Question

Turner, Roth, and Lowe are partners who share income and loss in a 1:4:5 ratio (in percents: Turner, 10%; Roth, 40%; and Lowe, 50%). The partners decide to liquidate the partnership. Immediately before liquidation, the partnership balance sheet shows total assets, $126,000; total liabilities, $78,000; Turner, Capital, $2,500; Roth, Capital, $14,000; and Lowe, Capital, $31,500. Cash received from selling the assets was sufficient to repay all but $28,000 to the creditors.

Required: a. Calculate the loss from selling the assets. b. Allocate the loss from part a to the partners. c. Determine how much each partner should contribute to the partnership to cover any remaining capital deficiency.

Answer 1

a) loss from selling the assets

= Total liabilities - 28000 ( amt not sufficient to pay for creditors)

= 78000 - 28000

= 50000 ( realized from assets )

Loss = 126000 - 50000 = 76000

B) allocation of loss

Turner = 76000 * 10% = 7600

Roth = 76000 * 40 % = 30400

Lowe = 76000 * 50 = 38000

C) partners capital after allocating above loss

Turner capital = 2500 - 7600 = (5100)

Roth = 14000 - 30400 = (16400)

Lowe = 31500 - 38000 = ( 6500)

Contribution from partners required to pay 28000 debt

Turner = 28000 * 10% = 2800

Roth =. 28000 * 40% = 11200

Lowe = 28000 * 50% = 14000