Question

he partnership of Winn, Xie, Yang, and Zed has the following balance sheet:

Cash	$	35,000	Liabilities	$	47,000
Other assets		241,000	Winn, capital (50% of profits and losses)		65,000
			Xie, capital (30%)		84,000
			Yang, capital (10%)		45,000
			Zed, capital (10%)		35,000

Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $4,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $4,000 from the liquidation.

Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $4,000 from the liquidation. Liquidation expenses are expected to be $20,000. (Do not round intermediate calculations.)

Minimum Amount : ____________

Answer 1

Winn, Xie, Yang, and Zed For Zed to be able to pay his personal creditor $4,000 from the distribution of partnership property, the partnership's other assets must be sold for at least $60,200, as explained below. $67,000 in cash is needed to pay liabilities and liquidation expenses. This is $32,000 more than the current cash balance. Based on the predistribution schedule below, the next $10,000 is received solely by Yang. The next $14,000 would be split 50/50 between Yang and Zed. Cash of $22,000 generated at this stage would provide Zed the $4,000 needed to pay his personal creditors. Thus, for Zed's creditor to get $4,000, the other assets must be sold for $58,000 ($32,000+ $4,000 + $22,000). A predistribution plan must be developed to generate this information: Winn 65000 -65000 Xie 84000 - 39000 Yang 45000 - 13000 Zed 35000 13000 45000 32000 22000 Beginning capital Assumed loss of $130,000 (see Schedule 1) (5:3:1:1) Step one balances Assumed loss of $75,000 (see Schedule 2) (allocated on a0:3:1:1 basis) Step two balances Assumed loss of $14,000 (see Schedule 3) (allocated on a0:0:1:1 basis) Step three balances -45000 0 15000 17000 15000 7000 - 7000 7000 100000 0 0

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