Question

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.

1. What is the maximum amount that Redding might have to contribute to this partnership because of the deficit capital balance?

2. How should the $31,000 cash that is presently available in excess of liabilities be distributed?

3. 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

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