..000) (17. (1.....000 to Ferris..000) Safe balances 80.....400) 230.000) split 3:3:2:2...429 (572) $ 3....000) split on a 3:2:2 basis ..000) (196. AND FERRIS Proposed Schedule of Liquidation Other Assets Hardwick....000 (857) 143 (571) $ 1.000) (210.......000 Eaton $20.000 (38... $22..800) Paid liabilities (210...500) (17.000) (51. Ace Reported balances .....000 Of the available $80..429.........000 820......200) Assumed: loss on remaining assets (492.000 44. Capital Ferris. Eaton gets $1....000 Maximum losses on land and building ($85... and Lake gets $3.000 (25.......000) Potential loss from Ace ($2..500) Potential balances .. 2.000.000 will go to Hardwick. (8 Minutes) (Determine safe capital balances) Ball gets $143...000 (147.. and $44....000 (328.000 to Saunders. Loan & Capital 200.600) 14. $ 0 Ball $28.. . they must be sold for any amount over $90.000 Black. Babb must retain sufficient capital ($6.500 that would have to be absorbed by Brown and Green (on a 10:20 basis): Partner Green Brown Share of Loss New Capital Balance 10/30 x $4.500 $ (5. (7 Minutes) (Amount of cash needed to assure payments to all partners) Watson is the partner most vulnerable to a loss.500 = $3.000 $10.000 = $7.000) 20/30 x $4.600). all partners will retain positive capital balances and receive some cash in liquidation. Because of this.000 $ 7. Whitaker ($5.000/20% = $ 50.500 = $1. since "other assets" are $140. and Edwards ($1.000.000 in liquidation expenses and a complete $120.000/20% = $250. A loss of only $50.000 would completely eliminate Watson's capital balance: Miller $50.000 loss to eliminate capital Thus.500 $ (7.18. (5 Minutes) (Determine safe capital balances) Maximum potential losses are $128. who is also insolvent.500) 10/60 x $15.000/60% = $ 83.000 is a safe capital balance for Babb.500) 20/60 x $15. 19.000.000 loss on the noncash assets. now has a deficit capital of $4.000.000 that will go to Brown.000 = $5.200). The remaining $2. Such a loss would reduce the capital balances to: Babb $8. 20.500 $ (4.800) to be able to absorb the possible losses of Whitaker and Edwards.800.000 for all partners to get cash.000 = $2. (10 Minutes) (Determine amount to be contributed by partner with a deficit balance) White and Blue are both insolvent and have negative capital balances (after offsetting the loan from White) totaling $15. Absorption by the other partners of these losses would be as follows (on a 30:10:20 basis): Partner Black Green Brown Share of Loss New Capital Balance 30/60 x $15.333 loss to eliminate capital Tyson $50. Green must contribute $7.000. if the loss on disposal is less than $50.000 Thus. $8.000 loss to eliminate capital Watson $10. Dobbs receives the entire $10.000 $ 15.000 on noncash assets would be allocated as follows: Partner Adams Baker Carvil Dobbs Share of Loss New Capital Balance 2/10 x $250.000 $(15.000 -0Dobbs 2/4 x $60.000 Maximum total potential losses of $60.000) Dobbs 2/10 x $250.000) 3/10 x $250.500 and Dobbs gets $22.000 Absorbing the final loss would leave Dobbs with a safe capital balance of $10.000 .000 to be absorbed from Baker and Carvil above would be allocated as follows on a 2:3 basis: Adams Dobbs 2/5 x $35.000 = $75.000) Absorbing the final $6. Maximum potential losses of $250.000 $ 16. The $50. c.000 = $15.000 = $15. Adams receives the entire $10.000 30% x $50.000 New Capital Balance $ 75.000 = $75.000 $ (6.000 = $21.000 $(20.000 $(15.000 2/10 x $250.000 $ 15. Adams receives $57.000 3/5 x $35.000 = $5.000 = $75.000 $(45.000 = $30.000.000 = $50.000) Carvil 3/10 x $250.000 $ 75.000.000 $ 30.000 = $15.000 $ 30.000 $ 45.000 on noncash assets would be allocated as follows: Partner Share of Loss New Capital Balance Adams 2/10 x $250.000 = $14. Maximum potential losses of $250.21.000 Maximum total potential losses of $35.000) 3/10 x $250.500.000 30% x $50.000 $ 40.000.000 to be absorbed from Baker and Carvil above would then be allocated as follows on a 2:2 basis: Adams 2/4 x $60.000 Baker 3/10 x $250. (50 Minutes) (Compute effects of a liquidation under a variety of circumstances) a.000 = $75.000. b.000 = $50.000 30% x $50.000 = $50.000 loss from Dobbs would leave Adams with a safe capital balance of $10.000 $ 10.000 loss on sale of the building would be allocated as follows: Partner Adams Baker Carvil Dobbs Share of Loss 10% x $50.000 = $50.000 = $30. 000) $ 20.000 = $3.000 $ .000 Assumed loss of $100.000) Step Two balances $ 65. Adams Beginning balances $ 80.000 30% x $130.000 = $10.000 = $39.286 3/7 x $24.000 = $39. c.000 (see Schedule 1) (1:3:4:2) (10.286) $ 25.000 = $13.21.286 to be absorbed from Carvil would be allocated as follows on a 1:3 basis: Adams Dobbs 1/4 x $4.000 Maximum potential loss of $24.286 $ 58.000) $ 70.0.000) Step Three balances $ 35.000 (20.0- $ .000 Baker $ 30.000) $ 60.500 $22.000 $ (24.000 Assumed loss of $90. d.000 New Capital Balance $ 62.0.0-0- $ $ .214 $57.714 Maximum potential loss of $4.000) -0- (10.000 30% x $130. (continued) Maximum potential loss of $130.000 $ 36.000) $ 6. The land and building must be sold for over $115.000 to be absorbed from Baker would be allocated as follows on a 1:3:3 basis: Adams Carvil Dobbs 1/7 x $24.000 (40.000 30% x $130.000 (see Schedule 3) (allocated on a 1:0:0:2 basis) (30.000 (see Schedule 2) (allocated on a 1:0:4:2 basis) (5.428 3/7 x $24.000 to ensure that Carvil will receive some cash.0- .000 = $10.000) -0- Carvil $ 60.000 Assumed loss of $35.000 = $39.000) Step One balances $ 70.572 $ (4.286 = $3.000 Dobbs $ 90.000 $ (30.000 (20.500 These amounts represent safe capital balances for distribution purposes.286 = $1.000) $ .000 on the land would be allocated as follows: Partner Share of Loss Adams Baker Carvil Dobbs 10% x $130.072 3/4 x $4.0- (60. All remaining cash is split between Adams.000 $ 35.000/(1/7) $20.000 Maximum Loss That Can Be Absorbed $195.000 to ensure Carvil of receiving some amount. and Dobbs on a 1:4:2 basis. avoiding a complete $135.000 available goes to Adams.000 $ 90. Since the partnership already has $10.000/40% $90.000 $100.000/30% $60.000/10% $30.000 (most vulnerable) $245.000 loss ensures that Carvil will receive cash.000 Step Two loss. Thus.000 + $90.000 $450.000 is split between Adams. d.000) has to be available before Carvil will receive any cash.000 is split between Adams and Dobbs on a 1:2 basis.000 (most vulnerable) $150. such losses would be avoided by receiving over $115. Schedule 1 Partner Adams Baker Carvil Dobbs Capital Balance/ Loss Allocation $80. Total cash of $125. the land and building must be sold for over $115. Carvil.000.000/20% Schedule 2 Partner Adams Carvil Dobbs Capital Balance/ Loss Allocation $70.000 Step One loss and the $35. Baker.000 ($35.000/(4/7) $70. Carvil's capital balance is eliminated through the $100.000/(2/3) Maximum Loss That Can Be Absorbed $800. and Dobbs on the original profit and loss ratio. (continued) PREDISTRIBUTION PLAN The first $35. Next $90.000.000 Maximum Loss That Can Be Absorbed $490.21. As another approach to the problem.000 (most vulnerable) .000/(2/7) Schedule 3 Partner Adams Dobbs Capital Balance/ Loss Allocation $65. Since the land and buildings have a book value of $250. Carvil. Next $35.000 cash in excess of its liabilities.000/(1/3) $60. 750 $ 47.000 $240.250 Assumed loss of $75.500 $ 60.250/30% Schedule 2 Partner Norris Spencer Harrison Partner Norris Spencer Capital Balance/ Loss Allocation $37.750 . Next $35.500 Maximum Loss That Can Be Absorbed $100.000 is split among Norris.750 Assumed loss of $50.000 $137. and Harrison on the original profit and loss ratio.000) and liquidation expenses (estimated at $8.750/(3/5) $47.000 (see Schedule 1) (allocated on a 2:3:2:3 basis) (15.750) (12.000 $375.500/(3/8) $60.000 goes to pay liabilities ($47.0(18.250 (see Schedule 3) (allocated on a 0:3:2:0 basis) -0(18.750/(3/8) Schedule 3 Capital Balance/ Loss Allocation $18.22.000 $ 18. Schedule 1 Partner Larson Norris Spencer Harrison Capital Balance/ Loss Allocation $15.000/20% $41.000 $ 60. Spencer.000).000 (most vulnerable) $200. Norris.250 (most vulnerable) $118.750) (12. and Harrison on a 3:2:3 basis.000 $ -0PREDISTRIBUTION PLAN First $55.000 $ 50.000 $ 41.500) -0Step Three balances $ -0$ -0$ 35. All remaining cash is split among Larson.000/30% $75.000 $ 75.750) Step Two balances $ -0$ 18.500) Step One balances $ -0$ 37.500 $ -0Assumed loss of $31.000 (see Schedule 2) (allocated on a 0:3:2:3 basis) .000/20% $60.000) (22.500) (15.250 is split between Norris and Spencer on a 3:2 basis. Next $50.000 (most vulnerable) Maximum Loss That Can Be Absorbed $ 31. Spencer. (30 Minutes) (Prepare a predistributlon plan) An assumed series of losses is simulated which eliminates each partner's capital account in turn: Larson Norris Spencer Harrison Beginning balances $ 15.000 available goes to Spencer.500) (18.000) (22.000/(2/8) $18. Next $31.500/(2/5) Maximum Loss That Can Be Absorbed $ 75. 000) $10.000 Assumed loss ($100. The next $10.000 loss occurs. The next $10.000 (30.000 (most vulnerable to losses) The assumption is made that a $50.000/. The first $62.2 $60.000 goes to Able.000 (50.400 or 60%).000 will go to pay liquidation expenses ($12.000 200.000) split on a 2:3:5 basis (20.000/. Able Reported balances $50.23.000) $ 0 Maximum Losses That Can Now Be Absorbed Able Moon $30.000 Yerkl $50.000) $30.5 $250.000 goes entirely to Able (to pay off loan).000 (30.000) $ 0 PREDISTRIBUTION PLAN The first $62.4 $30.000 (20.000/.000) Adjusted balances $30.000 100.000 is split between Able and Moon based on a 2:3 basis. 24.000 50.000 is divided between Able ($1.000 Moon $60. The remaining $4.000 Moon $30.3 $50.000) split on a 2:3 basis Adjusted balances Able $30.000).000/.000 loss occurs. Maximum Losses That Can Be Absorbed Able* Moon Yerkl $50.000 in cash.6 $75.000) and liabilities ($50. (25 Minutes) (Produce a predistribution plan for a partnership liquidation) .000/. All remaining cash will be divided among the partners according to their profit and loss ratio. Reported balances Assumed loss ($50.000 (most vulnerable to losses) *Able's balance includes capital and the loan to the partnership. After this sale.000 should be held for the liabilities and the liquidation expenses. Part b. the partnership has $76. (20 Minutes) (Prepare and use a predistribution plan) Part a. The next $50.600 or 40%) and Moon ($2. The assumption is made that a $100. respectively. and Reidl (2/8).000) $ 4.000 is split among Hart (4/8).000 loss occurs.000 The assumption is made that an $8.000 loss occurs.000/2/4 56.000 PREDISTRIBUTION PLAN The first $59.000) Adjusted balances $ 0 Hart $40. The next $8. Bobb (2/8).000 goes entirely to Reidl.000 Assumed loss ($8.000 The assumption is made that a $90.000 (28.000 (most vulnerable to losses) 120.000 (18.000 is split evenly between Bobb and Reidl.000 (36. 25.000 (18.000/40% $48.000 The assumption is made that a $56.000 (most vulnerable to losses) 230.000) Adjusted balances $ 0 Bobb $30.000) $ 87. The next $56.000/4/8 $30.000 468.000) $28.000/20% $ 90. (30 Minutes) (Determine the ramifications of a variety of liquidation situations) .000/2/4 $115.Maximum Losses That Can Be Absorbed Simpson Hart Bobb Reidl $18.000) $30.000 Reidl $117.000 (28.000 (most vulnerable to losses) 100.000 Assumed loss ($90.000/20% $40.000 (2.000 Maximum Losses That Can Now Be Absorbed Bobb Reidl $28.000 goes to pay liabilities and expected liquidation expenses.000) split on a 2:2 basis Adjusted balances Bobb $28.000 675.000) split on a 2:4:2:2 basis (18.000/2/8 $117.000 (2. All remaining cash is split among the partners according to their original profit and loss ratio.000/20% $135.000 Bobb $48.000 loss occurs. The next $87.000/2/8 $ 8. Hart Reported balances $4.000) split on a 4:2:2 basis (4.000) $ 0 Reidl $115.000 Maximum Losses That Can Now Be Absorbed Hart Bobb Reidl $4.000 240.000) $115. Reported balances Assumed loss ($56.000) $117.000 Reidl $135. Simpson Reported balances $18. 200.000: $100. the available $19. (a) Carton will have to contribute $7.800 ($59.000 or $2.000 deficit on a 4:2:3 basis.000 (or 40%).000 to Ross and $36.533). Sampson has a postive capital balance of $3.000 x 20%) to $27.Part A.667.000.000 + (20/90 x $12. A loss of $59.000 is distributed to Thomas.000 on the noncash assets would increase Milburn's deficit balance by $40.400 and Milburn's deficit to ($31. The minimum cash amount would be caused by Milburn's failure to contribute this $31. (c) The minimum cash payment to Thomas would be $35. Thus. (b) Klingon will have to contribute $19. Carton will be allocated $12. In determining safe capital balances. Maximum losses of $100. This allocation increases Klingon's deficit by 2/9 of $12. 4/9 to Sampson and 3/9 to Carton. Since such a loss would entirely eliminate Ross' capital account. maximum potential losses total $108.000 in deficits will have to be absorbed by Sampson and Carton on a 4:3 basis.000 will go to the creditors that remain after the $9. Part B.667 would be paid to Thomas.000 $ 3.667 [$9. only Thomas has a safe capital balance at the current time. (a) $48.429 of this amount which creates a deficit of $7. As Ross and Thomas view the current situation.000 – ($12.067) and Thomas (2/6 or $10.667 $ 1.667 is distributed to the two partners in accordance with their remaining positive capital balances after absorbing Romulan's loss.000 x 4/9)] and Carton has a positive capital balance of $1.000 x 3/9)]. the remaining partners will have to absorb the $12.000 + $16. .429. Klingon must contribute an amount equal to the new deficit balance of $19. That same loss would reduce Ross' capital to $45. The first $15.000 [$5. The remaining safe capital balance of $16.667). The $29. As shown in (b) above.600 so that it has to be absorbed by Ross (4/6 or $21. The remaining $4.667 ($19.000)] that will be distributed as follows: Creditors Sampson Carton $15. thus reducing that partner's capital balance to $39. (b) All $19. Maximum losses would not create any other deficit balances.000 to Thomas.000.000 – ($12. these assumed losses would be allocated on a 4:2 basis or $72.667.000 on the noncash assets and $8.000 Since Romulan is insolvent.429.000 on Milburn's deficit balance.000 should go to Thomas.000 in partnership cash is distributed.600).667 [$17.000 on the noncash assets would further reduce this partner's balance by $11. .......167) 3/6 x $77....000 3.... May.....25............000 d...................... Capital (1/6) ......... 2....................................000 b.292 Potential Capital $16.....625 .......... 56....000 = $12.................................917 *Maximum losses could be suffered on the remaining $39................. Capital (3/6) .................. Capital (2/6 of loss) .. 40.. 26......... (25 Minutes) (Prepare journal entries for a partnership liquidation) JOURNAL ENTRIES a.............. Capital (3/6) ........... Inventory ....... Cash ..............500 (4/8) to $500.... Partner March April May Current Capital Adjusted $16................. If Klingon is insolvent...250 c............................................................................... April.............000 e... Based on the above potential losses..875 $26...500 3.... Cash ....................... March.. March would have a deficit capital balance of $9........................... 45......000 Share of Potential Maximum Loss* Capital 2/6 x $77................. This loss would decrease Sampson's capital balance by $8........................................000 45...........750 $28.......................167 which in turn has to be allocated to the two partners having positive capital balances: Partner April May Potential Capital (above) $23.... March...667 $ (9....... Capital (1/6) ............500 $23........500 40..........500 $62.750 7... building......... and equipment......875 1/4 x $9..833 $28......... Liabilities ........750 1........167 = $6..000 in land.......................750 1/6 x $77.000 6........................................ May.......000 in accounts receivable and the $38...... (continued) (c) Sampson should receive $500............000 9..000 = $25..000 = $38.... Cash ....................167 = $2..000 deficit balance will have to be absorbed by the remaining three partners on a 4:3:1 basis.....917 Share of March's Deficit 3/4 x $9......... April.. Accounts Receivable ....... Cash .................. the $17..................................... Capital (2/6 of expenses) ...000 74....250 $41..... ........................000 i...... Capital (1/6) .......... April.......... March...................500 3..........625 Cash ...... Capital ............ 17............................................................100 13............ April.......550 g.. the money left can be distributed based on these ending totals.. Capital ..........................................................000 38... May............................................... Capital (3/6)...... 21............................ Capital (3/6) .500 h.........................650 4...075 28.....................700 9....000 10............. (continued) As the above amounts represent safe capital balances................ Cash .........000 21................... Cash ................................................26....................... 11.... Land...... 26............. May....................... Since $28. Cash (30%) ............. 43........................................ May.................. Capital .................... 16.... Accounts Receivable ............ Liabilities ..................................................225 7.............................................................000 39.500 f. March.............................. Capital ............... 400 21........ payments can be presently made to these two partners..................................... April........................................... March...... April.................................................. Capital (2/6 of loss) ..... Cash ......... Building and Equipment ........................................ Capital (1/6)..............................875 May.............................. Capital (2/6 of loss) .........700 .....................................000 7....................... Capital ............700 cash remains and each partner has a positive capital balance. 000 (12.000) $ 28.000) $ . .000) $ 18. Since the next level (Step Two balances) is split on a 3:1:1 basis.000 generated goes to remaining creditors ($12. (30 Minutes) (Determine liquidation proceeds necessary to give partner a specified amount) The other assets must be sold for at least $50. the other assets have to be sold for $50.0- $ .000).0- $ .000 from the next cash generated in order to satisfy this personal claim.000) $ 4. Next $27.000 goes to Y and Z on a 1:1 basis.000) $ 10.0- (42. Based on the predistribution schedule below.000 of the $5. Next $10. and Z on a 3:1:1 basis.000 ($27.000 (14. $27. For Z's creditor to get $5.000 $ 78.000 goes to X. Any remaining cash is split among all four partners based on a 5:3:1:1 basis.000 goes to creditors. Y. Z needs $1.000 + $8.000 (14.000) $ 14.000). $5. Next $8.000 (see Schedule 3) (allocated on a 0:0:1:1 basis) Step Three balances W X $ 60. Thus.000) -0.000 $ (4.000 + $10.000) and to pay liquidation expenses estimated at ($15.000 + $5.000 $ .000 Z $ 30.000 in cash above the current level must first be generated for creditors and liquidation expenses. the next $10.000.000 is received solely by Y.000 (see Schedule 2) (allocated on a 0:3:1:1 basis) Step Two balances Assumed loss of $8.000 from Z's portion of partnership property.0- Y $ 40.000) (36.000. Z is entitled to 1/5 of the proceeds.000 (4.0.000 would be split evenly between Y and Z (giving Z $4.000 (12. A third $8.000 (see Schedule 1) (5:3:1:1) Step One balances Assumed loss of $70.000 needed). A predistribution plan must be developed to generate this information: Beginning capital Assumed loss of $120. For this creditor to get $5.0.000 must be collected for Z to receive $1.000 $ (60.0.$ 42.0- PREDISTRIBUTION PLAN Current cash of $30.27.000) .000 goes to Y. Next $70.000. 000/10% $30.000 Capital Balance/ Loss Allocation $14.000/10% Maximum Loss to Be Absorbed $120.000 $ 8.000 $ 90.000/30% $40.000 $400.000 $300.000/(1/2) Maximum Loss to Be Absorbed $ 28.000/50% $78.000/(3/5) $28.000/(1/5) Maximum Loss to Be Absorbed $ 70.000/(1/5) $18.000/(1/2) $ 4.000 (most vulnerable) $140.27.000 Capital Balance/ Loss Allocation $42.000 (most vulnerable) Schedule 2 Partner X Y Z Schedule 3 Partner Y Z .000 (most vulnerable) $260. (continued) Schedule 1 Partner W X Y Z Capital Balance/ Loss Allocation $60. ...........000 ........ (3.....000 (14.....600 (10....... 2009 244..... $ 28.000 Potential losses (Schedule 1) (199.000) .000 Potential unrecorded liabilities and anticipated expenses 10.000 $199...000 Van 50% Bakel 30% Cox 20% $118...000 (5.....500) (25.....500 $ -0- (15....000 (8......................400) $74.......000 – $51.....000 (30.000 January losses (Schedule 1) (28..000 110. net .....000) $ 90.....000) 45.000 – $38..300) $ 26.......... 2009 Profit and loss ratio Total 100% Preliquidation capital balances $282.............................000 Totals ...000) 272..000 Add (deduct) loans (10..800) 28.. 2... $189. BAKEL...000 -074.....000 Sale of inventory ($52... (35 Minutes) (Determine monthly safe capital payments) VAN...600 25.......700) 41. AND COX PARTNERSHIP Safe Installment Payments to Partners January 31........000 20...............900 68.. Cox 2/5) -0Safe payments to partners $45.......000) Machinery and equipment. 14.000 Gain resulting from January credit memorandum reducing liability to creditors ..............500) 101.400 Schedule 1 Computation of Actual and Potential Liquidation Losses January 2009 Actual Potential Losses Losses Collection of accounts receivable ($66..28.000) 88.600 (59.000 Potential loss—Van's deficit balance (Bakel 3/5.000 Liquidation expenses ...600) 74...200) $18.....000 (99.....400 (39..000) $15..................000) Equity of partnership— January 31.... . Cox 2/5) .000) February liquidation expenses (3.. 196. (continued) VAN..800) 10.000 Safe payments (above) .000 – $146. AND COX PARTNERSHIP Safe Installment Payments to Partners February 28.400 ..000) (43..100 (8..400) (600) 72... (1....400 (400) (21...000) (56. AND COX PARTNERSHIP Safe Installment Payments to Partners March 31.500 (12.400 25.000 $ -0- (15... ....500) $101...100 (1...700) 15.000) 1.....600) (900) $68....800) 49...500 (3.. 2009 .......000) Potential loss on machinery and equipment ...000 Potential liabilities and expenses (6.. BAKEL. $ 1...500) $48. BAKEL. 2009 Total Equity of partnership – January 31.000) Liquidation expenses (5. 2009 (above).000 Potential loss—Van's deficit balance (Bakel 3/5.500) (2...0Safe payments to partners ..500) $59.000 Safe payments (above)....400 (18..600 (26....000 Van Bakel Cox $72..600) (1... 2009 (above) . $196.500 -0- $74. 2009 Total Equity of partnership— February 28....000) Loss on sale of machinery and equipment ($189.500) (25.000) 74..100 (600) $49.. (45.200) (94..600 (37.000) Equity of partnership – February 28.000) Safe payments to partners $147.000) $ 600 (10..900) (1..000) $ 400 VAN.......28. (189. $244.....000 Van Bakel Cox $74.000 -0(1.000) $39..400 (1.... 000 (10.000 Haynes.800) (2.800) (2. Capital Capital $40.000) $ 1.333) $54.000) 3.100) 9.200) $64.000 Hough.500) 30.133) ($ 5.500 (1.800 (32.400) ($15.000 .800) (8.200 $ . Capital $16. Capital ($12.400) (1.333 $ .500 Hough.000 loss on disposal (allocated on a 50:40:10 basis) Liquidation expenses (50:40:10 basis) Capital balances Allocation of Luck's deficit (50:10 basis) Final distribution Part C Beginning balances $82.700 (200) $ 9.000 (3.000 Jackson.200) 1.000) $ 9.067) $59. Loan and Cummings. Loan and Capital $82.400 (32.000 $20.0$ .400) (1.200) (2.000 (16.0$16.333 (5.000) $29. Capital Capital $40.000 .000 .333) 5.000 $20. Loan and Cummings.000 ($ 9.200) (5.0- Luck.29. (35 Minutes) (Determine cash distributions for four different partnership liquidations) Part A Beginning balances Contribution by Jackson Capital balances Elimination of Jackson's deficit (40:20 basis) Final distribution Part B Beginning balances $82.000 (41. Loan and Capital $82.0$ 4.500 Luck.400) $ 4.0- 15.000 (32.0- (8.000 loss on disposal (allocated on a 2:4:4 basis) Liquidation expenses (2:4:4 basis) Capital balances Allocation of Cummings' deficit balance (2:4 basis) Capital balances Allocation of Luck's deficit balance Final distribution Simon. Loan and Capital $ 4.000) (10.200 -0.000) $10.0- .000 (6. 000) $ 7. Capital ($16.29.0- .0- *Remaining $28. Capital Sandridge.000 $15.000 32.000) ($30. Loan and Ledbetter.000 contribution by Watson Final distribution* Redmond.000 $ . (continued) Part D Beginning balances Allocation of Redmond's deficit balance (10:30:40 basis) Capital balances $32.0- 3. .000 -0.000) (8.000) (6.000) ($32.000) ($3.000 16.0$ .000 is used to pay liabilities.0$ 7.000 $ . Capital Capital Watson.000 (2.000 contribution by Ledbetter and $3.000) $ 3. 000) $-0- $97.600 (4.000) $57.000 Updated balances Noncash assets sold Updated balances Paid liquidation expenses Updated balances Final distribution based on ending capital account balances Ending balance (23.600 Distribution of $48.333 (remainder of first distribution) Next $22.000 (6.400) $9.333) (22.800 $21.000 (cash in excess of liabilities and estimated liquidation expenses) in accordance with predistribution plan – Schedule 1 Updated balances Noncash assets sold Updated balances All liabilities are paid Updated balances (4.000 $53.400) $9.333) (5.200) $-0- $-0- $-0- $-0- $-0- $31.000) $46.800 (4.200) $27.000 Frick.600 (1. WILSON.600 $-0- $-0- (27.000) $97.000) $-0- (17.000) $-0- $101.000 (cash in excess of liabilities and estimated liquidation expenses) in accordance with predistribution plan – Schedule 1: First $23.000) (1.667 Next $2.200 (10.000 $35.200 $10.667) (400) $21.000 Liabilities $35.000 $35.000 (19.600 (31.000) $9.200) $-0- (9.200) $81.600 (1.000 (35.30.000 $177. Capital (20%) $28.000 $97.000 $92.200) $63.000 (46.000 Clarke.000 Noncash Assets $177. AND CLARKE Schedule of Partnership Liquidation Final Balances Beginning balances Cash $48.400) $21.600) $-0- .800 $28.000 (7.000 Wilson.000 (97.000) $57. (40 Minutes) (Produce a schedule of liquidation) FRICK.800) (400) $21.000 (6.000 44.200 (9.400) $50.600) $10.000 Distribution of $4.000 48.000) $44.600 $50.000 (35. Capital (20%) $61.600 $81.200 (10.600) (23.000 (80. Capital (60%) $101.667) (2. ...... Capital $101..000 (84.667) $27.0- $ .. Wilson... Step Two balances ....0- (5..000) ... Loss of $140...........333 $140......667 assumed—Schedule 3 (allocated on a 60:20 basis) ...667 (most vulnerable to loss) $132...000 .. Next $22.667 is split between Frick and Clarke on a 60:20 basis.... Capital $61.000 Wilson..000/20% $ 61..000 Clarke.......30... and Clarke on a 60:20:20 basis.000 (28............ Capital $28...000/(60/80) $33. Frick........ Loss of $22......0.....000/20% Maximum Loss That Can Be Absorbed $168. Next $27....000) $ -0- (28..... (continued) Schedule 1 Development of Predistribution Schedule Beginning balances .333 goes to Clarke.000) $33....000/(20/80) Maximum Loss That Can Be Absorbed $ 22...333 PREDISTRIBUTION PLAN Payment of liabilities and liquidation expenses must be assured.000 (most vulnerable to loss) $305....000 Schedule 3 Partner Frick Clarke Capital Balance/ Loss Allocation $17...000 assumed—Schedule 2 (allocated on a 60:20:20 basis) ..... Schedule 2 Partner Frick Wilson Clarke Capital Balance/ Loss Allocation $101. Any further cash is split among Frick..........000 $ (17......000/60% $ 28........ Step One balances .000) $ 17... .000) -0Step Three balances .500 is allocated to Norris (10/30) and Rodgers (20/30).31.....000) (15.. Loan and Guthrie. Norris (10/60). Norris.....000) (30........ (45..000 $ -0Loss of $43.. and Guthrie (40%). Capital Capital Capital Capital Beginning balances ...........000 $88..000 $109.... (50 Minutes) (Produce a predistribution plan and journal entries for a partnership liquidation) Rodgers.... -0(14.......000 $ 29. Next $150.. Next $33....000) Step One balances .. Any further cash distributions are divided on the original profit and loss ratio: Wingler (30%)......000/10% $109.000 $880. Schedule 1 Partner Capital Balance/ Loss Allocation Wingler Norris Rodgers Guthrie $120. Part A Wingler.. $ -0$33.....500 goes entirely to Norris..000/40% Maximum Loss That Can Be Absorbed $400....000) (60..000 assumed (allocated on a 30:10:20 basis) see Schedule 2 ..000 is allocated to Wingler (30/60).500 assumed (allocated on a 10:20 basis) see Schedule 3 ..000 $ -0Loss of $150.000 Loss of $150..000 $ 79..000) (50........500 $ -0$ -0PREDISTRIBUTION PLAN Payment of all liabilities and liquidation expenses must be assured.......000/20% $ 60...500) (29....000 (most vulnerable to loss) .. $ -0$48......000) (25. and Rodgers (20/60)....... Norris (10%). Rodgers (20%).. $ 75.000 $60.000 $73...000/30% $ 88.. Next $43... $120. (75.........000 assumed (allocated on a 30:10:20:40 basis) see Schedule 1 ...000 $545...000) -0Step Two balances .000 $150... 000 $ 43.000/(10/30) $29.31. (continued) Schedule 2 Partner Wingler Norris Rodgers Capital Balance/ Loss Allocation $75.000/(20/30) Maximum Loss That Can Be Absorbed $144.000/(20/60) Maximum Loss That Can Be Absorbed $150. a.000 (most vulnerable to loss) $438.000 $237.000 Schedule 3 Partner Norris Rodgers Capital Balance/ Loss Allocation $48.000/(30/60) $73.500 (most vulnerable to loss) .000/(10/60) $79. ..... Loan .000).... building and equipment are sold with losses allocated to partners....................600) and Rodgers ($21.....................640 Rodgers..... All liabilities are paid...000 Cash ....200 Cash ..500 goes entirely to Norris.....................920 Norris........... Capital (40%) ....................... 4......31...... Capital (40%) .000 Land........ 1.... Capital .... 140............................560 Accounts Receivable .... Capital (30% of $16................................000 loss) ..... (continued) Part B Cash .... 3.. 58..........280 Guthrie........................................... Capital .............................................................. 85............800 Norris....000)..................... 41......................................................600 Rodgers.............. Liabilities ..................500 is split between Norris ($14.............................000 Building and Equipment .....000 74........................ 35...... 20.000 is held to pay liabilities ($74.... Next $33. 82.............. 65............. Capital (30% of $103.......................000 Wingler...... Receivables are collected with losses allocated to partners.. Norris ($10........ Cash ............................000 .600 Wingler...........................800)........ First $90.... 74....................200 Land . Capital (20%) .....000 Rodgers............................ Capital ................... 6.... Wingler.900 Norris.... 150..........................200)....... 30......500) and Rodgers ($29. Capital (10%) . 15............................... 168. Capital (10%) ..000) and estimated liquidation expenses ($16..... 10......... Next $43..................................600 is allocated to Wingler ($31.....................600 Above entry distributes safe capital balances as shown below (see predistribution plan in part A) based on a current cash balance of $230...........600..400 loss) ....................................... No journal entry is currently required by Guthrie's insolvency.......... 31..................600 Guthrie........... Remaining $63...300 Rodgers................. Capital (20%) ... ... According to the predistribution plan................... Capital (30% of expenses)........................... Capital (10%) ................ 9.. Capital (30/60 of deficit)....000 Norris....500 Norris............. Therefore........................000 Guthrie.. Capital.000 Wingler............... The remaining $71... 4. 2.................. ................... Cash. Norris........600) is paid out on this 30:10:20 basis........... 6........100 2.......... Capital (40%) . 3.31........................... and Rodgers on a 30:10:20 basis.......... Capital (10%)............000 Wingler........... Liquidation expenses are paid..000 Rodgers.. Although $87.........................000 must be retained to pay liquidation expenses..... all $71........................... a total of $150..... 12..... Capital (20%) .... Rodgers... 693 Rodgers........................ Capital (20/60)..200 4.... (continued) Cash ....................................................................... Capital (10/60).........667 Cash...... Capital (30% of $30. Guthrie............ Capital (40%)...... 35.... Wingler.600 was allocated in this manner in the first distribution above......... 11... Inventory is sold with loss allocated to partners........ 101....................................... Capital..000 Above entry distributes available cash according to predistribution plan........................................080 Norris.......000 must be divided on this ratio but only $63...............000 in cash is being held...............387 Guthrie............400 11..000 Inventory............000 is divided among Wingler.............. 3........ 1..... Norris......... 23...............300 1........... Capital.. 71..............000 loss) ........ b.... 71............. Capital (20%).000 Wingler.....................833 Rodgers........................160 To eliminate the deficit balance of insolvent partner as computed on the next page............. $16...........000 (making a total of $134. Capital. ...........500 (10.... Capital Capital $109............000 $60....................920) Norris...................000) (11.. Loss on land.. Wingler... Cash distribution. Capital................... Capital...... b..000 (4. and equipment ..833) (1...... Cash distribution........ (41.....400) (4....................200) (6.........................053 (1...000) -0(4.... building.. Subtotal . Capital $88..............................527 (693) $ 834 Rodgers........ Loss on accounts receivable... Current balances.......000) (23..667) (2............................600) (3...... Capital $120..000 (1. To distribute remaining cash based on final capital balances.500 Norris..800) (9...........200) -0(12.100) 1... 1...........280) (6.....666 Cash ...... 2...............560) (20... (continued) CAPITAL ACCOUNT BALANCES Beginning balances.....640) (30...080) $2........ 834 Rodgers...................160 $ -0- 5.....300) (58.....200) 3....500) (3.................000) (35.... Guthrie insolvent.............000 .......... Loan and Guthrie.600) (50...... Loss on inventory..........300) 4.......... Capital..............387) $1.000 (3..31...............666 Wingler.....160) 4.........900) (31.. Liquidation expenses.580 (2..