Question

After closing the books and prior to liquidating their partnership, Paul and Sam have $14,000 and $6,700 of capital, respectivly. Prior to liquidation, the partnership had no cash and had $700 of liabilities. The other, non-cash assets were sold for $8,000. The partners share income equally.

A.) Calculate the balance of assets prior to realization (selling the assets):

B.) Calculate Paul and Sam's capital balances after the assets are sold:

C.) Calculate the cash distribution to Ryan after settling liabilities, assuming no other transactions take place:

Answer 1

A) Calculation of Assets Prior to Realization.

As We Know that Total Assets must be equal to the sum of total liabilities and Capital

A/Q

Liabilities of Partnership = 700

Capital of Partnership = 14,000 + 6,700 = 20,700

Assets = Capital + Liabilities

Assets = 20,700+ 700 = 21,400 Thus Assets Prior to Realization is of $ 21,400. B) Calculation of Paul & Sam’s Capital balance after the assets are sold    Loss on Sale of Assets = 21,400 – 8000 = 13,400 Now Loss on Sale of Assets is Divided between Partners in their profit Sharing ratio of 1 : 1 Each Partners Capital is debited by 13,400/ 2 = 6700 Now Balance of each Partner Capital Will be as follow Paul’s Capital = 14,000 – 6,700 = 7,300 Sam’s Capital = 6,700 – 6,700 = 0. c) Calculate the cash distribution to Partners after settling Liabilities. Total Cash available = 8,000 Total Liabilities to Paid = 700 Remaining cash in Hand = 8,000 – 700 = 7,300 Now Cash will be distributed equally as their profit sharing ratio is equal     Paul = 3,650 and Sam = 3,650.