Alex, Becky, and Cindy contributed $30,000, $15,000, and $5,000 respectively, to the ABC Partnership, a general...
- Alex, Becky, and Cindy contributed $30,000, $15,000, and $5,000 respectively, to the ABC Partnership, a general partnership. Upon dissolution, after paying all creditors, $20,000 remains. The partnership has suffered a $30,000 loss because $50,000 was contributed to capital and only $20,000 remains. The partnership agreement is silent as to how losses are to be divided, but provides that profits are to be allocated 40% to Alex, 25% to Becky, and 35% to Cindy. How will the partnership losses be allocated? What will each partner receive or what will be each partner’s responsibility?
Homework Answers
| Alex | Becky | Cindy | Total | |
| Capital balance | 30000 | 15000 | 5000 | 50000 |
| Share in losses* | -12000 | -7500 | -10500 | -30000 |
| Remaining balance | 18000 | 7500 | -5500 | 20000 |
| Cash distributed | -18000 | -7500 | 5500 | 20000 |
*Since the partnership agreement provides how profits are to be allocated but is silent on the sharing of losses, the losses will also be shared in the profit sharing ratio which is 40%:25%:35%.
Thus, Alex will receive $18000, Becky will receive $7500 and Cindy will owe $5500.
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