Chapter 16 4. The partnership of Xavier, Yarnell and Zablicki have decided to liquidate their partnership. At the time, the partners share income and loss in the ratio of 2:2:6. No partner can make any payments into the partnership. The partnership sold the noncash assets for $20,000.

A. Complete the liquidation schedule below Marshalling of Assets Simple Liquidation Cash Noncash Assets Liabilities Y, Loan X, Capital Y, Capital Z, Capital Beginning balances $5,000 $40,000 $15,000 $2,000 $12,000 $1,000 $15,000 Sell noncash assets Pay creditors Offset loan Allocated deficit Payment to partners

B. Now assume the noncash assets were sold for $16,000. Complete the liquidation schedule below Marshalling of Assets Simple Liquidation Cash Noncash Assets Liabilities Y, Loan X, Capital Y, Capital Z, Capital Beginning balances $5,000 $40,000 $15,000 $2,000 $12,000 $1,000 $15,000 Sell noncash assets Pay creditors Offset loan Allocated deficit Payment to partners The MDS partnership has decided to liquidate. At the time, the profit and loss ratios for Murphy, Donnelly and Sullivan were 1:1:3. The balance sheet is below. Cash $ 30,000 Liabilities $ 20,000 Other assets 170,000 M, Capital 50,000 D, Capital 70,000 S, Capital 60,000 $200,000 $200,000

C. Using the loss absorption potential system, determine how the partners will share in the distribution of cash Loss Absorption Potential M D S Capital P & L ratio LAP (capital/P&L) Loss Absorption Potential Asset Distribution M D S M D S P & L ratio LAP Net capital interest Distribution to D (100 0.2) Distribution to M & D (150 0.2)

D. Prepare an advance plan for the distribution of cash Advance Cash Distribution Plan Order of cash distribution Liabilities M D S