The partnership of Dee, Ema, Lyn, and Geo is being liquidated over the first few months of 2011. The trial balance at January 1, 2011, is as follows: ADDITIONAL INFORMATION 1. The partners agree to retain $20,000 cash on hand for contingencies and to distribute the rest of the available cash at the end of each month. 2. In January, half of the receivables were collected. Inventory that cost $75,000 was liquidated for $45,000. The land was sold for $250,000. REQUIRED Prepare a schedule of safe payments for the Dee, Ema, Lyn, and Geo partnership for January 31, 2011.
The correct answer and explanation is :
To prepare the schedule of safe payments for the Dee, Ema, Lyn, and Geo partnership for January 31, 2011, we need to consider the available cash and ensure the proper allocation and distribution based on the provided trial balance and additional information.
Key Details to Consider:
- Cash Retention Requirement: The partners have agreed to retain $20,000 in cash for contingencies.
- Receivables Collected: Half of the receivables were collected.
- Inventory Liquidation: Inventory with a cost of $75,000 was liquidated for $45,000.
- Land Sale: The land was sold for $250,000.
Step-by-Step Calculation:
Available Cash for Distribution:
- Cash on Hand (Initial Balance): Start with the cash balance at January 1, 2011 (which is not provided directly in the question). Let’s assume the balance is ( X ).
- Receivables Collected: We are told that half of the receivables were collected, but the exact amount is not given in the question, so let’s denote the total receivables as ( R ). In this case, half of ( R ), i.e., ( \frac{R}{2} ), is added to the available cash.
- Inventory Liquidation: The inventory was liquidated for $45,000, and this amount is added to the available cash.
- Land Sale: The land was sold for $250,000, so this amount also contributes to the available cash.
Now, let’s sum up these amounts to find the total available cash:
[
\text{Total Available Cash} = X + \frac{R}{2} + 45,000 + 250,000
]
Total Cash Available for Distribution:
After deducting the $20,000 that must be retained, the cash available for distribution to the partners is:
[
\text{Cash for Distribution} = \text{Total Available Cash} – 20,000
]
Distribution to Partners:
The partners will share the available cash according to their respective profit-sharing ratios. If the profit-sharing ratios are equal (1:1:1:1 for Dee, Ema, Lyn, and Geo), the distribution is simply split into four equal parts:
[
\text{Each Partner’s Distribution} = \frac{\text{Cash for Distribution}}{4}
]
Example Calculation (Assumptions):
Assume the following numbers:
- Initial cash balance ( X = 100,000 )
- Receivables ( R = 40,000 )
Then:
[
\text{Total Available Cash} = 100,000 + \frac{40,000}{2} + 45,000 + 250,000 = 100,000 + 20,000 + 45,000 + 250,000 = 415,000
]
[
\text{Cash for Distribution} = 415,000 – 20,000 = 395,000
]
If the partners share profits equally, each partner receives:
[
\text{Each Partner’s Distribution} = \frac{395,000}{4} = 98,750
]
Conclusion:
The schedule of safe payments for January 31, 2011, would list the total cash available for distribution, the retention amount, and the share of each partner based on the total amount available after considering the retention requirement. The specific numbers used here will depend on the actual values from the trial balance and the receivables collected.