Question

In: Accounting

The partnership of Winn, Xie, Yang, and Zed has the following balance sheet: Cash $ 34,000...

The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:

Cash $ 34,000 Liabilities $ 45,000
Other assets 240,000 Winn, capital (50% of profits and losses) 64,000
Xie, capital (30%) 87,000
Yang, capital (10%) 44,000
Zed, capital (10%) 34,000

Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $3,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $3,000 from the liquidation.

Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $3,000 from the liquidation. Liquidation expenses are expected to be $19,000.

Solutions

Expert Solution

Minimum amount = 21200+29000+3000 =$53200

Liabilities + liquidation expenses = 45000+19000 = 63000

It is $29000 more than the current cash balance of $34000

Winn

Xie

Yang

Zed

Beginning capital

64000

87000

44000

34000

Assumed loss of $128,000 (see Schedule 1)(5:3:1:1)

(64000)

(38400)

(12800)

(12800)

Step one balances

0

48600

31200

21200

Assumed loss of $81,000 (see Schedule 2)(0:3:1:1)

(48600)

(16200)

(16200)

Step two balances

0

15000

5000

Assumed loss of $10000 (see Schedule 3)(0:0:1:1)

(5000)

(5000)

Step three balances

10000

0

Schedule 1

Partner

Capital Balance/Loss Allocation

Maximum Loss to Be Absorbed

Winn

64000/50%

128000 (most vulnerable)

Xie

87000/30%

290000

Yang

44000/10%

440000

Zed

34000/10%

340000

Schedule 2

Partner

Capital Balance/Loss Allocation

Maximum Loss to Be Absorbed

Xie

48600/(3/5)%

81000 (most vulnerable)

Yang

31200/(1/5)%

156000

Zed

21200/(1/5)%

106000

Schedule 3

Partner

Capital Balance/Loss Allocation

Maximum Loss to Be Absorbed

Yang

15000/(1/2)%

30000

Zed

5000/(1/2)%

10000 (most vulnerable)


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