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The assets of a partnership should, at a dissolution, be applied as follows:

(1) Firm debts to outsiders.
(2) Advances or loans made by partners individually to the firm.
(3) Settlement of capital.
(4) Ultimate residue, if any, to be divided as profit, according to

the agreement for sharing profit and loss; if there be no
agreement to this effect, then equally.

FIRST PROBLEM IN PARTNERSHIP ADJUSTMENTS.

To adjust partners' accounts when the books have been kept by single entry:

X., Y., and Z. were partners in a trading concern, having articles of agreement among them in writing, and among other clauses there was a provision that profits or losses were to be divided, two-fifths to X., seven-twentieths to Y., and one-fourth to Z., and furthermore:

the par

In the event of the death of one of the partners during the existence of

rship the two survivors are to continue the business, and the deceased partner's share is to be paid to his executor or administrator within five years after his death in five equal annual payments, each unpaid balance to bear 6 per cent. interest

The accounts were kept by single entry and were made up quarterly, to March 31, June 30, September 30, and December 31. The final statements were signed by each partner who thus acknowledged the correctness of the statements and its agreement with the terms of the articles of co-partnership, and thereby that the profits shown by the statements were those earned during each fiscal period mentioned.

The net profits of the twelve quarters to December, 1907, were, as acknowledged by the three partners, as follows:

To March 31, 1905..
To June 30, 1905.
To Sept. 30, 1905.
To Dec. 31, 1905.
To March 31, 1906.
To June
To Sept.
To Dec.
To March 31, 1907.
To June,

30, 1907. To. Sept. 30, 1907. To Dec.

31, 1907.

30, 1906.
30, 1906..
31, 1906.

$936.50

876.00 1,150.00 1,032.70

980.00 800.00 895.00

960.00 1,012.00 763.60 945.00 575.00

STATEMENT OF ASSETS AND LIABILITIES, DECEMBER 31, 1907.

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$2,000 1,000

$3,000 1,350

Loan Payable.
Capital:

X.
Y.
Z.

$1,714 1,500 1,071

$4,100

115

Investments

Notes Receivable.
and Accounts Receivable

$1,800
2,300

Less Reserve
Inventory

3,985 1,650

4,285

$8,635

$8,635

In January, 1908, the clause making provision in case of the death of one of the partners was amended to read as follows:

In the event of the death of one of the partners during the existence of the partnership, the surviving partners are to continue the business, and the deceased partner's share is to be determined by the balance shown to his account in the Ledger. In addition to this his share of goodwill is to be taken into consideration, the latter to be the sum of the net profits of the business for three years preceding such partner's death, including in such calculation the broken period. The deceased partner's share is to be paid out to his executor or administrator within five years after his death, in five equal annual payments, each unpaid balance to bear 6 per cent. interest.

X. died on February 28, and it is agreed that the partnership terminated as of that date. The condition of the affairs of the business on December 31, 1907, and on February 28, 1908, respectively, was as shown on the preceding page.

From the various business and financial papers of the concern the following results of operation are shown for the period covering the last two months, January-February, 1908:

Purchases during the two months were $6,986.50. Sales were on a basis of 40 per cent. profit, the inventory of goods on hand being $3,568.00. The firm has in its possession notes receivable amounting to $1,985.10; it discounted with the bank notes receivable amounting to $1,800.00, less discount $27.00. The outstanding accounts as per Ledger amount to $1,410.80. Cash payments were as follows: Salaries

$400.00 Rent

150.00 X., for personal use.

125.00 Y., for personal use.

75.00 Z., for personal use.

75.00 Repayment of Loan Payable.

1,350.00 Notes Payable

600.00 Sundry Creditors

3,225.00 It was further ascertained that the heaviest sales were usually made during the first quarter of the year.

It is now desired to adjust and determine the respective Capital Accounts of the partners as of date of February 28, 1908, and the amount due by the surviving partners to the estate of X., or his legal administrator, payable yearly as per existing agreement.

SOLUTION. Our first duty is to determine and verify the cash balance, and for this purpose we will prepare the Statement of Receipts and

STATEMENT OF RECEIPTS AND PAYMENTS.

January-February, 1908.

Cr.

Dr.
To Balance

Accounts Receivable
Bills Receivable Discounted; Face. $1,800
Less discount

27

$2,000.00 6,000.00

By Salaries

Rent

$400 150

$550.00

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275.00

Loan Payable
Notes Payable
Accounts Payable

$1,350

600 3,225

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$1,000.00
5,161.50

STATEMENT OF AFFAIRS AS AT FEBRUARY 28, 1908. ASSETS.

LIABILITIES. Cash (as per Statement).

$3,773.00 Notes Payable Investments

1,000.00 Accounts Payable
Notes Receivable

$3,785.10
Accounts Receivable

1,410.80

Notes Receivable Discounted.

Capital

$5,195.90 Less Reserve

115.00

5,080.90 Merchandise (Inventory)

3,568.00

$6,161.50

1,800.00
5,460.40

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