Question

The partnership of Winn, Xie, Yang, and Zed has the following balance sheet: Cash Other assets $ 43,000 Liabilities Winn, capital (50% of profits and losses) Xie, capital (30%) Yang, capital (10%) Zed, capital (10%) $ 66,000 73,000 90,000 53,000 43,000 Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $3,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $3,000 from the liquidation. Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $3,000 from the liquidation. Liquidation expenses are expected to be $28,000. (Do not round intermediate calculations.) * Answer is complete but not entirely correct. Minimum amount 231,000

Answer 1

In case of liquidation of the partnership, the partners get the residual money in the ratio of respective capital before liquidation. So, Capital ratio of Zed in the partnership = Zed capital Total capital = $43,000/ ($73,000+$90,000+$53,000+$43.000) Capital ratio of Zed in the partnership = 43/259 The amount Zed should get to pay off his personal debts = $3,000 The residual amount to be left for distribution to partners = $3,000/ (43/259) = $18.070 Total realization of the total assets = amount to be distributed to partners +Liq. expenses + liabilities = $18.070+$28.000+$66.000 = $112,070 The minimum amount to be realized from Other Assets = Total realization required - Cash Balance = $112,070 - $43000 The minimum amount to be realized from Other Asset = $69,070