Turner, Roth, and Lowe are partners who share income and loss in a 1:4:5 ratio.

Question

Turner, Roth, and Lowe are partners who share income and loss in a 1:4:5 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, $126,000; total liabilities, $78,000; Turner, Capital, $2,500; Roth, Capital, $14,000; and Lowe, Capital, $31,500. The cash proceeds from selling the assets were sufficient to repay all but $28,000 to the creditors. Required: a. Calculate the loss from selling the assets. b. Allocate the loss from part a to the partners. c. Determine how much, if any, each partner should contribute to the partnership to cover any remaining capital deficiency.

Explanation / Answer

1. Calculation of Loss from selling the assets.

Calculation of Cash Proceeds from sale of asset:

As given in the question, assets were sold for a price as to repay all liabilities except for creditors of $28,000

Cash proceeds from sale of assets = $78,000 - 28,000 = $50,000

Loss on sale asset = $50,000 - 126,000 = -$76,000

2. Loss on sale of asset is allocated on the basis of profit sharing ratio

Loss = $76,000

Profit sharing ratio = 1:4:5

Turner Loss in sale of asset = 76,000 / 10 x 1 = $7,600

Roth Loss in sale of asset = 76,000 / 10 x 4 = $30,400

Lowe Loss in sale of asset = 76,000 / 10 x 5 = $38,000

3. Calculation of Captial Deficiency of each partner after allocation of losses

Turner = $2,500 - $7,600 = -$5,100

Roth = $14,000 - $30,400 = -$16,400

Lowe = $31,500 - $38,000 = -$6,500

To cover the capital deficiency each partner should contribute the following amounts:

Turner - 5,100 ; Roth - 16,400; Lowe - 6,500

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