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In: Accounting

Turner, Roth, and Lowe are partners who share income and loss in a 2:3:5 ratio. After...

Turner, Roth, and Lowe are partners who share income and loss in a 2:3:5 ratio. After lengthy disagreements among the partners and several unprofitable periods, the partners decide to liquidate the partnership. Immediately before liquidation, the partnership balance sheet shows total assets, $164,400; total liabilities, $110,000; Turner, Capital, $5,700; Roth, Capital, $15,600; and Lowe, Capital, $33,100. The cash proceeds from selling the assets were sufficient to repay all but $44,000 to the creditors. Required: a. Calculate the loss from selling the assets. b. Allocate the loss from part a to the partners. c. Determine how much, if any, each partner should contribute to the partnership to cover any remaining capital deficiency.

Solutions

Expert Solution

given data

total assets (book value) = 164400

total liabilities before liquidation = 110000

liability towards the creditors = 44000

partners sharing ratio = 2 : 3: 5

a) calculate the loss from selling the asset :

particulars amount
liabilities tbefore liquidation 110000
less : cash received from selling the asset (110000 - 44000) (66000)
remaining liability towards the creditors 44000
cash received from sale of asset 66000
less : book value of asset (164400)
loss from sale of asset ($ 98400)

b) allocation of loss from sale of assets between partners :

particulars turner roth lowe
profit sharing ratio 2 / 10 3 / 10 5 / 10
loss allocation (98400 * ratio) 19680 29520 49200

c) contribution of capital deficiency by each partner :

particulars turner roth lowe total
opening capital balance 5700 15600 33100 54400
less : loss allocation (19680) (29520) (49200) (98400)
remaining capital balance (13980) (13920) (16100) (44000)

ekkarill92 answered 1 year ago
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