Homework Answers
Answer: At the time of liquidation of partnership firm, at first the outside liabilities of the partnership firm is settled and then if any cash remains then it is distributed amongst partners in their capital ratio.
In the given question, the available cash is $400,000 whereas the Accounts payable are of $200,000, hence at first these accounts payable would be settled from cash.
Therefore, cash remaining after settling accounts payable is $200,000 ($400,000 - $200,000).
As mentioned in question $10,000 would be set aside for contingent expenses.
Hence the cash available for distribution amongst partners is $190,000 ($200,000 - $10,000) which would be distributed amongst parner's capital ratio.
The capital of Abe, Barr and Cane is $135,000, $216,000 and $49,000 respectively. Therefore, the capital ratio of Abe, Barr and Cane is 135 : 216 : 49.
Therefore the share of Barr is 216/400 (135+216+49).
The amount of cash Barr should receive is:
= ($190,000 * 216)/400 = $102,600.
Therefore, Barr should receive $102,600 in the first distribution.
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