Turner, Roth, and Lowe are partners who share income and loss in a 1:3:6 ratio.

Question

Turner, Roth, and Lowe are partners who share income and loss in a 1:3:6 ratio. After lengthy disagreements among the partners and several unprofitable periods, the partners decide to liquidate the partnership. Immediately before liquidation, the partnership balance sheet shows total assets, $128,000; total liabilities, $96,000; Turner, Capital, $1,100; Roth, Capital, $7,975; and Lowe, Capital, $22,925. The cash proceeds from selling the assets were sufficient to repay all but $29,500 to the creditors. (a) Calculate the gain (loss) from selling the assets.

Allocate the gain (loss) to the partners. (Do not round intermediate calculations. Losses and deficits should be indicated with a minus sign.)

Determine the amount of the remaining liability to be paid by each partner. (Do not round intermediate calculations.

(b)

Allocate the gain (loss) to the partners. (Do not round intermediate calculations. Losses and deficits should be indicated with a minus sign.)

(c)

Determine the amount of the remaining liability to be paid by each partner. (Do not round intermediate calculations.

Explanation / Answer

In partnership, liquidation has four steps-:

In the present problem, the cash proceeds from selling the assets is sufficient to repay but $ 29,500 to creditors.

Gain / ( loss) from selling the assts are computed by using following formula

= Cash on sale of non cash assets - value of non cash assets

Now $ 29500 is to be born by shareholders in their capital ratio.

Amount of remaining liability is to be paid by partner i.e. $ 6650

Assume cash proceeds from non cash assets are $ 100,000.This is to be distributed among partners in profit sharing ratio

Turner Roth Lowe Capital 1100 7975 22925 Less    Liabilities to be born by shareholders 2950 8850 17700 Add cash proceeds from assets     10000 30000 60000 Net Income / (Loss) -11850 -30875 -54775

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