Question

A partnership has liquidated all assets but still reports the following account balances:

The partners split profits and losses as follows: Cisneros, 40 percent; Beck, 20 percent; Sadak, 10 percent; Emerson, 20 percent; and Page 10 percent.

Assuming that all partners are personally insolvent except for Sadak and Emerson, how much cash must Sadak now contribute to this partnership?

Answer 1

Business combination:

A business combination is the union of the small business units into one. The new combined unit is known as business combination. This is done for various purposes. A business combination generally increases the efficiency and productivity while reducing the costs.

Liquidation:

Liquidation is the process in which the company is dissolved and the profits and losses are distributed among the owners in a set method. This situation arises because of the death of the partners, insolvency etc.

B and P are both personally insolvent and have negative capital balances (after offsetting the loan from B) totaling $10,000 (B’s deficit, $4,000; P’s deficit, $6,000). Absorption by the other partners of these losses would be as follows (on a 40:10:20 basis):

C, who also is personally insolvent, now has a capital balance of ($714) that would have to be absorbed by S and E (on a 10:20 or 1/3:2/3 basis):