Question

A partnership has the following account balances: Cash, $70,000; Other Assets, $540,000; Liabilities, $260,000; Nixon (50 percent of profits and losses), $170,000; Cleveland (30 percent), $110,000; Pierce (20 percent), $70,000. The company liquidates, and $8,000 becomes available to the partners. Who gets the $8,000? Determine how much of this amount should be distributed to each partner.(Do not round intermediate calculations.)

	Nixon Cleveland Pierce Safe payments

Answer 1

Solution:

The current total capital is

=$170,000+$110,000+$70,000

=$350,000

If the company liquidated and the left over -$8,000

Then loss =$350,000-$8,000

=$342,000

Now:

Nixon distribution =$342x000 × 50% = $171,000

Cleveland distribution =$342,000 × 30% =$102,600

Pierce distribution =$342,000 × 20% = $68,400

	Nixon	Cleveland	Pierce
Capital balance as at liquidation	$170,000	$110,000	$70,000
Anticipated loss	$171,000	$102,600	$68,400
Balance after loss	($1000)	$7,400	$1,600
Loss from Nixon distributed to partners	$1000	($600)	($400)
Closing balance		$6,800	$1,200
Cash distribution		$6,800	$1,200

Nixon is the only one shown to have a potential deficit because his capital was $170,000 & anticipated loss is -$1,000. So Cleveland and Pierce cover the potential loss.

The current basis is Nixon 50%

Cleveland 30%

Pier 20%

But Nixon is negative, so basis become

Cleveland 60%

Pierce 40%

Cleveland distribution -$1,000×60% =$600

Pierce distribution -$1,000 ×40% =$400

This amount should be distributed to each partner :

	Nixon	Cleveland	Pierce
Safe payments	0	$6,800	$1,200