Problem

Adjustment of capital balances and lump-sum liquidation. Palmyra Tooling is a partnershi...

Adjustment of capital balances and lump-sum liquidation. Palmyra Tooling is a partnership owned by Crawford, Meyer, and Jensen. Capital balances (deficits) and profit and loss percentages are as follows:

The partnership agreement grants each of the partners a single vote and requires a majority vote to approve certain partnership actions including the liquidation of the partnership. Crawford and Meyer, as founders of Palmyra Tooling, have seen the company experience significant growth and then lose significant market share in the past five years due to local and foreign competition. Given the near-term prospects of continuing difficulties and the further erosion of their capital balances, Crawford and Meyer have voted to liquidate the business. As of December 31, 2015, book values differ from net realizable values as follows (all other assets/ liabilities can be disposed of at book value):

Unlike his partners, Jensen feels that the company can restructure itself and that liquidation is not appropriate. Jensen is unable to persuade his partners and has offered to personally acquire Crawford’s and Meyer’s interests for $10,000 and $70,000, respectively. Unsure about the net personal assets of the individual partners, Meyer seeks your advice regarding whether it should accept Jensen’s offer.

How would you adviseMeyer?

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Solutions For Problems in Chapter 14