Prior to liquidating their partnership, Pepper and Haines had capital accounts of $18,000 and $65,000, respectively. The partnership assets were sold for $33,000. The partnership had no liabilities. Pepper and Haines share income and losses equally.
Required:
a. Determine the amount of Pepper's
deficiency.
$
b. Determine the amount distributed to Haines,
assuming Pepper is unable to satisfy the deficiency.
$
Loss on liquidation = Cash received - carrying value of assets
= 33,000 - (18,000+65,000)
= 50,000
Pepper's deficiency = Capital balance - share in loss on liquidation
= 18,000 - (50,000*1/2)
= 18,000 - 25,000
= 7,000
Amount distributed to Haines assuming pepper is unable to satisfy the deficiency
= 65,000 - 7,000 - 25,000
= 33,000
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