Question

The following balance sheet is for a local partnership in which the partners have become very unhappy with each other.

Cash	$	43,000		Liabilities	$	33,000
Land		145,000		Adams, capital		89,000
Building		135,000		Baker, capital		36,000
				Carvil, capital		66,000
				Dobbs, capital		99,000
Total assets	$	323,000		Total liabilities and capital	$	323,000

To avoid more conflict, the partners have decided to cease operations and sell all assets. Using this information, answer the following questions. Each question should be viewed as an independent situation related to the partnership’s liquidation.

1. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 2:3:3:2 basis, respectively, how will the $10,000 be divided?
2. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated on a 2:2:3:3 basis, respectively, how will the $10,000 be divided?
3. The building is immediately sold for $73,000 to give total cash of $116,000. The liabilities are then paid, leaving a cash balance of $83,000. This cash is to be distributed to the partners. How much of this money will each partner receive if profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:3:3 basis, respectively? (Do not round intermediate calculations.)
4. Assume that profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:4:2 basis, respectively. How much money must the firm receive from selling the land and building to ensure that Carvil receives a portion? (Do not round intermediate calculations.)

Answer 1

Question 1

$10,000 cash balance to be disbursed immediately

To A, B, C, D in the ratio 2:3:3:2

A = $10,000 x 2/10 = $ 2,000

B = $10,000 x 3/10 = $ 3,000

C = $10,000 x 3/10 = $ 3,000

D = $10,000 x 2/10 = $ 2,000

Question 2

$83,000 cash balance to be disbursed immediately

To A, B, C, D in the ratio 1:3:3:3

A = $83,000 x 1/10 = $ 8,300

B = $83,000 x 3/10 = $ 24,900

C = $83,000 x 3/10 = $ 24,900

D = $83,000 x 3/10 = $ 24,900

Question 3

The profit sharing ratio between A,B,C,D is 1:3:4:2

How much money should the firm receive from sale of land and building so that C gets a share

Capital contribution of C = $66,000

Net cash available after setteling the liabilities is $ 10,000

C's share of cash = $ 10,000 x 4/10 = $ 4,000.

Balance capital of C after cash share = $ 66,000 - $ 4,000 = $ 62,000

C's share in profits =4/10

So amount to be received by sale of land and building for C to get a share should atlease be

= $ 62,000 x 10/4 = $ 155,000