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
Cash 5000
Other assets 60000
Total 65000
Liabilities and Capital
Liabilities 20000
Nelson, Capital 20000
Parker, Capital 12,000
Rice, Capital 13000
Total 65000
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.