Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter 14, Problem 9.4E
To determine

Concept Introduction:

Liquidation of partnership refers to the shutting of the firm i.e. putting end to the partnership business. This can be due to the death of any partner or on the closure of the business or any other reason. Sometimes, the liquidation takes place to initialize a new business entity with new partners.

The contribution of A towards the partnership liabilities in case of selling all assets for $135,000 and after contribution of personal assets of partners having deficit capital balance towards those deficits considering the information of Case B.

Expert Solution & Answer
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Answer to Problem 9.4E

The partner A’s personal creditors will receive from the interest of A in partnership an amount of $3,200 only.

Explanation of Solution

The partnership given in the question has three partners who are entitled to the equal profit sharing ratio. The capital balances of the three partners are:

Partner A has $34,000 , Partner B has ($15,000) , and Partner C has $11,000 .

The assets valued at $180,000 for $135,000 considering the information of Case B at the time of liquidation of the partnership.

Computation of capital surplus or deficit of partners at the time of liquidation:

    ParticularsCashOther AssetsLiabilitiesCapital ACapital BCapital C
    Opening balance$0$180,000$150,000$34,000($15,000)$11,000
    Sale of assets$135,000($180,000)$0($15,000)($15,000)($15,000)
    Payment of liabilities($135,000)($135,000)
    Balances$0$0$15,000$19,000($30,000)($4,000)
    Contribution by Partner B and C$18,200$15,000$3,200
    Payment of liabilities($15,000)($15,000)
    Balances$3,200$0$0$19,000($15,000)($800)

Now, the table for computing the amount of contribution by partner B against the deficit amount is as follows:

    ParticularsAmount% of total Personal assets allocation
    Partnership deficit$30,00033%$15,000
    Personal Liabilities$60,00067%$30,000
    Total$90,000$45,000

Hence, the amount of contribution by partner B towards capital deficit is $15,000 .

The table for computing the amount of contribution by partner C against the deficit amount is as follows:

    ParticularsAmount% of total Personal assets allocation
    Partnership deficit$4,00010%$3,200
    Personal Liabilities$36,00090%$28,800
    Total$40,000$32,000

Hence, the amount of contribution by partner C towards capital deficit is $3,200 .

As after compensating the deficit capital balances of partner B i.e. ($15,000) and partner C i.e. ($800) with the surplus balance of partner A i.e. $19,000 , the balance remaining incapital with A is $3,200 which is only available for the personal creditors of partner A.

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