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Bilbo, Frodo and Gandoff have had a successful law practice for many years, but

ID: 2473798 • Letter: B

Question

Bilbo, Frodo and Gandoff have had a successful law practice for many years, but have decided to retire and move to Rivendale. On January 1, 2015 when the 3 of them decided to terminate the partnership they had the following balance sheet:

Cash                    $50,000

A/R                $90,000

Supplies       $40,000

Equipment (net) $100,000

Building (net) $400,000

Land                 $300,000

Note payable   $200,000

Accounts payable $200,000

                       

Gandoff capital $80,000

Bilbo capital     $300,000

Frodo capital   $600,000

They share profits and losses equally.

On April 30th the partnership sold off the building for $150,000 and paid off the note payable.   (remember, Frodo took any safe payments he was entitled to in February and March but that Gandoff and Bilbo took no safe payments). ASSUME THAT ANY PARTNER WITH A NEGATIVE CAPITAL BALANCE CAN COVER THEIR SHORTAGE HOW MUCH DOES EACH PARTNER GET OR CONTRIBUTE TO THE PARTNERSHIP AT LIQUIDATION?

USING THE SAME INFORMATION AS E, EXCEPT THAT ANY PARTNER WITH A NEGATIVE CAPITAL BALANCE CANNOT COVER THEIR SHORTAGE; HOW MUCH DOES EACH PARTNER RECEIVE AT LIQUIDATION?  

Explanation / Answer

total liability

Note payable $200,000

Accounts payable $200,000

$400,000

less: liability paid

Cash ($50,000)

Building ($150,000)

total $200,000

totall loss $200,000 deduct from partner capital

Partners get at liquidation

Gandoff capital $80,000 less loss 66,667 = 13,333

Bilbo capital     $300,000 less loss 66,667 = 233,333

Frodo capital   $600,000 less loss 66,666 = 533,334

Note; no iformationavailable sale of other assets.