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A local partnership is liquidating and has only two assets (cash of $10,000 and land with a cost of $35,000). All partnership liabilities have been paid. All partners are personally insolvent. The partners have capital balances and share profits and losses as follows. Brown, capital (40%) $ 25,000 Fish, capital (30%) 15,000 Stone, capital (30%) 5,000 If the land is sold for $25,000, how much cash does each partner receive in a final settlement

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Answer:

The amount of cash that each partner receives in a final settlement is as follows:

Brown  = $14,000

Fish =     $10,500

Stone =  $10,500

Explanation:

a) Data and Calculations:

Partnership assets:

Cash = $10,000

Land (cost) = $35,000

Capital balances and sharing of profits and losses:

Brown, capital (40%) $ 25,000

Fish, capital (30%) 15,000

Stone, capital (30%) 5,000

Cash realized from land = $25,000

Total cash available for distribution = $35,000 ($10,000 + $25,000)

Distribution:

Brown (40%) = $14,000 (40% of $35,000)

Fish (30%) =     $10,500 (30% of $35,000)

Stone (30%) =  $10,500 (30% of $35,000)

Total                $35,000

b) When a partnership is liquidated, the partners share the net assets of the partnership in their profit and loss sharing ratios.  If the net assets are negative, they also share the balance in their profit and loss sharing ratios and make the required contributions.

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