Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
-Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Dennis at the end of the second month?

Question

Partners Dennis and Lilly have decided to liquidate their business.The following information is available:
  Dennis and Lilly share profits and losses in a 3:2 ratio.During the first month of liquidation,half the inventory is sold for $60,000,and $60,000 of the accounts payable is paid.During the second month,the rest of the inventory is sold for $45,000,and the remaining accounts payable are paid.Cash is distributed at the end of each month,and the liquidation is completed at the end of the second month.
-Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Dennis at the end of the second month?

Quizplus · Accepted Answer

To determine the safe payments schedule, first calculate the total amount available for distribution:

Total assets realized = $60,000 (sale of half of inventory) + $45,000 (sale of remaining inventory) + $0 (no other assets sold) = $105,000

Total liabilities paid = $60,000 (payment of half of accounts payable) + $30,000 (payment of remaining accounts payable) = $90,000

Net assets available for distribution = Total assets realized - Total liabilities paid = $105,000 - $90,000 = $15,000

Next, allocate the net assets available for distribution based on the partners' profit-sharing ratio of 3:2:

Dennis' share = 3/5 x $15,000 = $9,000
Lilly's share = 2/5 x $15,000 = $6,000

Therefore, Dennis will receive $9,000 in cash at the end of the second month. The correct answer is B) $27,000.

Partners Dennis and Lilly Have Decided to Liquidate Their Business