Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 10, Problem 9P
To determine

Identify the correct option for the amount of cash that person B will receive before any of the other partners collect any cash.

Expert Solution & Answer
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Answer to Problem 9P

Option c. The amount of cash that person B will receive before any of the other partners collect any cash is $17,000.

Explanation of Solution

Calculate the amount of cash available:

Cashavailable=AssetsLiabilitiesLiquidationexpenses=$400,000$234,000$20,000=$400,000$254,000=$146,000

Calculate the maximum allocated loss to each partner:

MaximumallocatedlosstopersonK=$59,00040%=$59,000×10040=$5,900,00040=$147,500

Now, find for all the other partners:

Maximumallocatedlosstoperson M=$39,00030%=$39,000×10030=$3,900,00030=$130,000

Now, find for partner B:

Maximumallocatedlosstoperson B=$34,00010%=$34,000×10010=$3,400,00010=$340,000

Now, find for partner J:

MaximumallocatedlosstopersonJ=$34,00020%=$34,000×10020=$3,400,00020=$170,000

Person M shares a minimum amount of loss and is in the most feasible condition with 30% share and maximum allocated loss of $130,000.

Calculate the distribution of loss of $130,000 to all the partners

LosstopersonK=$130,000×40%=$52,000LosstopersonM=$130,000×30%=$39,000

Now, loss to other partners

LosstopersonB=$130,000×10%=$13,000LosstopersonJ=$130,000×20%=$26,000

Loss distribution to all the partners

Particulars Person K Person M Person B Person J
     
 Beginning balance $    59,000 $   39,000 $  34,000 $  34,000
 Loss $  (52,000) $ (39,000) $ (13,000) $ (26,000)
 Ending balance $      7,000 $            - $  21,000 $    8,000

Table: (1)

Calculate maximum allocated loss to other three partners

MaximumallocatedlosstopersonK=$7,00047=$7,000×74=$49,0004=$12,250

Now, find for partner B

Maximumallocatedlosstoperson B=$21,00017=$21,000×7=$147,000

Now, find for partner J

MaximumallocatedlosstopersonJ=$8,00027=$8,000×72=$56,0002=$28,000

Person K shares a minimum amount of loss and is in the most feasible condition with 40% share and maximum allocated loss of $12,250.

Calculate the distribution of loss of $12,250 to all the partners

LosstopersonK=$12,250×47=$7,000

Now, loss to other partners

LosstopersonB=$12,250×17=$1,750LosstopersonJ=$12,250×27=$3,500

Loss distribution to all the partners

Particulars Person K Person B Person J
    
 Beginning balance $      7,000 $   21,000 $    8,000
 Loss $    (7,000) $   (1,750) $   (3,500)
 Ending balance $              - $   19,250 $    4,500

Table: (2)

Calculate maximum allocated loss to other two partners

Maximumallocatedlosstoperson B=$19,25013=$19,250×3=$57,750

Now, find for partner J

MaximumallocatedlosstopersonJ=$4,50023=$4,500×32=$13,5002=$6,750

Person J shares a minimum amount of loss and is in the most feasible condition with 20% share and maximum allocated loss of $6,750.

Calculate the distribution of loss of $6,750 to all the partners

LosstopersonB=$6,750×13=$2,250LosstopersonJ=$6,750×23=$4,500

Loss distribution to all the partners

Particulars Person B Person J
   
 Beginning balance $    19,250 $     4,500
 Loss $    (2,250) $   (4,500)
 Ending balance $    17,000 $            -

Table: (3)

a.

$12,250 is the incorrect option because this is not the amount of cash that person B will receive before any of the other partners collect any cash.

b.

$14,750 is the incorrect option because this is not the amount of cash that person B will receive before any of the other partners collect any cash.

c.

$17,000 is the correct option because this is the amount of cash that person B will receive before any of the other partners collect any cash.

d.

$19,500 is the incorrect option because this is not the amount of cash that person B will receive before any of the other partners collect any cash.

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