Month 2—A division of the company was sold to an outside investor for $34,000. The book value of the division’s recognized net assets was $28,000, and they had a market value of $24,000. Any goodwill suggested by this transaction was to be recognized through the use of the bonus method. Equipment with a net book value of $15,000 and a market value of $20,000 was accepted by Partner B in full satisfaction of their note payable. A customer contract valued at $24,000 was completed at a cost of $14,000. The customer paid for the goods less the $8,000 deposit previously paid. The deposit had been erroneously recorded as a sale when received. Professional fees associated with the liquidation were paid in the amount of $6,000, and it was agreed to retain another $4,000 in anticipation of future liquidation expenses.
Month 3—Inventory with a book value of $15,000 was sold for $10,000. The partnership agreed to retain $4,000 against anticipated liquidation expenses. Partner C had personal assets of $85,000 and personal liabilities of $96,800. Partner C agreed to contribute personal assets to the partnership to whatever extent allowed by law. Partner B, who is Partner C’s brother, agreed to absorb any deficit balance that Partner C was unable to eliminate and to absorb any subsequently realized deficits that Partner C may be allocated. It was agreed to retain $4,000 in anticipation of future liquidation expenses.