Answered: A partnership is currently holding…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A partnership is currently holding $200,000 in assets and $120,000 in liabilities. The partnership is to be liquidated, and $20,000 is the best estimation of the expenses that will be incurred during the process. The capital balances of the two partners at the start of the liquidation and the profit and loss ratios are shown below.

Kevin, Capital (40% of gains and losses)……………………………….…....$20,000

Michael, Capital (60% of gains and losses)………………………………….$60,000

The partners realize that Michael will be the first partner to start receiving cash. How much cash will Michael receive before Kevin collects any cash?

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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