Ariel, Mandy, and Tisha are partners in a tanning salon. The assets, liabilities

Question

Ariel, Mandy, and Tisha are partners in a tanning salon. The assets, liabilities, and capital balances as of July 1, 2010, are as follows:
Assets: $480,000
Liabilities: 160,000
Ariel, Capital: 140,000
Mandy Capital: 40,000
Tisha, Capital: 140,000

Because competition is strong, business is declining, and the partnership has no cash, the partners have decided to sell the business. Ariel, Mandy, and Tisha share income and losses in a ratio of 3:1:1, respectively. The assets were sold for $260,000, and the liabilities were paid. Mandy has no other assets and will not be able to cover any deficits in her Capital account.

How will the ending cash balance be distributed to the partners?
For Ariel:
I get 176,000 - taking the capital balance , Debit Liability of 96000 (160000X.6) and crediting the loss sale on assets of 132000 (220000X.6)
For Mandy:
I get 28000
She has a debit balance?? so I debited the Liability of 32000 (1600000X.2) and credited 44000 (220,000X.2)
For Tisha:
I get 152000
Debit 32000 and credit 44000 like I did for Mmandy
All of my answers were wrong and I do not know how to solve it
Was I suppose to take the partners with credit balance and based on their income/liability ratio divide Mandy liabilities ( Capital deficit) to them?
Thanks for the help

Explanation / Answer

JE
Cash = Debit 260,000
Other Assets = Credit 480,000
Loss on Sale of Assets = 220,000

Paying off the Liabilities;

260,000 - 160,000 = 100,000 in Cash remain to distribute

Losses are Divided As Follows;

Ariel = 3/5 * 220,000 = 132,000
Mandy = 1/5 * 220,000 = 44,000
Tisha = 1/5 * 220,000 = 44,000

Deducting Losses From the Capital Accounts;
Ariel = 140,000 - 132,000 = 8,000
Mandy = 40,000 - 44,000 = -4,000
Tisha = 140,000 - 44,000 = 96,000

Note that there is 100,000 in cash available to distribute, but Ariel and Tisha require a total of 104,000. Mandy legally must contribute 4,000 to the partnership.

Because Mandy cannot pay, however, the remaining two partners must absorb this loss.

Remaining partners share of profit and loss add up to 80%

Ariel = 0.6/0.8 = 0.75 * 4000 = 3000
Tisha = 0.2 / 0.8 = 0.25 * 4000 = 1000

The two other partners must give up Mandy's loss in order to distribute assets properly or pay off creditors, etc.

Ariel = 8,000 - 3000 = 5,000
Tisha = 96,000 - 1000 = 95,000
Total Cash Distributed = 100,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.