Question

SB The following condensed balance sheet is...

The following condensed balance sheet is presented for the partnership of D, E, and F who share profits and losses in the ratio of 5:3:2, respectively:

Cash	$	100,000
Other Assets		480,000
	$	580,000
Liabilities	$	160,000
D, Capital		200,000
E, Capital		130,000
F, Capital		90,000
Total	$	580,000

The partners agreed to liquidate the partnership after selling the other assets.

TB MC Qu. 16-12 Refer to the above information. If the other...

Refer to the above information. If the other assets are sold for $280,000, how much should F receive upon liquidation?

Multiple Choice

$50,000

Correct

$44,000

$76,000

$90,000

Please explain how to get 50,000

Answer 1

• For calculating the amount of Cash F would receive, lets prepare a schedule of liquidation transaction and distribution.

	Cash	Non Cash Assets	Liabilities	Capital D	Capital E	Capital F
Beginning balances	$        100,000.00	$        480,000.00	$      160,000.00	$      200,000.00	$       130,000.00	$     90,000.00
Non Cash Asset sold and Loss of $ 200,000 disctributed	$        280,000.00	$     (480,000.00)		$   (100,000.00)	$       (60,000.00)	$   (40,000.00) [200000 loss x 2/10 ratio]
Balance	$        380,000.00	$                         -	$      160,000.00	$      100,000.00	$         70,000.00	$     50,000.00
Liabilities paid off	$      (160,000.00)		$    (160,000.00)
Balance	$        220,000.00	$                         -	$                        -	$      100,000.00	$         70,000.00	$     50,000.00 [Balance after all liabilities are paid off]
Cash paid off	$      (220,000.00)	$                         -	$                        -	$   (100,000.00)	$       (70,000.00)	$   (50,000.00) [ANSWER]
Ending balance after liquidation is complete	$                          -	$                         -	$                        -	$                       -	$                        -	$                    -

• As you can see, when Liabilities are paid off in $ 160,000 of Cash, the existing Capital balance of ‘F’ was $ 50,000

This $ 50,000 was after adjustment of loss incurred on sale of Non Cash Asset.

• Hence, correct Answer = $ 50,000