Question

The Karim, Lina, and Mazen partnership had the following balance sheet just before entering liquidation: Cash $10,000 Noncash 300,000 Liabilities 130,000 Karim capital 60,000 Lina capital 40,000 Mazen Capital 80,000 Karim, Lina, and Mazen share profits and losses in a ratio of 4:4:2. Noncash assets were sold for $180,000. Liquidation expenses were $10,000.Assume that Lina was personally insolvent and could not contribute any assets to the partnership, while Karim and Mazen were both solvent. What amount of cash would Karim have received from the distribution of partnership assets?

A. $4,000 B. $40,000 C. $12,000 D. $30,000

Answer 1

Ans:

Profit sharing Ratio : 4:4:2

Non cash asset : $300,000

Sale value of Non cash assets : $180,000

Loss on sale of non cash assets = $300,000 - $180,000 = $120,000

Allocation of Loss of Non cash Assets = 4:4:2

Capital Balances after loss allocation:

Karim : $60,000 - ($120,000 *4/10) = $12,000

Lina : $40,000 - ($120,000 * 4/10) = ($8,000)

Mazen : $80,000 - ($120,000 *2/10) = $56,000

Cash contribution from Karim and Mazen for LINA share of loss equally = $4,000 Each

Available cash for distribution :

$120,000 + $10,000 - $10,000 (Liquidation expense) - $130,000 = $50,000

Share of Karim :

Capital Balance after Loss Distribution : $12,000 - $4,000 = $8,000

Cash to be distributed to Karim : $8,000 - Cash Bring In ($4,000) = $4,000

So net cash to be distributed = $4,000

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