Prior to liquidating their partnership, Pepper and Morrison had capital accounts of $21,000 and $85,000, respectively. The partnership assets were sold for $40,000. The partnership had no liabilities. Pepper and Morrison share income and losses equally.
Required:
a. Determine the amount of Pepper's
deficiency.
$
b. Determine the amount distributed to Morrison, assuming Pepper is unable to satisfy the deficiency.
Answer
--Loss on asset sold = Capital
balances – Asset sold for
= 21000 + 85000 – 40000 = $ 66,000
--Income and losses are shared equally, hence, each partner will bear $ 66000 x 50% = $ 33,000
--Balances after loss
distribution:
Pepper = $ 21000 – 33000 = ($12000) [Answer to
Requirement ‘a’]
Morrison = $ 85000 – 33000 = $ 52000 [used in
Requirement ‘b’]
Answer: Amount of Pepper’s Deficiency = $ 12,000
Amount distributed to Morrison = Morrison’s capital balance – Pepper’s Deficiency
= $ 52000 - $ 12000
= $ 40,000 =
Answer
Prior to liquidating their partnership, Pepper and Morrison had capital accounts of $21,000 and $85,000, respectively....
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