Question

The following balance sheet is for a local partnership in which the partners have become very unhappy with each other. Cash Land Building $ 51,000 185,000 175,000 Liabilities Adams, capital Baker, capital Carvil, capital Dobbs, capital Total liabilities and capital $ 41,800 118,888 42,000 82.eee 128,000 $ 411,000 Total assets $ 411,000 To avoid more conflict, the partners have decided to cease operations and sell all assets. Using this information, answer the following questions. Each question should be viewed as an independent situation related to the partnership's liquidation. a. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 2:3:3:2 basis, respectively, how will the $10,000 be divided? b. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated on a 2:23:3 basis, respectively, how will the $10,000 be divided? c. The building is immediately sold for $96,000 to give total cash of $147,000. The liabilities are then paid, leaving a cash balance of $106.000. This cash is to be distributed to the partners. How much of this money will each partner receive if profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 13:33 basis, respectively? (Do not round Intermediate calculations.) d. Assume that profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:4:2 basis, respectively. How much money must the firm receive from selling the land and building to ensure that Carvil receives a portion? (Do not round intermediate calculations.) Carvil Dobbs Adams Baker Carva Dobbs | Adams Baker care Dobbs d. Minimum amount of sale value

Answer 1

Q.a :

$ 10,000 is balance amount after sale of all asset and discharge of liabilities of partnership including capital. Under such situation the $ 10,000 is profit of the partnership and would be distributed in profit sharing ration as under :

Partners	Profit Sharing Ratio	Share in Profit
Adam	2	2,000.00
Baker	3	3,000.00
Carvil	3	3,000.00
Dobbs	2	2,000.00
Total	10	10,000.00

Q.b : Similar to Q.a the balance $ 10,000 represents profit and it needs to be distributed in the profit ratio :

Partners	Profit Sharing Ratio	Share in Profit
Adam	2	2,000.00
Baker	2	2,000.00
Carvil	3	3,000.00
Dobbs	3	3,000.00
Total	10	10,000.00

Q.c

First deficiency will be required to be received from Baker for $ 37,200 thereafter distribution of cash can be made to Adam : $ 91,600, Carvil : 82,000 & Dobbs : 48,800

Working notes :

Particulars	Cash	Non-cash Assets	Liabilities	Adam	Baker	Carvil	Dobbs
Balances	51,000	360,000	41,000	118,000	42,000	82,000	128,000
Sale of Assets & Division of Losses (Loss of 264000 divided in profit sharing ratio)	96,000	(360,000)		(26,400)	(79,200)	(79,200)	(79,200)
Payment of Liabilities	(41,000)		(41,000)
Balances after payment of liabilites	106,000	-	-	91,600	(37,200)	2,800	48,800
Receipt of Deficiency	37,200				37,200
Balance after Bankcrupt partner loss distribution	143,200			91,600	-	2,800	48,800
Less : Cash Distribution to partner	(143,200)			(91,600)		(2,800)	(48,800)
Final Balances	-	-	-	-	-	-	-

Q.d

Carvil have capital balance of $ 82,000. If Carvil have to receive some money on dissolution the share of his loss should not exceed 82000.

His profit sharing ratio is 4/10 hence if firm makes loss less than 205,000 (82000*10/4) then only Carvil can receive some money.

Hence the sale value of asset should be at least greater than $155,000 (360,000 -205,000)