Question

45. Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How would the first $100,000 of available assets be distributed assuming profits and losses are allocated equally?
A. $70,000 to outside liabilities, $20,000 to Able, and the balance equally among the partners
B. $70,000 to outside liabilities and $30,000 to Able
C. $70,000 to outside liabilities, $25,000 to Able, and $5,000 to Chapman
D. $40,000 to Able, $20,000 to Chapman, and the balance equally among the partners

Can someone help me show the work i already know the answer:

Answer 1

Correct answer--- (B). $70,000 to outside liabilities and $30,000 to Able

Working

	Cash	Non cash asset	Outside liabilities	Able capital	Baker capital	Chapman Capital
	$              -	$    2,40,000	$ (70,000)	$     (90,000)	$ (30,000)	$ (50,000)
Sale of Non cash asset and record of loss of $140000	$ 1,00,000	$ (2,40,000)		$       46,667	$    46,667	$    46,667
Balance	$ 1,00,000	$                 -	$ (70,000)	$     (43,333)	$    16,667	$    (3,333)
Payment to outside liabilities	$   (70,000)	$                 -	$     70,000
Balance	$     30,000	$                 -	$              -	$     (43,333)	$    16,667	$    (3,333)
Adjustment of debit balance of partner Baker		$                 -	$              -	$          8,333	$ (16,667)	$       8,333
Balances after Adjusting partners Negative Balances	$     30,000	$                 -	$              -	$     (35,000)	$              -	$       5,000
Adjustment of debit balance of partner Chapman				$          5,000		$    (5,000)
Balances after Adjusting partners Negative Balances	$     30,000	$                 -	$              -	$     (30,000)	$              -	$              -
Payment to partners with credit balance	$   (30,000)			$       30,000
Balance	$              -	$                 -	$              -	$                 -	$              -	$              -

When loss exceeds the credit balance of a partners loss then that partners account balance turns into debit. Assuming that partner is insolvent other partners having credit balance will absorb the loss.

In the above case loss of Baker is first absorbed by Able and Chapman but then chapman’s capital also turned ino debit so that is absorbed by able alone . final balance in able account is paid in cash .