After working for In the Kitchen remodeling business for several years, Terry and Phyllis decided to go into business for themselves and formed the Kitchens Just for You partnership. Three years ago, they admitted Connie as a partner and recognized goodwill at that time because of her good client list for planned kitchen makeovers. However, they were not able to gain a sufficient market for new customers and on September 1, 20X9, they agreed to dissolve and liquidate the business. They decided on an installment liquidation to complete the projects already initiated. The balance sheet, with profit and losssharing percentages at the beginning of liquidation, is as follows:
KITCHENS JUST FOR YOU
Balance Sheet
September 1, 20X9
Assets Liabilities and Equities
Cash $ 16,000 Accounts Payable $ 44,000
Receivables 62,000 Connie, Loan 16,000
Terry, Loan 9,000 Terry, Capital (30%) 12,500
Inventory 48,000 Phyllis, Capital (60%) 37,000
Goodwill 29,000 Connie, Capital (10%) 54,500
Total Assets $ 164,000 Total Liabilities and Equities $ 164,000
Connies loan was for working capital; the loan to Terry was for his unexpected personal medical bills.
During September 20X9, the first month of liquidation, the partnership collected $40,000 in receivables and decided to write off $11,000 of the remaining receivables. Sales of one-half of the book value of the inventory realized a loss of $4,000. The partners estimate that the costs of liquidating the business (newspaper ads, signs, etc.), are expected to be $7,000 for the remainder of the liquidation process.
Required:
Prepare a schedule of safe payments to partners as of September 30, 20X9, to show how the available cash should be distributed to the partners. Please follow the practical guidelines when completing this worksheet.
