Concept explainers
a
Liquidation of
Requirement 1
the amount of cash each partner will receive when profit and loss sharing ratio is 3:3:2:2
a
Answer to Problem 16.7E
When profit and loss sharing ratio for partners N, O, P, and Q, is 3:3:2:2 each partner will get payments as follows:
N - $0
O - $42,857
P - $53,572
Q - $8,571
Explanation of Solution
| N 30% | O 30% | P 20% | Q 20% | |
| Capital balance at beginning | 15,000 | 75,000 | 75,000 | 30,000 |
| Loss on sale of asset $190,000 − 100,000 = $90,000 | (27,000) | (27,000) | (18,000) | (18,000) |
| Balance after allocation of loss | (12,000) | 48,000 | 57,000 | 12,000 |
| Distribution of deficit of insolvent partner N | 12,000 | |||
| O $12,000 x 30/70 | (5,143) | |||
| P $12,000 x 20/70 | (3.428) | |||
| Q $12,000 x 20/ 70 | (3,429) | |||
| Capital after distribution of N’s deficit | 0 | 42,857 | 53,572 | 8,571 |
| Payment to partners | 0 | (42,857) | (53,572) | (8,571) |
b
Liquidation of partnership: Winding-up and liquidation of the partnership begin after its dissolution. The winding-up process includes the transactions necessary to liquidate the partnership, such as collection of receivables disposal of noncash assets, payment of partnership’s obligations and distribution of any remaining net balance to the partners, in cash according to their capital interests. If partnership agreement does not have any provisions on liquidation or any liquidation ratio or profits or loss ratio for distribution of remaining balance it is distributed using normal profit and loss ratio during partnership’s operation.
Requirement 2
the amount of cash each partner will receive when profit and loss sharing ratio is 3:1:2:2
b
Answer to Problem 16.7E
When profit and loss sharing ratio for partners N, O, P, and Q, is 3:1:2:2 each partner will get payments as follows:
N - $0
O - $63,750
P - $41,250
Q - $0
Explanation of Solution
| N 30% | O 10% | P 20% | Q 20% | |
| Capital balance at beginning | 15,000 | 75,000 | 75,000 | 30,000 |
| Loss on sale of asset $190,000 − 100,000 = $90,000 | (27,000) | (9,000) | (27,000) | (27,000) |
| Balance after allocation of loss | (12,000) | 66,000 | 48,000 | 3,000 |
| Distribution of deficit of insolvent partner N | 12,000 | |||
| O $12,000 x 10/70 | (1,714) | |||
| P $12,000 x 30/70 | (5,143) | |||
| Q $12,000 x 30/ 70 | (5,143) | |||
| Capital after distribution of N’s deficit | 0 | 64,286 | 42,857 | (2,143) |
| Distribution of Q deficit | 2,143 | |||
| Q $2,143 x 10/40 | (536) | |||
| P $2,143 x 30/40 | (1607) | |||
| Capital after distribution of Q’s deficit | 0 | 63,750 | 41,250 | 0 |
| Payment to partners | 0 | (63,750) | (41,250) | 0 |
c
Liquidation of partnership: Winding-up and liquidation of the partnership begin after its dissolution. The winding-up process includes the transactions necessary to liquidate the partnership, such as collection of receivables disposal of noncash assets, payment of partnership’s obligations and distribution of any remaining net balance to the partners, in cash according to their capital interests. If partnership agreement does not have any provisions on liquidation or any liquidation ratio or profits or loss ratio for distribution of remaining balance it is distributed using normal profit and loss ratio during partnership’s operation.
Requirement 3
the amount of cash each partner will receive when profit and loss sharing ratio is 3:1:2:4
c
Answer to Problem 16.7E
When profit and loss sharing ratio for partners N, O, P, and Q, is 3:1:2:4 each partner will get payments as follows:
N - $0
O - $60,000
P - $45,000
Q - $0
Explanation of Solution
| N 30% | O 10% | P 20% | Q 40% | |
| Capital balance at beginning | 15,000 | 75,000 | 75,000 | 30,000 |
| Loss on sale of asset $190,000 − 100,000 = $90,000 | (27,000) | (9,000) | (18,000) | (36,000) |
| Balance after allocation of loss | (12,000) | 66,000 | 57,000 | (6,000) |
| Distribution of deficit of insolvent partner N, Q | 12,000 | 6,000 | ||
| O $18,000 x 10/30 | (6,000) | |||
| P $12,000 x 20/30 | (12,000) | |||
| Capital after distribution of N’s & Q’s deficit | 0 | 60,000 | 45,000 | 0 |
| Payment to partners | 0 | (60,000) | (45,000) | 0 |
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