In: Accounting
The partnership of Hendrick, Mitchum, and Redding has the following account balances:
Cash | $ | 61,000 | Liabilities | $ | 30,000 | |||
Noncash assets | 160,000 | Hendrick, capital | 150,000 | |||||
Mitchum, capital | 95,000 | |||||||
Redding, capital | (54,000 | ) | ||||||
This partnership is being liquidated. Hendrick and Mitchum are each entitled to 40 percent of all profits and losses with the remaining 20 percent going to Redding.
What is the maximum amount that Redding might have to contribute to this partnership because of the deficit capital balance?
How should the $31,000 cash that is presently available in excess of liabilities be distributed?
If the noncash assets are sold for a total of $75,000, what is the minimum amount of cash that Hendrick could receive?
Answer 1.
Share from loss of non cash asset (160000×20%)=$32000
Redding capital=$54,000
Maximum amount Redding to contribute=$86000
Answer 2.
Hendrick = $31000
Mitchum = 0
Redding = 0
Answer 3.
Part 3 - Minimum amount hendrick would receive if non cash items are sold for $75000
Particulars | Amount |
Capital balance of redding | $54000 |
Distribution of Loss on non cash items ($160000 - $75000 = $85000) in ratio of 2:10 |
$17000 ($85000 * 2/10) |
Total Deficit of redding capital | $71000 |
Distribution to Hendrick
Particulars | ||
Hendrick capital balance | $150000 | |
Less : loss of non cash items distributed in ratio of 4/10 ($85000 * 4/10) | $34000 | |
Less : Deficit of redding capital absorbed by hendrick in ratio 4:4 ($71000 * 4/8) | $35500 | |
Less : cash distibuted | $31000 | |
Balance to be distributed (A) | $49500 | |
Cash balance distributed (B) | $31000 | |
Maximum amount to be distributed to Hendrick (A + B) | $80500 |