The partnership of Winn, Xie, Yang, and Zed has the following balance sheet: Zed
ID: 2514771 • Letter: T
Question
The partnership of Winn, Xie, Yang, and Zed has the following balance sheet:
Zed is personally insolvent, and one of his creditors is considering suing the partnership for the $3,000 that is currently owed. The creditor realizes that this litigation could result in partnership liquidation and does not wish to force such an extreme action unless Zed is reasonably sure of obtaining at least $3,000 from the liquidation.
Determine the amount for which the partnership must sell the other assets to ensure that Zed receives $3,000 from the liquidation. Liquidation expenses are expected to be $40,000. (Do not round intermediate calculations.)
Cash $ 55,000 Liabilities $ 63,000 Other assets 318,000 Winn, capital (50% of profits and losses) 85,000 Xie, capital (30%) 105,000 Yang, capital (10%) 65,000 Zed, capital (10%) 55,000Explanation / Answer
As per Balance sheet, Firm's current liabilities are $63,000. At the time of liquidation, Liquidation expenses of $40,000 will be paid. Total amount to be paid would be $103,000.
Currently, Firm is having cash of $55,000 which will be utilized to pay off. After paying off with $55,000, Firm will be left with a liability of $48,000 ($103,000-$55,000).
Calculation of Minimum Amount from Other Asset:
Liability to be paid from Other Asset: 48,000
Remaining capital as per (minimum Share of Zed -3000): 30,000 (3000/10%)
Mimimum Amount to be received from Other asset= 78,000
Reconciliation:
Other Asset= 78,000
Add: Cash= 55,000
Total Assets= 133,000
Less: Liqui Expenses= 40,000
Less: Current Liabilities= 63,000
Net Assets= 30,000
Share in Net assets for Zed would be 10% i.e. 3,000.
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