BUSINESS LAW 380 Scenario: Dill and Edy formed a partnership. Edy\'s capital con
ID: 451889 • Letter: B
Question
BUSINESS LAW 380
Scenario: Dill and Edy formed a partnership. Edy's capital contribution is $10,000, and Dill's capital contribution is$15,000. The partnership agreement provides that profits are to be shared, with 40% of the profits going to Edy and 60% of the profits going to Dill.
Later, Edy made a $10,000 loan to the partnership when it needed working capital.
When the partnership decided to dissolve, its assets are $50,000 total, and its debts are $8.000.
How should the assets be distributed - in what specific amounts - and why? Show calculations.
Explanation / Answer
Loan provided by the partner is recorded as a partner's loan account and is not treated as his capital. Hence any loan by the partner doesnot affect the profit sharing ratio.
Therefore, assets will be distributes in the profit sharing ratio of 40:60 i.e 20000 and 30000 Dill and Edy respectively.
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