A partnership currently holds three assets: cash, $10,000; land, $35,000; and a
ID: 2521729 • Letter: A
Question
A partnership currently holds three assets: cash, $10,000; land, $35,000; and a building, $50,000. The partnership has no liabilities. The partners anticipate that expenses required to liquidate their partnership will amount to $5,000. Capital balances are as follows: The partners share profits and losses as follows: Ace (30 percent), Ball (30 percent), Eaton (20 percent), and Lake (20 percent). If a preliminary distribution of cash is to be made, what is the amount of safe payment that can be made to each partner?
Explanation / Answer
Ans)
Ball gets $143, Eaton gets $1,429, and Lake gets $3,428.
Ace Ball Eaton Lake
Reported balances ......................... $25,000 $28,000 $20,000 $22,000
Maximum losses on land and building
($85,000) split on a 3:3:2:2 basis (25,500) (25,500) (17,000) (17,000)
Estimated liquidation expenses
($5,000) split 3:3:2:2....................... (1,500) (1,500) (1,000) (1,000)
Potential balances .......................... $(2,000) $ 1,000 $ 2,000 $ 4,000
Potential loss from Ace ($2,000) split
on a 3:2:2 basis ............................. 2,000 (857) (571) (572)
Cash distributions .......................... $ 0 $ 143 $ 1,429 $ 3,428
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