Question

Liquidating Partnerships Prior to liquidating their partnership, MacPherson and Dunn had capital accounts of $35,000 and $66,000, respectively. Prior to liquidation, the partnership had no cash asse other than what was realized from the sale of assets. These partnership assets were sold for $120,000. The partnership had $3,000 of liabilities. MacPherson and Dunn share Income and losses equally. Determine the amount received by MacPherson as a final distribution from liquidation of the partnership. X 1. Begin with MacPherson equity prior to liquidation. 2. Adjust the equity for the gain or loss on the sale of the assets. 3. Allocate the gain/loss to partner capital accounts based on the income-sharing ratio. 4. Add beginning equity plus allocated gain/loss to determine liquidation distribution

Answer 1

The amount received by MacPherson as a final distribution from liquidation

$43,000

Working:

Carrying value of non-cash asset prior to liquidation ($35,000 + 66000 + 3,000)	$104,000
Sale of Asset	$120,000
Profit on Liquidation (120,000 - 104,000)	$16,000
Since MacPherson and Dunn share income and losses equally
MacPherson share of loss (50% * $16000)	$8,000
MacPherson capital account balance	$35,000
MacPherson cash distribution (35,000 + 8000)	$43,000

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