6) Martin, Pearson, and Henderson are partners sharing profits and losses in a 2

Question

6) Martin, Pearson, and Henderson are partners sharing profits and losses in a 2:1:1 ratio. Their capital balances are $30,000, $25,000, and $20,000, respectively. Because of an economic turndown, they have decided to liquidate. After all assets are sold and the creditors paid, $43,000 cash remains in the business checking account. a. Determine the amount of their losses by using the accounting equation. b. Using the profit-loss ratio, determine the amount of loss to be distributed to each partner, and determine their new capital balances. c. Determine the amount of cash each partner will receive in the final distribution. 7) Baker, Marshall, and Perryman share profits and losses equally and begin their business with investments of $20,000, $15,000, and $8,000, respectively. They have been unprofitable in their business venture and decide they must liquidate. After all the assets are sold and all debts paid, S16,000 cash remains in the business checking account a. Determine the amount of their losses by using the accounting equation. b. Using the profit-loss ratio, determine the amount of loss allocated to each partner, and determine their new capital balances. c. Calculate the amount of cash, assumptions below. if any, each partner will receive under the different (I) Perryman has personal assets and pays the amount she owes to the (2) Perryman has no personal assets and does not pay the amount she owes to the partnership

Explanation / Answer

6. Accounting Equation : Total Assets = Total Liabilities + Capital

Hence Cash + Loss = Capital Balances

Loss = Capital Balance - Cash

7.

Perryman has a debit balance in her capital account.

a Capital Balances Martin 30000 Pearson 25000 Henderson 20000 Total Capital Balance 75000 Less: Cash Balance 43000 Loss 32000

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