A partnership has the following account balances: Cash, $76,000; Other Assets, $570,000; Liabilities, $258,000; Nixon (50...

A partnership has the following account balances: Cash, $76,000; Other Assets, $570,000; Liabilities, $258,000; Nixon (50 percent of profits and losses), $180,000; Cleveland (30 percent), $130,000; Pierce (20 percent), $78,000. The company liquidates, and $16,500 becomes available to the partners. Who gets the $16,500? Determine how much of this amount should be distributed to each partner. (Do not round intermediate calculations.)

Nixon Cleveland Pierce

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Expert Solution

The other assets of $540k must have been sold for $198k, because then the $198k plus the original $70k in cash would add up to $268k in cash. $260k of this was used to pay the liabilities, leaving $8k to distribute.

Now we go back to the other assets. The company assumed a loss on the other assets of $342k, which needs to be allocated in the 5:3:2 ratio.

Nixon has $170k capital, and gets assigned 50% of the $342k loss, or $171k, leaving him negative equity of $1k.

Cleveland has $110k capital, and gets assigned 30% of the $342k loss, or $102.6k, leaving him positive equity of $7.4k.

Pierce has $70k capital, and gets assigned 20% of the $342k loss, or $1.6k, leaving him positive equity of $1.6k.

If there is a rule in the partnership agreement that says there can be no negative capital, then the $1k that Nixon owes would be split in a 3:2 ratio, which would result in Cleveland getting $6.8k and Pierce getting $1.2k, but we dont know enough about the partnership agreement to know if this is in place.

ekkarill92 answered 1 year ago

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