Question

A partnership currently holds three assets: cash, $10,000; land, $35,000; and a building, $50,000. The partnership has no liabilities. The partners anticipate that expenses required to liquidate their partnership will amount to $5,000. Capital balances are as follows: The partners share profits and losses as follows: Ace (30 percent), Ball (30 percent), Eaton (20 percent), and Lake (20 percent). If a preliminary distribution of cash is to be made, what is the amount of safe payment that can be made to each partner?

Answer 1

Ans)

Ball gets $143, Eaton gets $1,429, and Lake gets $3,428.

                                                                                   Ace              Ball          Eaton            Lake

      Reported balances .........................        $25,000       $28,000       $20,000       $22,000

      Maximum losses on land and building

      ($85,000) split on a 3:3:2:2 basis        (25,500)      (25,500)      (17,000)      (17,000)

      Estimated liquidation expenses

      ($5,000) split 3:3:2:2.......................           (1,500)         (1,500)         (1,000)         (1,000)

      Potential balances ..........................         $(2,000)       $ 1,000        $ 2,000        $ 4,000

      Potential loss from Ace ($2,000) split

      on a 3:2:2 basis .............................            2,000             (857)            (571)            (572)

      Cash distributions ..........................          $        0        $    143        $ 1,429        $ 3,428