Question

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

Cash	$ 61,000		Liabilities	$ 51,000
Land	235,000		Adams, capital	156,500
Building	225,000		Baker, capital	45,000
			Carvil, capital	102,000
			Dobbs, capital	166,500
Total assets	$521,000		Total liabilities and capital	$521,000

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.

a.	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?

      

b.	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?

       

c.

The building is immediately sold for $141,000 to give total cash of $202,000. The liabilities are then paid, leaving a cash balance of $151,000. 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.)

       

d.	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.)

i only need help with part D. I was able to get the rest done, but cannot seem to figure out D.

Answer 1

Part: D

Profit and losses allocated to partners in the ratio of 1:3:4:2

	Adams	Baker	Carvil	Dobbs
Capital of Partners	156500	45000	102000	166500
Worst case: If nothing realised from Land and Building, share of loss	(46000)	(138000)	(184000)	(92000)
Share of excess cash over liabilities	(1000)	(3000)	(4000)	(2000)
Net Balance in accounts	109500	(96000)	(86000)	72500

It means if mothing is realized from land and building, carvel has to bring $86000 and his share is 4/10. So, in order to ensure that carvel receive a portion minimum money that should be realized from land and building:

   = (86000+1) * 10/4 = 215002.5 or $215003

Now if land and building is realized for $ 215003 then loss will be =244997

                                                                Carvil’s Capital Account

Particulars	$	Particulars	$
To Realisation A/c – loss    (244997*4/10)	97999	By Balance b/d	102000
To Cash A/c –    10000 * 4/10	40000
To Balance	1
	102000		102000