Partners Krames and Toler have a coin-operated laundry business in a retail shopping center. The business has operated for several years with the partners sharing income using a ratio of 3:2. The laundry business is primarily a cash business. On alternate days each partner empties the coins from the laundromat's machines and deposits them in the bank. The business was generating a healthy cash flow for several years. However, in the last 18 months, cash flow declined precipitously. Krames is experiencing personal financial problems relating to a messy divorce and investments that went "in the tank." She is urging Toler to sell out and liquidate their partnership. The following trial balance is prepared by the partners' accountant. Cash Supplies and prepayments Equipment Accumulated depreciation Accounts payable Loan payable-Toler Sales Operating expenses Depreciation expense Capital-Krames Capital-Toler Totals Dr (Cr) $2,300 900 42,000 (17,000) (1,350) (11,000) (25,000) 13,000 6,000 (5,000) (4,850) $0 In addition, the partnership has a one-year lease on the building where the laundromat is located. The monthly payments of $500 are consistently made on time. The lessor requires a $2,000 payment to release the lessees. Assume that the business will dissolve. Required: 1. Use Excel. Files not submitted in Excel will NOT be graded. 2. Identify the weakness in the partnership's internal control which could produce the pattern of declining cash flows. How could the partnership correct the internal control weakness? Explain. 3. Determine the ending capital balances and prepare a cash distribution plan for the liquidation. Explain the results of the cash distribution plan. 4. How much must be realized on the sale of the non-cash assets before Krames receives any of the liquidation proceeds? Do you think it is likely that Krames will receive any proceeds? Explain. Partners Krames and Toler have a coin-operated laundry business in a retail shopping center. The business has operated for several years with the partners sharing income using a ratio of 3:2. The laundry business is primarily a cash business. On alternate days each partner empties the coins from the laundromat's machines and deposits them in the bank. The business was generating a healthy cash flow for several years. However, in the last 18 months, cash flow declined precipitously. Krames is experiencing personal financial problems relating to a messy divorce and investments that went "in the tank." She is urging Toler to sell out and liquidate their partnership. The following trial balance is prepared by the partners' accountant. Cash Supplies and prepayments Equipment Accumulated depreciation Accounts payable Loan payable-Toler Sales Operating expenses Depreciation expense Capital-Krames Capital-Toler Totals Dr (Cr) $2,300 900 42,000 (17,000) (1,350) (11,000) (25,000) 13,000 6,000 (5,000) (4,850) $0 In addition, the partnership has a one-year lease on the building where the laundromat is located. The monthly payments of $500 are consistently made on time. The lessor requires a $2,000 payment to release the lessees. Assume that the business will dissolve. Required: 1. Use Excel. Files not submitted in Excel will NOT be graded. 2. Identify the weakness in the partnership's internal control which could produce the pattern of declining cash flows. How could the partnership correct the internal control weakness? Explain. 3. Determine the ending capital balances and prepare a cash distribution plan for the liquidation. Explain the results of the cash distribution plan. 4. How much must be realized on the sale of the non-cash assets before Krames receives any of the liquidation proceeds? Do you think it is likely that Krames will receive any proceeds? Explain
