Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona, $30,000 Cr. How much cash should be distributed to Everett assuming that Miguel pays the deficiency?

Question

Quizplus · Accepted Answer

The total income of the partnership can be calculated as follows:
1x + 2x + 3x = 6x, where x is the same for all partners
So, each partner's share of the income is:
Everett = 1/6 of the income, which is $50,000 credit
Miguel = 2/6 of the income, which is $(40,000) debit
Ramona = 3/6 of the income, which is $30,000 credit

The total capital of the partners before distribution is:
$50,000 - $40,000 + $30,000 = $40,000

Since Miguel has a deficiency of $40,000, he needs to pay this amount to the partnership. Therefore, the total cash available for distribution is:
$40,000 + $40,000 = $80,000

Out of this amount, Everett is entitled to receive his capital credit of $50,000. Therefore, the remaining amount to be distributed to partners is:
$80,000 - $50,000 = $30,000

Hence, the cash that should be distributed to Everett is $50,000.

Everett, Miguel, and Ramona Are Partners, Sharing Income 1:2:3