Question

2. Pre-distribution Schedule (Steps): Reference handout #3 Ch.15 rater, Farvard and Johns have operated a local business as a partnership for several years rtnership for several years. With the information below, create a pre-distribution schedule with the blank table. All profits and losses will be allocated in a 3:2:1 ratio or 1/2, 1/3, and 1/6 (Carter, Harvard, and John for step 1). For step 2, 6:4 ratio or 3/5 and 2/5 (Carter and Harvard). Balance Sheet Cash Noncash assets S 0 227,000 Liabilities Crater, capital Harvard, capital Johns, capital Total liabilities and capital $ 70,000 96,000 45,000 16,000 $ 227,000 Total assets $ 227,000 Complete the tabe: Crater Harvard Johns Beginning balances Assumed loss Step 1 Subtotal Assumed loss Step 2 Total

Answer 1

Partners Crater Harvard Johns Capital Balance/Loss Aloocation 96000*2 or 96000/.05 45000*3 or 45000/0.333333 16000*6 or 16000/0.166666 Maximum Loss that can be absorbed 192000 135000 96000 1/3=0.333333 1/6=0.166666 Based on a 16.67% share of income, a loss of $96,000 would reduce his partner's capital account to a zero balance

Craters Capital 96000 -48000 48000 Beginning balances Assumed $96000 loss Step 1 (3:2:1) Step 1 balance Harvards capital 45000 -32000 13000 Johns Capital 16000 - 16000

Partners Crater Harvard Capital Balance/Loss Aloocation 48000*5/3 or 48000/0.6 13000*5/2 or 13000/0.4 Maximum Loss that can be absorbed 80000 32500 3/5=0.6 2/5=0.4 Only a $32,500 Step 2 loss is required to reduce Harvard partner's capital account to a zero balance.

Craters Capital 96000 -48000 48000 -19500 28500 Beginning balances Assumed $96000 loss Step 1 (3:2:1) Subtotal Assumed $32500 loss Step 2 (3:2) Total Harvards capital 45000 -32000 13000 - 13000 0 Johns Capital 16000 - 16000 0