1. A partnership agreement provides that, at sale, cash proceeds are distributed

Question

1.    A partnership agreement provides that, at sale, cash proceeds are distributed first to Mr. Smith in an amount equal to his original investment less any cash distributions previously received, then split 50-50 between Mr. Smith and Ms. Jones. Assume that the cash flows from sale are $1 million. How much would Mr. Smith receive if his initial investment was $400,000 and he previously received $25,000 in distributions?

(A)  $312,500

(B)  $500,000

(C) $375,000

(D) $487,500

(E)  $687,500

(A)  $312,500

(B)  $500,000

(C) $375,000

(D) $487,500

(E)  $687,500

Explanation / Answer

As per Partnership Agreement -

Cash Proceeds first distributed to Mr. Smith of Original Investment less previous distribution received.

Mr. Smith Share Calculation:

Particulars Amount Total Cashflow 1,000,000 Less : Initial Investment of Smith less previous distribution shres 375,000 Total Distribution Amount amongst Partners 625,000

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