the partners recognize that they will be unable to compete with the larger chain sto 615802

Installment Liquidation

Nelson, Parker, and Rice are partners who share profits 4:3:3, respectively. Parker decides that it would be more profitable for him to operate as a sole proprietor. Nelson and Rice are in agreement that life would be more rewarding if Parker were to enter into direct competition with them. Nelson and Rice make repeated attempts to acquire Parker”s interest in the partnership. Unable to reach an agreement, the partners mutually agree that their association should be dissolved. A condensed balance sheet before realization of assets shows the following balances:

	Assets	Liabilities and Capital
Cash	$ 5,000	Liabilities	$20,000
Other Assets	60,000	Nelson, Capital	20,000
		Parker, Capital	12,000
		Rice, Capital	18,000
Total	$65,000	Total	$65,000

Asset realization is accomplished in four stages as follows:

Stage	Sales Price	Book Value
1	$16,000	$12,000
2	12,000	10,000
3	10,000	20,000
4	2,000	18,000

The partners prefer that cash be distributed as soon as it is available.

Required:

Prepare a summary in columnar form of the partnership realization and liquidation. You should prepare supporting schedules of safe payments before each cash distribution.

PROBLEM 16-3Installment Liquidation

Hann, Murphey, and Ryan have operated a retail furniture store for the past 30 years. Their business has been unprofitable for several years, since several large discount furniture stores opened in their sales territory. The partners recognize that they will be unable to compete with the larger chain stores and decide that since all the partners are near retirement, they should liquidate their business before it is necessary to declare bankruptcy.